Capital Gains

Where the landowner and builder execute joint development agreement, if the consideration is receivable in built-up area to be constructed and handed over by the builder to the landowner, it is advisable to avoid the applicability of section 53A of the Transfer of Property Act. This can be achieved by mentioning in the agreement that license is granted to the builder to enter the premises and construct the building. The possession is retained by the landowner, which will be handed over as and when the built-up area is constructed and delivered. By this stipulation, the transfer will take place only in the year in which the built-up area is received and not before.

Existing old buildings are demolished and multistoried buildings are constructed. Prior to demolition of old buildings, tenants occupying such building are paid either compensation or they are given space in the new building on construction. Surrender of tenancy rights attracts liability to capital gains tax. Therefore, two separate agreement may be executed, one for surrender of tenancy right and another for construction of the residential unit for the tenant by the builder in which case exemption under section 54F can be availed. Net consideration arising on transfer of the longterm tenancy right shall be treated as invested in a residential house.