Capital Gains query on Joint Development Agreement

Hi Mr Karanth

,Consider the following two judgements:[Assessee must have acquired the right to receive profits - Capitalgains tax is attracted the moment the assessee has acquired theright to receive the profits and it is not necessary that theassessee should have actually received the profits. What the partiesdid subsequent to the year will not have any bearing on theliability to tax in respect of that year. If it subsequently happensthat the money is not actually received, that would be a capitalloss arising in the year when the money became irrecoverable - T.V.Sundaram Iyengar & Sons Ltd. v. CIT [1959] 37 ITR 26 (Mad.).Gains must be ascertainable - Capital gains have to be included onlyat the time they are ascertained. It cannot arise at any earlierdate if it is not known. The question of capital gains is inter-related with quantification of the amounts. If there are gains, theyshould be known - R. Dalmia v. CIT [1982] 133 ITR 169 (Delhi).]Now in your case, the assessee has given away his land in exchangefor a share in the building that's going to come up at the site ofthe land. The assessee certainly has acquired the right to receiveprofits, but have the profits been ascertained and quantified? Iguess not. So in my opinion, the computation of capital gains wouldbe deferred till the time the building is actually sold and theassessee's share turned over to him. You can't artificiallycalculate capital gains; it may be some years before the buildingfinally gets sold. A valuer cannot predict the sale considerationthat will be realized in future.In the Dalmia case, the court held that "the question of capitalgains is inter-related with a quantification of the amounts. Ifthere are gains they should be known. It seems plain, as at present,that the law is that you cannot file a return relating to capitalgains till you actually know how much gains you have made."What if you compute the capital gains now taking a presumptivefigure and later on the real estate market crashes and your clientends up losing on the transaction?Unless your client has been given assurance as to the receipt of acertain minimum amount no matter at what price the building is soldoff in future, I doubt whether he can be brought to CG tax in theyear of parting with his land.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=w0GPq_cSILhxBmfMnB3HbntH0IOd3VWyqGbvFOSCpZ7FJnspJtSgZMztRHdTz1Nmv4-g6iJYrZ24JBXTVRhYIWN-FHVeRKr6ozXkyw, Prashanth Karanth wrote:>> Dear Sri Vijay,> As you are aware Sec 2(47) of the Income taxact recognises exchange as a mode of transfer of a capital asset. Inthis case part of the land gets exchanged for the share in building.In that case is postponing of capital gains tax payment till thesale of building right? Is valuation from the approved valuer is theonly method admissible? What would be its significance if we areposponing taxability till the sale of the building coz in that casewe would have sale proceeds of building as a base for computation ofcapital gains? Is there any case law to this effect?>> Thanks & Regards>> Prashanth karanth>> VIJAY KAPUR wrote:> Dear Friend,>> Capital gain would arise when for the first time land has beengiven under JDA. Hence value of land on date of transfer under JDAwould be taken as Sale Consideration. Valuation from approved valuermay be taken as base. However, tax would be payable in the year ofreceipt of sale consideration. Since the owner is taking back shareof building constructed, no capital gain would arise as no saleconsideration has been received. However whenever sale of thisbuilding is made. Capital gain tax would be paid.>> Regards>> CA Vijay Kapur>>> ----- Original Message ----> From: Prashanth Karanth > To: http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=w0GPq_cSILhxBmfMnB3HbntH0IOd3VWyqGbvFOSCpZ7FJnspJtSgZMztRHdTz1Nmv4-g6iJYrZ24JBXTVRhYIWN-FHVeRKr6ozXkyw> Sent: Friday, 1 February, 2008 12:26:47 PM> Subject: {Brainstormers -CA} Capital Gains query on JointDevelopment Agreement>> Dear all,> I had posted this mail few days back. Yet to get areply. So i am posting it again.> This is a query regarding Joint developmentagreement involving land owner and builder wherein landowner spareswith a part of his land in return for a share in the buildingconstructed. The query is the timing as to when the land owner willbe liable for capital gain tax and what is the mode of computationof sales consideration.>>

Thank You>>

Regards>>

CA.Prashanth Karanth>