Capital Gain Sec 45(5A) & GST RCM on TDR when Developer Alienates Share & Absconds

Respected Experts,

I seek legal clarity on a complex tax scenario involving a Joint Development Agreement (JDA) compromised by developer fraud.

Facts of the Case:

1. A Landowner entered into a registered JDA with a Developer in FY 2021-22 under an area-sharing ratio.

2. Prior to Completion Certificate (CC) issuance, the Developer fraudulently sold the Landowner's allocated flats to third parties via forged POA, defaulted on construction, and absconded.

3. Income Tax Dept. is invoking Section 45(5A) to demand Capital Gains tax based on the Stamp Duty Value (SDV) of the allocated share.

4. GST Dept. issued a notice claiming GST under Reverse Charge Mechanism (RCM) on Transfer of Development Rights (TDR) under Sec 9(3)/9(4) of the CGST Act.

Questions for Discussion:

1. Income Tax (Sec 45(5A)):

   • Can Capital Gains tax be legally levied under Sec 45(5A) when the consideration (allocated flats) never materialized due to third-party fraud and illegal alienation prior to CC?

   • Does the loss of allocated property rights due to fraud qualify as a deductible Capital Loss under Sec 70/74, or is it treated as a non-deductible personal loss?

2. GST (Notif No. 06/2019-CT(R)):

   • Is TDR a taxable supply of service, or does it fall under Entry 5, Schedule III (Transfer of Immovable Property / benefit arising from land)?

   • Can RCM liability for TDR be recovered from the Landowner when the Developer absconds without delivering the constructed units?

Looking forward to your valuable insights and relevant case laws.

Thanks & Regards,

Aashok Kumar Sharma