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Query

neha gupta (ca ) (188 Points)

10 July 2012

one of my client have this query.he gave his plot to a builder.he hd construct 4 floor n return 3 floor to the plot owner as of no cost.and one floor taken up by the builder by paying rs44 lakh amount to the owner.now i wanna ask is it taxable ltcg or not..?

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Ritesh Jain (CA, CS in Job) (675 Points)
Replied 11 July 2012

the FMV of 3 floors plus 44 lakh is consideration for 4th floor sale.

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Ritesh Jain (CA, CS in Job) (675 Points)
Replied 11 July 2012

Amount of income

In a development agreement what the Landowner is transferring is a portion of his land. And the consideration he is getting is in the form of builtup area on the portion of land retained by him.

The consideration in a development agreement can be computed in two ways. Firstly it is the market value of proportionate share in land which the landowner is transferring. Looking at it from another angle, it is the value of builtup area he is getting.

As the registration value of land would be lower than the market value the AO would resort to the second method in arriving at the value of sale consideration. Here, the value of builtup area is the cost of construction of the builtup area which the builder has incurred. It would be advisable to obtain a letter from the builder stating the per sq ft cost of construction incurred by him. This cost obviously will not include any interest cost or other expenses debited in the profit or loss account which are not directly related to cost of construction.

If the landowner has sold his share of the builtup area even before the construction is completed the consideration received on such sale would form part of the consideration for the original transfer of land. If he has sold part of his share of builtup area this will give rise to some complications in arriving at the total sale consideration. Because, in such a case it would be the sum of consideration received on sale and the cost of construction of the unsold portion.

If the landowner sells his portion of the builtup area just after construction, this will give rise to one more capital gain transaction. The first capital gain transaction would be a long term gain and the second one would give rise to long term gain as far as undivided share in land is concerned and a short term gain as far as builtup portion is concerned. The decision of the Madras High Court in CIT Vs Dr Ramachandra Rao ( 236 ITR 51 ) is relevant in this regard.

Ritesh Jain (CA, CS in Job) (675 Points)
Replied 11 July 2012

I assume that u r clear about when will the taxability arise..?????

neha gupta (ca ) (188 Points)
Replied 11 July 2012

but my problem is tht whether he will get sec 54 exemption.?

Ritesh Jain (CA, CS in Job) (675 Points)
Replied 11 July 2012

YES.. WHY NOT...!!!

If the land or property has been held for more than 3 years, the development agreement transaction will result in a long term gain and the landowner can claim benefits U/s 54, 54 EC and 54F.