About The Authors
I-5
Dr. RAJ K. AGARWAL
Dr. RAKESH GUPTA
Dr. RAJ K. AGARWAL
Dr. RAKESH GUPTA
Preface to Sixth Edition
In 2011, we came out with a book on the subject “Law Relating to Income Tax Search and Seizure”, incorporating our practical experience of professional practice of more than 25 years. The overwhelming response and appreciation received by the above book has encouraged us to address another complex income tax subject regarding tax issues of joint development arrangement of real estate.
Joint development of real estate by land owner and developer involves several intricacies and complexities from the civil and taxation point of view. Determination of the quantum and the year of taxability of the income generated by land owner and developer involves several complex tax issues.
There is no specific income tax provision under the Income Tax Act to address various tax issues relating to such special arrangement of development of real estate except introduction of section 45(5A) by the Finance Act, 2017. Joint development of real estate is a new phenomena and the income tax law in this respect is in the process of development by way of judicial pronouncements. However, Courts have, at times, rendered divergent views on various complex issues. Joint development of real estate involves various complex issues relating to VAT, GST, Stamp Duty Act etc. also but in this book we have addressed only accounting and income tax issues, which is the area of our specialization.
We have addressed tax issues relating to land owner and developer. In the case of joint development of real estate, the other stake holder is flat owner or buyer of real estate also. There are certain tax issues relating to buyer of real estate which have not been covered in the book.
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Finance Act, 2017 has introduced new section 45(5A) providing for chargeability of Capital Gain on transfer of asset in the hands of Land Owner in the case of joint development arrangement under certain circumstances. A new chapter has been added in the book “Analysis of Provision of Section 45(5A) alongwith controversial issues emanating therefrom.
The fourth edition of the book covers two new chapters relating to analysis of deeming provisions of sections 43CA, 50C, 56(2)( )( ) and 23(5) and analysis of provision of section 80-IBA granting deduction to developers for construction of affordable housing.
The fifth edition was published giving effect of the amendments made by Finance Act, 2022 and various court decisions rendered. There has been overwhelming response from the professionals and others about this book for which we express our gratitude and thanks. This edition is being published giving effect of the amendments made by Finance Act, 2023 and various court decisions rendered during last one year.
Development of law is a continuing process and with the passage of time and changing circumstances, new kind of issues and situations keep on emerging. We have tried to comprehend and address various tax issues which are faced by the land owner and developer, still there may be existing several more such issues. We welcome and invite suggestions in this regard from our esteemed readers so as to enrich the future edition of the book by incorporating such issues.
M. No. 9810002906, 9810420515
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rakesh@taxindia.net
E-mail :- raj@taxindia.net Dr. RAJ K. AGARWAL
Dr. RAKESH GUPTA
I-9 About the Authors I-5 Preface to Sixth Edition I-7 List of cases I-33 1 JOINT DEVELOPMENT ARRANGEMENT FOR REAL ESTATE 1.1 1 1.2 2 1.3 3 1.4 6 1.5 6 1.6 8 1.7 9 i 9 ii 10 iii 11 Contents
I-10 2 TAX ISSUES FOR REAL ESTATE DEVELOPER 2.1 13 i 13 ii 14 2.2 15 2.3 17 i i.e. 18 18 19 23 ii i.e. 26 26 27 31 2.4 32 2.5 34
I-11 35 37 2.6 38 2.7 39 2.8 41 2.9 41 2.10 42 2.11 43 2.12 44 2.13 46 2.14 50 2.15 51 2.16 52 2.17 54 2.18 55
I-12 2.19 55 2.20 56 2.21 58 2.22 60 2.23 61 2.24 65 2.25 65 2.26 66 2.27 66 2.28 66 2.29 67 2.30 68 2.31 69 2.32 70 2.33 71 2.34 72 2.35 73 2.36 74
