: As stated in the question itself, this is a case of transfer simplicitor by the land owner to the developers. Hence, section 45(1) would apply and not section 45(5A) of the Income Tax Act. Section 45 ( 5 A) is applicable, when the capital asset being land or building or both is transferred under a specified agreement.
The term specified agreement is defined in Explanation (ii) to section 45(5A) as under:-
“( i i) – “ Specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.”
This is not a case where the land owner has allowed the developer to develop a real estate project on such land under a specified agreement. Because the transferee is a developer does not make the agreement of sale as a specified agreement within the meaning of Explanation
(ii) to section 45(5A).
Accordingly, the assessee i.e. the transferor is liable to capital gain tax in the year in which the ownership of land is transferred. However, in the present case, the contract between the parties Smacks of a Joint Development Agreement ( JDA) as the developer has to give the constructed area along with some money as a consideration. Hence, unless and until, the land is developed by the developer, no amount is paid in consideration. To cover these circumstances, provisions of section 45(5A) are inserted by the Finance Act 2017 w.e.f. 01.04.2018. It starts with a non- obstante clause and states that where the capital gain arises to the assessee being an individual or HUF, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gain shall be chargeable to income tax as the income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority…….
The term “specified agreement” is defined in the Explanation as an agreement in which the owner of the land receives a share in constructed area in consideration even with or without payment in cash. Thus the agreement in the question is appears to be a joint development agreement and therefore, transferee i.e. the developer ’s name cannot be entered into the revenue’s record as land owner.
Further land owner ’s income tax liability will be postponed to future date i.e the date on which OC was received and the stamp duty value on the date of issue of such OC of the constructed area, as increased by any consideration received in cash shall be deemed to be the full of the consideration. Thus section 45 ( 5 A) has the effect of deferring the tax liability to the year of issuance of OC. In the present case, though the agreement is stated to be the transfer simplicitor, it is in the nature of JDA. The Department may treat it as JDA and compute the tax liability on the basis of stamp duty value in the year of issuance of OC.