A Joint Development Agreement is an agreement between a landowner and a real estate developer to build new projects. In a joint development, the landowner provides the land and the builder performs the construction and legal work. Except in certain circumstances, the capital gain is taxed in the year in which it is transferred under the existing provisions of section 45. The term “transfer” encompasses, among other things, any arrangement or transaction in which any rights are transferred in the execution of a contract’s part performance, even if the legal title is not transferred. In such a case, Joint Task Force (JTF) execution is required.
Since the Bombay High Court decision in Chaturbhuj Dwarkadas Kapadia’s case until the recent amendment in the 2017 Union Budget, the incidence of capital gains taxation on the execution of a development agreement of immovable property by an owner of immovable property has been a much-litigated issue. A new sub-section (5A) in section 45 was added to provide that if an assessee, whether an individual or a Hindu undivided family, enters into a specified agreement for the development of a project, the capital gains will be taxed as income in the previous year in which the competent authority issues a certificate of completion for the whole or part of the project. The stamp duty value of his share, whether land, building, or both, in the project on the date of issuing a said certificate of completion, as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset, according to the Union Budget 2017. It was also proposed that the benefits of this regime be denied to an assessee who transfers his share of the project to another person on or before the date of the certificate of completion’s issuance. It was also proposed that, in such a case, the capital gains as determined under the Act’s general provisions be deemed to be the previous year’s income.
Regardless of what is contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section shall, at the time of crediting such sum to the payee’s account or at the time of payment thereof in cash, by issue of a cheque or draft, or by any other mode, whirlpool the sum to the payee’s account. Provided, however, that where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, the capital gains shall be deemed to be the income of the previous year in which such transfer occurs, and the provisions of this Act, other than the provisions of this sub-section, shall apply.