I-13 2.37 a ia 75 2.38 76 2.39 76 3 HISTORY OF ACCOUNTING STANDARDS APPLICABLE TO REAL ESTATE DEVELOPER 3.1 78 3.2 79 3.3 79 3.4 81 3.5 81 3.6 82 3.7 82 3.8 85 3.9 87 4 ANALYSIS OF GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED 2012) 4.1 88 i - 89
I-14 4.2 90 i 90 ii 91 iii 91 iv - 92 4.3 92 i - 92 ii93 iii 95 4.4 97 i 97 4.5 98 i 99 99 100 101
I-15 101 102 103 103 ii 104 106 107107 109 iii 109 110 111 111 112 112 115
I-16 117 117 - 118 4.6 118 119 119 120 4.7 120 5 REVENUE RECOGNITION FOR REAL ESTATE DEVELOPER UNDER IFRS 5.1 123 5.2 124 5.3 125 5.4 128 5.5 128 5.6 129 5.7 132 6 IMPACT OF INCOME COMPUTATION AND DISCLOSURE STANDARD 6.1 135 6.2 135 6.3 136 6.4 136 6.5 137
I-17 6.6 143 6.7 146 6.8 148 6.9 150 7 TAX ISSUES FOR REAL ESTATE OWNER 7.1 151 7.2 152 i 153 ii 154 iii 155 7.3 156 7.4 157 i 47 158 ii 159 iii 162 162 173
I-18 178 v 47 18347 v 187 189 195 iv - 197 v 199 vi 199 vii 200 viii 201 ix 202 x 202 xi 203 7.5 206 i - 207 ii 208
I-19 iii 208 iv 210 v 214 vi 216 vii 217 7.6 217 7.7 217 7.8 218 i 219 ii 220 iii 222 iv 223 v 225 vi 226 7.9 226 8 CAPITAL ASSET VS. BUSINESS ASSET 8.1 230
I-20 8.2 234 234 237 8.3 239 8.4 241 i 241 ii - 244 iii - 246 iv 246 v 247 vi 247 9
9.1 248 9.2 248 9.3 249 9.4 250 9.5 251 9.6 256 i 256 ii 258 iii 259
ANALYSIS OF PROVISION OF SECTION 45(2) REGARDING CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE
I-21 iv 260 v 260 vi 261 vii 262 viii262 ix 264 x 14 265 xi - 266 9.7 266 10 ANALYSIS OF PROVISIONS OF SECTION 2(47) 10.1 47 271 10.2 47 272 10.3 47 272 10.4 47 273 10.5 47 275 i i - 275
I-22 ii ii 279 iii iii 280 iv iv 280 v v280 vi vi 283 vii v vi 47 284 10.6 v 286 i 286 ii 287 iii 289 iv 290 v47 v 292 vi 296 vii 47 v 297 viii 298
I-23 11 ANALYSIS OF PROVISION OF SECTION 50D 11.1 301 11.2 301 11.3 305 11.4 307 11.5 307 i - 307 ii 309 iii 309 iv 310 v - 311 vi 312 12 ANALYSIS OF PROVISION OF SECTION 45(5A) 12.1 313 12.2 314 12.3 316 12.4 316 12.5 323 i 323
I-24 ii 323 iii 324 iv 324 v 325 vi 326 vii 327 viii327 ix14 328 x 329 xi 329 12.6 331 13 TAXABILITY OF CAPITAL GAIN ARISING ON TRANSFER OF AGRICULTURAL LAND 13.1 iii 332 13.2 333 13.3 334
I-25 13.4 336 i 337 ii 338 iii 338 iv 340 v 340 vi 341 vii 341 viii 342 ix per se343 x 343 xi 344 13.5 345 13.6 346 13.7 347
I-26 14 ANALYSIS OF THE PROVISIONS OF SECTION 50C, SECTION 43CA, SECTION 56(2)(x)(b) & SECTION 23(5) 14.0 348 14.1 348 14.2 350 14.3 350 14.4 352 i 352 ii 352 iii 353 iv 353 v 354 vi 354 vii 356 viii 357 viiia 358 ix 359
I-27 x 359 xi 360 xii 361 xiii 361 xiv 362 xv 362 xvi 363 xvii) 363 xviii 364 xix 365 xx 366 xxi 367 14.5 367 14.6 367 14.7 369 14.8 369
I-28 i 369 ii 370 iii 371 iv 371 v372 vi 372 vii 372 viii - 373 ix - 373 x 374 14.9 x b 374 14.10 374 14.11 x b 385 14.12 x b 385A
I-29 i x 385A ii x 385A iii x - 385A iv - 385A v 385B vi 385B 14.13 385C 14.14 385C 14.15 385C 14.16 385D 14.17 385D i 385D 15
OF PROVISIONS
15.1 386 15.2 390 15.3 390
ANALYSIS
OF SECTION
80-IBA
I-30 i 390 ii 391 iii - 392 iv 394 v 395 vi 395 vii - 396 viii - 397 ix 397 x 397 xi 398 xii 398 xiii 398
I-31 xiv 400 xv 401 xvi 402 xvii 402A xviii 402B Appendix 1.1 405 Appendix 1.2 418 Appendix 1.3 426 Appendix 1.4 436 Appendix 1.5 443 Appendix 1.6 452 Appendix 1.7 460 Appendix 1.8 475
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12
2 CHAPTER TAX ISSUES FOR REAL ESTATE DEVELOPER
2.1 METHOD OF ACCOUNTING FOR REVENUE RECOGNITION FOR REAL ESTATE DEVELOPER
(i) Completed Contract Method (CCM)
-
13 Para 2.1
(
a) Features of Completed Contract Method (CCM)
(
b) Tax Implications of Completed Contract Method (CCM)
(ii) Percentage of Completion Method (PCM)
-
i.e.Para 2.1 14
(
a) Features of Percentage of Completion Method
(
b) Tax Implications of Percentage of Completion Method
2.2 APPROPRIATE METHOD FOR TAXABILITY OF REAL ESTATE DEVELOPERS
-
15 Para 2.2
business or profession-‘Guidance note on Accounting for Real Estate Transactions (Revised 2012)’ inter alia Para 2.2 16
2.3 JUDICIAL CONTROVERSY REGARDING ADOPTION OF COMPLETED CONTRACT METHOD (CCM) OR PERCENTAGE OF COMPLETION METHOD (PCM) BY THE REAL ESTATE DEVELOPER
.
