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GST Implications on Joint Development Agreements

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The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.

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The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.

Taking the stock of land prices across the country as on date and projected, it is impossible for the developer to buy the land and deliver a project. Consequently, the land owners would be sitting on their parcels of lands without any potential buyer. Hence, the only way this sector moves ahead is, at least in areas where the land rates are high, is by the joint development arrangement.

Commercially, the joint development arrangements have matured enough by this date. The chink in the armor of joint development arrangement is the taxation. Both direct and indirect taxation create a huge uncertainty in various aspects. If the said arrangements have to be saved thereby saving the growth of industry, there are certain things, the government or tax administration authority should do.

First, the implementation of the ambiguous laws by tax authorities in the interest of collection of tax has to be rationalised. Second, the awareness of the laws surrounding the joint development arrangements has to be created by the tax authorities which will make the landowners and developer remain better compliant. Third, a detailed guide with various examples covering possible commercial scenarios has to be provided by the government or tax administration authority and landowners and developers who place reliance on the said guidance ought to be provided immunity. Lastly, given the nascent stage of GST laws, a special scheme wherein only taxpayers are asked to pay the tax amount (and providing immunity from interest and penalty), should also be brought to reduce the current and prospective litigation. These measures have to be adopted to the extent required under both direct and indirect taxation.

On the taxpayer’s front, a lot of brainstorming is to be done by taking help of the professionals and other sources. This brainstorming is to be done at the inception of the project, not midway or at the end. The later in the project, the tougher it would be put back certain things, thereby leading to increase of costs and disadvantageous position. Hence, it is advisable to have a thorough understanding of the taxability that effects the landowner and developers individually and holistically, right at the inception of the project. It is advisable that along with the landowner and developer, the consultants of both the parties should also meet, discuss and arrive at the consensus. The same needs to be documented and has to be visited all along the project to act as per the tax positions agreed. When taking the tax positions, it is advisable to understand the implications under direct and indirect taxation instead of seeing the arrangement only under light of one particular taxation. This provides a complete understanding and insulates from unnecessary litigations and costs.

With the above in place, we welcome you to this edition!

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22/02/2023
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SBS and Company LLP

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Description

The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.

Taking the stock of land prices across the country as on date and projected, it is impossible for the developer to buy the land and deliver a project. Consequently, the land owners would be sitting on their parcels of lands without any potential buyer. Hence, the only way this sector moves ahead is, at least in areas where the land rates are high, is by the joint development arrangement.

Commercially, the joint development arrangements have matured enough by this date. The chink in the armor of joint development arrangement is the taxation. Both direct and indirect taxation create a huge uncertainty in various aspects. If the said arrangements have to be saved thereby saving the growth of industry, there are certain things, the government or tax administration authority should do.

First, the implementation of the ambiguous laws by tax authorities in the interest of collection of tax has to be rationalised. Second, the awareness of the laws surrounding the joint development arrangements has to be created by the tax authorities which will make the landowners and developer remain better compliant. Third, a detailed guide with various examples covering possible commercial scenarios has to be provided by the government or tax administration authority and landowners and developers who place reliance on the said guidance ought to be provided immunity. Lastly, given the nascent stage of GST laws, a special scheme wherein only taxpayers are asked to pay the tax amount (and providing immunity from interest and penalty), should also be brought to reduce the current and prospective litigation. These measures have to be adopted to the extent required under both direct and indirect taxation.

On the taxpayer’s front, a lot of brainstorming is to be done by taking help of the professionals and other sources. This brainstorming is to be done at the inception of the project, not midway or at the end. The later in the project, the tougher it would be put back certain things, thereby leading to increase of costs and disadvantageous position. Hence, it is advisable to have a thorough understanding of the taxability that effects the landowner and developers individually and holistically, right at the inception of the project. It is advisable that along with the landowner and developer, the consultants of both the parties should also meet, discuss and arrive at the consensus. The same needs to be documented and has to be visited all along the project to act as per the tax positions agreed. When taking the tax positions, it is advisable to understand the implications under direct and indirect taxation instead of seeing the arrangement only under light of one particular taxation. This provides a complete understanding and insulates from unnecessary litigations and costs.

