YAGNESH HASMUKH DAVE
(Querist) 12 December 2013
This query is : Resolved
A PARTNERSHIP FIRM HAVING BUSINESS OF BUILDERS AND DEVELOPERS ENTERED DEVELOPMENT AGREEMENT OF LAND DURING THE YEAR 1990.NO WORK IS CARRIED OUT ONLY ADVANCE IS PAID.THE SAID LAND IS NOW SOLD TO ANOTHER BUILDER ON 13-03-2013 FOR RS 1,25,00,000/- OUT OF WHICH 25,00,0000/- PAYABLE TO ORIGINAL LANDLORD AND BALANCE RS 10000000/- TO THE PARTNERSHIP FIRM. WHETHER THE AMT OF CONSIDERATION BY PARTNERSHIP WILL TREATED UNDER CAPITAL GAIN WITH COST OF INDEX OR A BUSINESS PROFIT? WHETHER PARTNERSHIP FIRM HAS TO GET THE BOOKS OF A/C AUDIT U/S 44AB AS RS 10000000/- IS RECIEVABLE TOWARDS SALE OF LAND.
(Expert) 12 December 2013
What was the price payable for development rights? As I understand in joint development model, no consideration is determined and only a deposit is given. Hence as such there is no cost of acquisition of development rights.
Technically, capital gains can be claimed but the same is fraught with risk considering the case that company has never treated it as investment (there is no investment also, only deposit given), and department will treat it as business income.
Please examine your documentation and how you have treated the deposit in your books. Firm has not sold any land but only the development rights it had acquired. if the same is not shown as stock in trade in books, try to claim it as exempt capital gain (B C Srinivas Shetty case, no cost no capital gain). Make full disclosures to avoid penalty if ultimately it is held as business income.