17 Para 2.3
(i) Cases relating to year in dispute prior to 1st April, 2003 i.e. when old AS-7 was applicable -
(1)
Lastly, there is a concept in accounts which is called as the concept of Contract Accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, ‘Completed Contract Method’ and ‘Percentage of Completion Method’. To know the results of his operations, the contractor prepares what is called as Contract Account which is debited with various costs and which is credited with the revenue associated with a particular contract. However, the rules of recognition of cost and the revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard-7 (AS-7). They are - ‘Completed Contract Method’ and ‘Percentage of Completion Method’.”
(2)
“Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method.”
(a) Option of the assessee to Choose CCM or PCM CIT, Meerut Hyundai Heavy Industries Co. Ltd. CIT Bilahari Investment (P.) Ltd.Para 2.3 18
(3)
MKB (Asia) (P.) Ltd. CIT
(4)
CIT Doom Dooma India Ltd.-
(b) Adoption of Completed Contract Method (CCM) approved by the Courts i.e.
CIT Realest Builders & Services Ltd.
19
Para 2.3
CIT Triveni Engg. & Industries Ltd.-CIT Guttoffnungashutto Sterkrado Para 2.3 20
CIT V. S. Dempo & Co. Pvt. Ltd. -
CIT Otis Elevators Co. India Ltd. Abode Construction Ltd. ITO-
Dy.
21 Para 2.3
Asstt. CIT Rajesh Builders
Nandi Housing (P.) Ltd. Dy. CIT
H. M. Construction Jt. CIT -
Mutual Construction (P.) Ltd. Dy. CIT
-
-Para 2.3 22
CIT Moghul Builders & Planners
profits and gains arising out of construction and sale of flats by the assessee-builder had to be computed on the basis of handing over the possession of flats to the respective buyers. Tribunal has not committed any error, factual or legal, in applying the ratio of the judgment in Madgul Udyog CIT
—No
referable question of law arises—Madgul Udyog CIT applied
CIT Unique Builders & Developers
(
c) Adoption of Completion Contract Method (CCM) not Approved by the Courts and direction given to follow Percentage Completion Method (PCM) -
D. K. Enterprises ITO i.e.
23 Para 2.3
Taxation of Real Estate Developers & Joint Development Arrangements with Accounting Aspects
AUTHOR : RAJ K. AGARWAL , RAKESH GUPTA
PUBLISHER : TAXMANN
DATE OF PUBLICATION : APRIL 2023
EDITION : 6th Edition
ISBN NO : 9789356227415
NO. OF PAGES : 576
BINDING TYPE : PAPERBACK
DESCRIPTION
Rs.
This book is a complete guide to all matters pertaining to the taxation of real estate developers & joint development arrangements from an income tax & accounting perspective. This book addresses the tax issues relating to the following:
• Land Owner
• Developer
• Other Stakeholders, such as Flat Owners or Buyer of Real Estate
The Present Publication is the 6th Edition and has been amended by the Finance Act 2023. This book is authored by Dr Raj K. Agarwal & Dr Rakesh Gupta with the following noteworthy features:
• [Critical Income Tax Issues] relating to the following are covered:
o Determination of the year of transfer of capital asset
o Value of sale consideration in the case of joint development of the real estate, particularly when a joint development agreement is drafted in a complex manner
• [Analysis of Provisions]
o Section 2(47), i.e., the definition of ‘Transfer’ of Capital Asset
o Section 45(2), i.e., the Conversion of Capital Assets into Stock-in-trade
o Section 50D, i.e., the Fair Market Value deemed to be the Full Value of Consideration
o Deeming Provisions of Sections 43CA, 50C, 56(2)(x)(b) & 23(5)
o Section 80-IBA, i.e., the granting of deductions to developers for the construction of affordable housing
• [Analysis Chargeability of Capital Gains on Transfer of Asset in the hands of Land Owner] under sub-section (5A) to Section 45 of the Income Tax Act, 1961
• [Attraction of Capital Gains Tax Liability] in case of transfer of Agricultural Land
• [Analysis of various Judgments of ITAT & High Courts] applicable to the Land Owner and Real Estate Developer in the case of Joint Development of Real Estate
• [In-depth Analysis of Guidance Note] on Accounting for Real Estate Transactions (Revised 2012) issued by the ICAI, applicable to Real Estate Developer
• [Analysis of Applicability of the Principle of Revenue Recognition] to Real Estate Developer at different points in time
• [Analysis of Applicability of Income Recognition] to Real Estate Developer under IFRS & ICDS Regime
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1295 | USD 47