We bought 43.25 acres of agricultural land near Sriperambudur, Chennai in 2006 and the lands do not fall under the ambit of section 2(14) of IT Act, as the same is outside the municipal limits (as per revised notification 11186 dated 28.12.1999) and the same falls under the jurisdiction of a Poonamallee Panchayat Union and lastly the population of the village is also < 10,000. The lands are held partly by our firm and partly by our company, which is in the field of manufacturing auto components. The lands were originally acquired for expansion of industry, but nothing (conversion) has been done on these lands. There is no agricultural activity on these lands, ever since we purchased. We now have a proposal to enter into a JDA with one of the leading real estate companies in India, to develop the above land into residential complexes and we have the following questions ?
a) Although the lands do not come under the ambit of section 2(14) of the IT Act, since our company/firm is not in the field of agricultural activity and also no agricultural activity is being carried out, whether the above lands would be treated as agricultural lands and exempt from Capital Gains Tax ?
b) Whether the characterization of the lands change, when once JDA is signed with the developer ? In such case, can the land be transferred into the individuals name (by sale deed) @ Market Value and the individuals would enter into JDA with the builder. This is done so that the capital gains tax can be avoided to the extent of sale deed value on market value (since being agricultural lands) – and treat the remaining proceeds, as business income. In such case, can only the stamp duty be paid and the sale proceeds be transferred at a later date ? What would be the views of the ITO, in such transactions ?
c) If the above is not possible (I,e if the above lands are not agricultural lands and cannot be exempt from Capital Gains Tax) – can the company/firm declare these lands as stock-in-trade @ market value, in their respective books of accounts and then enter into a JDA - so that a majority portion of the proceeds can be paid as LTCG and the remaining portion as business income. In case of declaration of these lands as stock-in-trade, what are the actions to be taken ? Should real estate activity be included in the partnership/board resolution ?
d) In case of JDA (revenue sharing model), when would the capital gains tax become payable ? Is it when the agreement is signed or when all the transactions are completed and handed over to prospective buyers ?
Kindly provide these answers and also your contact no. details for further clarifications.
Thanks
Hariharan
a) Although the lands do not come under the ambit of section 2(14) of the IT Act, since our company/firm is not in the field of agricultural activity and also no agricultural activity is being carried out, whether the above lands would be treated as agricultural lands and exempt from Capital Gains Tax ?
b) Whether the characterization of the lands change, when once JDA is signed with the developer ? In such case, can the land be transferred into the individuals name (by sale deed) @ Market Value and the individuals would enter into JDA with the builder. This is done so that the capital gains tax can be avoided to the extent of sale deed value on market value (since being agricultural lands) – and treat the remaining proceeds, as business income. In such case, can only the stamp duty be paid and the sale proceeds be transferred at a later date ? What would be the views of the ITO, in such transactions ?
c) If the above is not possible (I,e if the above lands are not agricultural lands and cannot be exempt from Capital Gains Tax) – can the company/firm declare these lands as stock-in-trade @ market value, in their respective books of accounts and then enter into a JDA - so that a majority portion of the proceeds can be paid as LTCG and the remaining portion as business income. In case of declaration of these lands as stock-in-trade, what are the actions to be taken ? Should real estate activity be included in the partnership/board resolution ?
d) In case of JDA (revenue sharing model), when would the capital gains tax become payable ? Is it when the agreement is signed or when all the transactions are completed and handed over to prospective buyers ?
Kindly provide these answers and also your contact no. details for further clarifications.
Thanks
Hariharan