With the above in place, we welcome you to this edition!

In this edition, we bring you an article on indirect tax implications on mining rights. Majority of the readers would know that there was a reverse charge obligation on businesses for support services received from government. The tax authorities using this particular obligation has tried to fasten liabilities on mining rights taken by the businesses from the government. Whether a mining right can be called as a ‘tax’ or ‘consideration for service’ is currently pending before 9 member bench at Honourable Supreme Court. We have comprehensively discussed about the said issue pending the outcome of judgment. The next article is on domestic transfer pricing regulations. With the introduction of Section 115BAB, the said domestic transfer pricing regulations have come again to the surface. In this part, we have dealt with the basic overview of the domestic transfer pricing regulations and in the upcoming parts, we are going to take certain case studies for deliberation. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. Key Points: GST
  • COMPREHENSIVE ANALYSIS OF SERVICE TAX & GST IMPLICATIONS ON MINING RIGHTS
INCOME TAX
  • DOMESTIC TRANSFER PRICING – A BIRD’S EYE VIEW
In this edition, we bring you, the second part of the article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act. The next article is on the changes to the existing faceless assessment scheme thereby clearing ambiguities and providing more clarity. We hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. Key Topics GST DIRECT TAXES
  • REPLACEMENT OF FACELESS ASSESSMENT SCHEME
In this 101st edition, we bring you articles of certain academic nature. The article on ‘GST Implications on Income earned by YouTubers’ deals with the implications under GST laws of income earned by YouTubers located in India. Though the services are treated as export, the exact reason for such export looks confusing and hence our article. The next article is on the inherent powers of NCLT while dealing with the  matter under IBC laws. There are instances, where there is a confusion as to what amounts to review and recall. In the article, by using the existing jurisprudence, we have detailed on the inherent powers of NCLT for recall of the order. The final article is on the transfer pricing adjustment – both primary and secondary adjustments. This is an important concept from the TP perspective and requires an awareness. We have also dealt with certain implications that would arise under domestic tax laws because of the secondary adjustment. We have also collated certain important judgments under direct tax, indirect tax and miscellaneous laws and provided our comments wherever necessary. I hope that you will have good time reading this edition and please do share your feedback. Key Topics: GST
  • GST IMPLICATIONS ON INCOMES EARNED BY YOUTUBER CREATORS
COMPANIES ACT
  • DOES NCLT HAS RIGHT TO RECALL ORDERS – A STUDY ON INHERENT POWERS OF NCLT UNDER IBC LAWS
INCOME TAX
  • TRANSFER PRICING ADJUSTMENTS - PRIMARY AND SECONDARY ADJUSTMENT
SUMMARY OF JUDGEMENT
  • SUMMARY OF GST DECISIONS
  • SUMMARY OF IT DECISIONS
  • SUMMARY OF MISC JUDGMENTS
In this edition, we bring you, Part II of various shades of draft assessment orders and issue surrounding them. In this piece, we have dealt on the issues namely, can the DRP condone the delay in submission,  whether ITAT would have jurisdiction in case DRP rejects the submission because they are filed after time period and what would be the recourse for the assessee in case of non-condonation of delay by DRP? The next article is on the recent judgment of Honourable Supreme Court in the matter of VKC Footsteps India Private Limited, dealing with vires of Section 54(3) of CT Act and Rule 89(5) of CT Rules. The judgment in a candid way explains that all the ideals that went to formulation of GST laws cannot be read into the statutory provisions and states that it would take time to realise the ideals in the coming periods. Hence, this judgment not only sound in technical sense but also serves as torchlight for the upcoming litigation at various forums. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. Key Topics: GST DIRECT TAX In this 97h edition, we bring you articles on interesting overlapping issues and other items. The article on ‘Remittance of Assets vs LRS – Comparative Study under FEMA and IT’ deals about various issues that we face on day to day from our NRI and resident clients. The recent introduction of TCS on LRS has created an additional layer of complexity for the residents transferring money using the LRS route. Also, there are certain stark differences between the remittance of asset regulations and LRS both under FEMA and IT Act. Hence, we thought to contribute an article around those aspects with FAQs. The next article is on the recent Karnataka High Court judgment wherein the Circular 150 under GST laws was struck down. The Circular tried to tax the annuities received by concessionaire naming them as deferred payments for construction and those are not the payments which were referred to Entry 23A of Notification No 12/2017 – CT (R). However, the High Court stated that a circular cannot override the Entry in the notification and accordingly struck down the Circular. The High Court stated that there is nothing in law which prohibits the executive to collect tax on the annuity payment aka deferred payments for construction but that should be stipulated in the law. Though the judgment is favourable to the concessionaries, how the GST Council sees this and try to restrict the benefit of Entry 23A to annuity payments aka deferred payments for construction must be observed in days to come. The ideology behind Entry 23A was to grant exemption for annuities which are paid instead of toll. However, the said intention seems to be put on the back burner by the GST Council after 43rd GST Council meeting which was evident from the issuance of Circular 150. Interestingly, without waiting for the above judgment or contesting before any Courts, the NHAI started sending letters to concessionaries stating that they will the pay the tax on the annuities which were earlier stated by NHAI as exempted at the time of bidding. The next article is finale in the part of the series of various facets of taxability of management support services. In this part, we have analysed the impact of arm’s length principle qua the management support services. The final article is on the contours as to which the Income Tax Department can expand to when the NCLT is dealing with a scheme (compromise or arrangement) proposed by a group of companies. The Income Tax Department under the powers under conferred under Section 230(5) of Companies Act raise objections qua each scheme stating that the objective of the said scheme is tax evasion. NCLT in certain cases have rejected the scheme considering the objections raised by Income Tax Department. However, in certain cases, the NCLT stated that unless the entire objective of scheme is to avoid tax, the Income Tax Department cannot make its way at the time of sanction of scheme. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. KEY TOPICS GST
  • STRIKING DOWN OF CIRCULAR – TAXABILITY ON ANNUITIES – HAM PROJECTS
MISC
  • GAAR VIS-À-VIS COMPROMISES OR ARRANGEMENTS UNDER COMPANIES ACT
INTERNATIONAL TAX
  • MANAGEMENT SUPPORT SERVICES VIS-À-VIS INTRA GROUP SERVICES
FEMA & INCOME TAX
  • REMITTANCE OF ASSETS REGULATIONS VS LIBERALISED REMITTANCE SCHEME
Content

