Opinion Of Eminent Legal Luminaries On Controversial Issues

Capital gains- Joint development agreement -What is Joint Development Agreement u/s. 45(5A)?

QUERY: If a land owner transfers his land to a Developer through Development Agreement can he treat capital gain in the year in which respective allotted unit is sold before the date of completion certificate?
Does it make any difference if and owner books one house/unit in new scheme developed by Developer?

ANSWER: Joint Development Agreement has not been defined under the Income-tax Act, 1961. However, the Finance Act, 2017 has introduced new sub-section (5A) in section 45 which defines 'specified agreement'; which is similar to Joint Development Agreement
As per Explanation (ii) of section 45(5A) "specified agreement" means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash".
Further, as per the said sub-section capital gain is chargeable to income tax as income of the previous year in which certificate of completion for the whole or part of the project is issued by the competent authority. Therefore, the land owner to whom respective units are allotted in exchange of land cannot treat capital gain the year in which respective units are sold before the date of completion certificate issued by the competent authority.
There is no difference if owner keep a allotted property for himself or sales.
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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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