Year of chargebility

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

18 May 2013 Assessee is a Pvt Ltd. Co. It has given its urban agricultural land for development to a builder on revenue sharing basic. The land is long term capital asset and the value as per stamp duty rate about is 10 cr. The revenue to be received by the company is 45% of gross sales receipts. The joint dev. agreement has been entered in Apr 2013. The project would commence in about 18 months time and the revenue would be received over a period of 5 years. Kindly let me know the year of charge to tax and under what head i.e Capital gain or capital gains + business income.Whether it would be conversion of capital asset to stock in trade and then business profit on the revenue share received. Thanks

TKKKKKK

TKKKKKK (Expert)
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18 May 2013 it is conversion of capital asset into stock in trade.

Guest

Guest (Expert)

19 May 2013 Such amount is chargeable as per section 45(2) which states the following

[(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]

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Querist : Anonymous

Querist : Anonymous (Querist)

19 May 2013 My further question is that after conversion of capital asset to stock in trade the company is entering into Joint Development Agreement on Revenue Sharing Basis.

My question is what is the point of taxability of the subsequent transaction of revenue sharing which will flow in the company over a period of 5 years starting from 2 years from now. Kindly let me know the concept of revenue recognition in such a transaction.

When will the capital gain liability to be discharged
Thanks