It is capital gain or business income

Tax queries 404 views 3 replies

sachin bhanushali

Taxation

38 Points Joined July 2010

Partnership firm is created, after same land is purchased by firm and registry made on the individual name of both partners

as registry was not allowed on firm name due to being agriculture land

All other process done, land become NA and development can be done on same

For development on same land Joint Venture is done in which landowner will recieve sharing at 25% of each sale and 75% remains with developer. Sale of premises , either shops or residential premises will be done by Land owner.

So what about income tax scenario ?

First party means land owner will be charged capital gain ? or it will be business income ?

capital gain will be charged @ 100% or only on 25% which firm receives ?

Income will be received in periodically basis devide by 4years

what about set off of losses done in first 2years, like office expenses, salaries, other expenses done on land for leveling and boundry etc

totally confused about taxation so till JV agreement pending for terms

please suggest best way for same. and how taxation will matter as well any way to save tax

Replies (3)

CA. Dushyant ZALA

PRACTISING C.A.

72 Points Joined February 2010

Sachin

Capital Gain :- 100 % . Since land ownership is with the fime by way of register in the name of its two partner. It is taxable yearwise when there is conveyance deed made for sale of property developed on the land.

Business Income :- 25% . It is business income since it is share received for Joint Venutre made for development of property.

Regarding Expenses for land leveing etc. it can be treated as cost of improvement for computing capital gain.

For loss set off . 25 % share of income from Joint Venture is considered.

sachin bhanushali

Taxation

38 Points Joined July 2010

Sir

All payments are made from partnership firm

so till it will be counted as personal asset ? we already calculated same as business asset due to payment from partnership firm

so how it can be 100% capital gain ?

only 25% shares received can be counted as capital gain,

but main problem is that as partnership firm is having nature of business as builders & developers

it can be treated as stock of firm ?

and if its stock of firm than income will be business income only

right ?

please help

CA. Dushyant ZALA

PRACTISING C.A.

72 Points Joined February 2010

Sachin.

My first reply is wittarget='_blank' rel='nofollow' hreference to your first post.

now for your second post and for fist question:-

In this case nature of business is relevant . If it is business other than builders & developers than still there is capital as per my first reply.

see ,payment are made from the firm. It becomes property of firm . It is treated as business assets when it is used for its business not oly when firm purchase any property . Here , It is land for which firm has entered into joint venure for devlopment on property.

and for second question:- if nature of business is builders and developers than I think there is no question of capital gain. there is only business income.