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Tribunal holds section 50D applies where land transferred under a JDA; rejects adoption of future cost of
construction of built up area to be received as full value of consideration
14 September 2020
In brief
Recently, the Bangalore bench of the Income-tax Appellate Tribunal (Tribunal)1 applied section 50D of the Income-tax Act, 1961 (Act) to hold that on transfer of land under a joint development agreement (JDA), guidance value of the land will be deemed to be the full value of the c onsideration received on such transfer.
The Tribunal rejected the Revenue’s claim to adopt cost of construction as provided by the developer as full value of consideration.
In detail
Facts
• During the assessment year 2013-14, the taxpayer had transferred his land to the developer under a JDA.
• The consideration to be received by the taxpayer was 50% of the super built up area of the commercial complex, etc., to be constructed by the builder.
• The taxpayer computed long-term capital gains (LTCG) on the sale of land by adopting guidance value of land as on the date of the JDA as full value of consideration.
• The Tax Of f icer obtained information from the developer regarding the cost of construction and computed capital gains based on the information provided by the developer.
Issue before the Tribunal
When land is transferred under a JDA, what should be deemed as the full value of consideration – the cost of construction of complex or guidance value of the land?
Taxpayer’s contentions
• Section 50D of the Act provides for adoption of fair market value of the asset on the date of transfer as deemed full value of the consideration in an event where consideration is not ascertainable or cannot be determined.
• Since on the date of transfer of land (i.e. the date on which the JDA was entered), the consideration to be received by the taxpayer i.e. 50% of the super built up area of the commercial complex etc., cannot be determined, accordingly, section 50D of the Act is applicable in this case.
• Accordingly, guidance value of the land transferred should be adopted as full value of the consideration received by the taxpayer.
1 ITA No. 923/Bang/2018
2 PwC Tax Insights
Tribunal’s ruling
• Section 50D of the Act is applicable in the taxpayer’s case.
• The f uture cost of construction cannot be determined in the year of transfer.
• Accordingly, the Tribunal held that LTCG arising from the sale of land under JDA should be computed by adopting guidance value of the land.
The takeaways
• The Tribunal’s ruling has reiterated the decision of earlier positive rulings2 and has held that on transfer of land under a JDA, the fair market value of the land should be adopted as full value of consideration.
• The Tribunal’s ruling provides an additional support in the form of applicability of section 50D of the Act on transf er under a JDA wherein the consideration is linked to a future event.
• A positive decision is indeed welcome. However, considering the negativ e rulings3 on the subject matter the possibility of litigation cannot be overlooked.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor.
2 ACIT v. Shankar Vittal Motor Co. Limited [ITA No. 35/Bang/2015]
ACIT v. Sarojini M Kushe [ITA No. 989/Bang/2014]
G.S. Sathyanarayan Gupta v. ITO [ITA No. 1323/Bang/2016]
3 Udai Hospitals Private Limited v. ITO [ITA No. 1755/Hyd/2017]
ITO v. N.S. Nagaraj [2015] 152 ITD 262
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