The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.

In this edition, we bring you an article on indirect tax implications on mining rights. Majority of the readers would know that there was a reverse charge obligation on businesses for support services received from government. The tax authorities using this particular obligation has tried to fasten liabilities on mining rights taken by the businesses from the government. Whether a mining right can be called as a ‘tax’ or ‘consideration for service’ is currently pending before 9 member bench at Honourable Supreme Court. We have comprehensively discussed about the said issue pending the outcome of judgment.In this edition, we bring you, the second part of the article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act.In this 101st edition, we bring you articles of certain academic nature. The article on ‘GST Implications on Income earned by YouTubers’ deals with the implications under GST laws of income earned by YouTubers located in India. Though the services are treated as export, the exact reason for such export looks confusing and hence our article.In this edition, we bring you, Part II of various shades of draft assessment orders and issue surrounding them. In this piece, we have dealt on the issues namely, can the DRP condone the delay in submission,  whether ITAT would have jurisdiction in case DRP rejects the submission because they are filed after time period and what would be the recourse for the assessee in case of non-condonation of delay by DRP?In this 97h edition, we bring you articles on interesting overlapping issues and other items. The article on ‘Remittance of Assets vs LRS – Comparative Study under FEMA and IT’ deals about various issues that we face on day to day from our NRI and resident clients. The recent introduction of TCS on LRS has created an additional layer of complexity for the residents transferring money using the LRS route. Also, there are certain stark differences between the remittance of asset regulations and LRS both under FEMA and IT Act. Hence, we thought to contribute an article around those aspects with FAQs.
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