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Partner Land transfer to partnership firm or not?

21 November 2019

A agri land is registered in my and mother's nane jointly in MP . Now i want to enter in a partnership and want to construct a hotel and shops on that land. We would be running hotel business and leasing and selling shops.

1. Having read various threads and opinions, iam not sure whether the land is required to be registered in the name of partnership firm? If so it attract huge capital gain and stamp duty? Can we enter into partnership while land remain in the name of partners? Or can we lease the land from partners to firm?

2. Does registration or non registration will have any impact of transfer of land?

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6 Replies

Kapadia Pravin (17259 Points)
Replied 22 November 2019

You can not transfer Agri land to a partnership firm which is not permitted by States.

Secondly you can use Agri land for hotel and other commercial purposes. You have to first apply to Talati or State Land Department for change of land use that is Agri land to be made NA

After land becoming NA , you can freely use for Hotel construction. You can lease rent the land to partnership firm.

Since you are converting Agri land to NA, registration will be automatic coupled with payment of stamp duty and NA charges

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Akhil Suresh (81 Points)
Replied 22 November 2019

1. First convert the agricultural land into non agricultural purposes.

2. If you want to contribute the land as capital, it would definitely attract capital gains in you hand and stamp duty charges for registering the land in the name of partnership firm.

3. Alternatively, you can lease the land by entering into a lease agreement with the firm and charge a nominal rental fee.

4. If you want to contribute the land as capital contribution, the value recorded in the books of account of the partnership firm will be the Full value of Consideration. In case the value recoded in the books of accounts is less than the Value assessed as per Stamp Duty, then Section 50C comes into play. As per Section 50C, value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. It is also taxable in the hand of Partnership Firm under section 56(2)(x) for receiving the land for inadequate consideration.

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Kapil Agrawal (7 Points)
Replied 25 November 2019

Thanks Mr Akhil and Pravin.

I am aware of converting the land to NA. I could have leased the land from me to the partnership firm but again that will also involve stamp duty and I've to get the lease registered to get the loan and subsidy from tourism Dept and stamp on lease is not alone calculated on nominal rent but the land value is also considered and which ever is higher.

So I understand from your reply that I can't start partnership without bringing the land to the partnership firm as in future Income tax officer will raise issues. And as suggested this also attracts stamp duty and long-term capital gain tax as this is parental land. Also it would be difficult to sell shops as expenditure will be made in the firms account and shops will be sold in individuals name since I've not transfered the land in firms name and my expenditure to construct the shops will be disallowed.

So I see the only best option is to get the land relinquished from my mother into my single name as stamp duty is 0.5% in MP and work as proprietor to run the hotel and sell the shops.

Is this okay having seen all the scenarios?

Kapil

Kapadia Pravin (17259 Points)
Replied 25 November 2019

Your mother can gift her share of agri land to you by way of gift deed and then register it to delete your mother's name on 7/12.

After that convert Agri land into NA.

Then you can proceed for proprietory business model.

Kapil Agrawal (7 Points)
Replied 25 November 2019

Mr. Pravin

Gift deed is stamped @ 2.5% in MP in the blood relations. And then there is upkar and manicipal duties also which makes it around 6% altogether.

However relinquisment is stamped flat @ 0.5%. so this seems better.

Are you sure land title needs to be transferred from individual name to partnership name?

Also can't I work solely on the land which belongs jointly to my mother and me?

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Kapadia Pravin (17259 Points)
Replied 25 November 2019

You can work solely (Proprietory concern) with land remaining in joint holding

Loan and subsidy part you have to look into for their availability.

But relinquishment will involve agreement , calculation of deemed LTCG in your mother's name.

LTCG may not be taxable as it is Agri land if rural.