Taxability and taxable amount - Land possession

[sm surana]

Please advise the taxability issues including the year of taxability and taxable amount? Assessee bought a piece of land in F.Y. 09-10 for Rs. 8 lacs and entered into collaboration agreement. The gist of agreement is as follows : - ľ Date of agreement Sept. 2009 between assessee and developer. ľ Cost of construction to be born by developer. ľ Sharing of built up area with proportionate undivided ownership rights in land underneath. Assessee will get one floor and developer will get 2 floors. ľ Common areas will be used by both the parties. ľ Developer shall pay Rs. 10 lacs as proportionate cost of land for its share to assessee and also for equalising the share of assessee in allocation. ľ Assessee has handed over the possession of Land in Oct. 2009. ľ Developer to complete the construction within 12 month otherwise developer shall pay monthly penalty of Rs. 10,000/- to the assessee. ľ Assessee has irrevocably appointed the developer as lawful attorney in connection with construction. ľ Developer is free to negotiate with buyer (for its share) for sale. ľ Developer will issue the receipts under his signature.

AI Summary

Taxability of land transfers depends on accounting recognition and classification as stock in trade or investment, affecting business income or capital gains.
The year of taxability and taxable amount for the land-cum-collaboration arrangement depend on the assessee's method of accounting and revenue recognition and on whether the land is classified as stock in trade (taxable as business income) or as an investment (taxable as capital gains); facts include transfer of possession to the developer, developer bearing construction costs and paying the assessee for its share, and appointment of the developer as attorney for construction matters.