| Question And Answer | |
|---|---|
| Subject: | Receipt from Joint venture |
| Category: | Income-Tax |
| Querist: | Prakash Kulkarni |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | joint venture, Receipt |
| Date: | September 15, 2022 |
Assessee along with the family members are owners of land . Since they do not have any knowledge of construction and development of project, They have decided to join the hands with the developer in Joint venture . the main terms of Registered JV are as under :-
a. The two parties have decided to work on a Principal to Principal basis
b.The detail role and responsibility of the individuals and the Developer have been noted in the JV. The entire cost of construction will be borne by developers and assessee and his family members will not be responsible for any amount .
c. The Joint Venture Agreement explains the financial arrangements of the two parties. It describes the built-up sharing between the said individuals and the developer in the ratio of 56:44 . Sale will be effected by JV only and amount received by JV will be shared between them in ratio of 56:44
d. Joint Venture Agreement states that the agreement shall come to an end after the completion of the project, transfer of the property to the respective owners of unit purchaser and after fulfillment of all the terms specified in the agreement.
e.The assessee have received an interest free deposit – from the Developer with respect to the said Joint Venture. These amounts are interest free deposits which shall be refunded to the Developer as per the arrangement prescribed the Joint Venture Agreement.
f. Developer is following project completion method for recognizing the revenue of the project and therefore he has shown the amount paid to land owner out of booking receipts as advance towards land. and therefore the assessee and family members have also shown the amount received as advance in their books of accounts.
Issues :
- Whether the arrangement entered into by the individuals and the Developer results in the formation of a new entity?
- When is the land said to be transferred?
- How will the capital gain be calculated in the hands of the land owner?
- Implications if land held by the land owners was converted into stock – in – trade and then introduced in Joint Venture.
- When will the security deposit received by the individuals be liable to tax?
- Whether there will be any liability under GST on the owners of the land.
Pl guide.
There is a specific provision i.e., Section 45(5A) of the Income-tax Act, 1961 was introduced via Finance Act, 2017 for determining Capital Gain tax in cases where individual land holders enter into an agreement with the developers. Each individual assessee should compute his/her capital gains accordingly.
The Security deposit is refundable and hence not the income of the individual. Therefore the same cannot be taxed. Interest earned from the deposit will be taxed. One may have to study the facts and joint venture agreement to guide properly