Capital Gain under Joint Development agreement with Builder

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    Can anybody explain how capital gain will be calculated under joint agreement with builder with one small example.


    Hi Zed and Karan Sir,

    Can you respond
  3. ZED

    ZED Well-Known Member

    Hello Sunny Sir,
    I noticed that you are a practicing CA and therefore you will need lots of information on this topic. I will try to give basic example but development agreements are very vast and at times there are different methods for computation(all of which can be absolutely correct). Each case can be very specific depending upon the fact and most importantly the agreement. Therefore, we have to actually read the agreement before arriving at any opinion . Not to mention there are lots of litigations. Even I am also learning in this area. The example is very basic and subject to change if any fact is changed.

    Suppose one has a land of 10,000 sq feet.
    60% of (UDS)[Undivided Share] goes to the builder and 40% remains with the land owner.

    10 Flats will be constructed on that land and 60% of the flats will be of builder and 40% will be given to the land owner.

    Now, what has been transferred by the land owner is 60% of UDS and in consideration of that 60% , he is getting 40% of built up area.

    In any case, the consideration of 60% share will not be less than the stamp duty value (S.50D read with S.50C)

    There are many issues now like

    Which Stamp duty value (Land alone or of JV agreement)

    Can Govt. reckoner rate be referred to

    Date of transfer

    Date of acquisition of flats

    Exemption u/s 54F (S.54 can also come if we gave building to the builder and he reconstructed it, 60% flats he took and gave 40% to us)
    Whether there will be any discounting? [In exceptional circumstances, the landowner pays money to the builder. Very rare applicability][Refer rule 48-I]

    Amount of capital gain

    Full Value of consideration

    For real explanation, we really should use real example.
    I hope you are not very discontented.


    Thanks Zed !!! Got the basic idea. There are still lot of confusion . when capital gain will be taxable ?? at signing of JDA ? at the time of Signing of GPA ?? at the time of getting FLAT Possession ?? i read one article of KPMG where they have mentioned capital gain arises in the year of execution of JDA.
  5. ZED

    ZED Well-Known Member

    Dear Sir, I can understand how you might be feeling because it that was my condition (perhaps worse) when I started studying these agreements. You will have to read many articles sir, and it would be fun. As I said earlier, we have to actually read the contract in each case. There are many judgement, they require detailed study. Many acts are applicable for example Indian Easement Act (may or may not apply) , Transfer of Property Act is also relevant but not determinative . We also have Specific Relief Act for certain cases (where deal goes bad) , Indian Contract Act , Muslim Law (Treatment of capital gain can be different due to applicability of Muslim law, the exception has been provided by the Transfer of Property Act)

    To be honest even after all these, we still don't have much knowledge.
    There are so many conflicting judgements. Now, I simply ask the jurisdiction of the assessee and apply that judgement (if of H.C) which would be applicable to the assessee of that jurisdiction. Lower authorities (ITAT and CIT(A) can not give judgement contrary to the H.C judgement of the same jurisdiction (in respect of the same facts), they will have to apply that judgement even if its not sound and will have to provide a channel for appeal to the assessee, if not then their judgement can be treated as void due to Contempt of Court Act.

    Capital gain may arise at the time of execution of JDA or it may arise at a latter date when possession is given or possession is acquired , when new agreement is executed to give authority to the developer to sell the property (if he did not had this power earlier) and many other factors.

    Simply speaking if you are applying cap gain at the time of JDA, you are most probably under purview of S.53A of the Transfer of Property Act. But if the cap gain is of later stage then most probably you are applying provision of S.52 of the Indian Easement Act.
    Its pertinent to note that S.2(47)(v) makes a reference to S.53A of Transfer of Property Act but it is silent on S.52 of the Indian Easement Act.

    To be honest, at this point of time, I am myself not in a position to advice anyone in this regards. I too am learning this by taking whatever few cases I get for development agreement.
    One gains much more knowledge by handling a case then merely studying case laws and what I found so far is that client can be more knowledgeable than us. We sometimes get so much entangled in the provisions and the judgement and the minute details that our thinking is restricted, its the client who is able to see bigger picture clearly.

    I am sorry that I was not able to explain to you properly but theres too much in this thing and I am just at learning stage.
  6. ZED

    ZED Well-Known Member

    If I provide you with some cases then will you be able to study them in detail?
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