tax structuring & incentives- including infrastruture … · 2017. 10. 17. · • revenue from...

Pradip Kapasi & Co. 1

TAX STRUCTURING & INCENTIVESTAX STRUCTURING & INCENTIVES--INCLUDING INFRASTRUTURE AND INCLUDING INFRASTRUTURE AND

HOUSING PROJECTSHOUSING PROJECTS

ononSaturday, 2Saturday, 2ndnd September , 2006September , 2006

atatHilton Tower Hilton Tower

bybyBCAS BCAS && MCHIMCHI


A. DETERMINATION OF A. DETERMINATION OF INCOME OF BUILDERS INCOME OF BUILDERS

& DEVELOPERS& DEVELOPERS


Historical PerspectiveHistorical Perspective

•• Peculiar businessPeculiar business•• Difficulties in determination of incomeDifficulties in determination of income•• Accounting treatment and policiesAccounting treatment and policies•• Developer and contractorDeveloper and contractor•• Applicability of ASApplicability of AS--7 (Old)7 (Old)•• PCM & CCMPCM & CCM•• Position under Income Act Position under Income Act –– S. 145S. 145


Developments in Developments in Accounting & TaxationAccounting & Taxation

•• Revised ASRevised AS--7 7 -- Vol. 50 Pg. 1436Vol. 50 Pg. 1436•• EAC’sEAC’s opinion opinion -- Vol. 52 Pg. 232Vol. 52 Pg. 232•• ASI on AS 9 ASI on AS 9 -- Vol. 52 Pg. 1401Vol. 52 Pg. 1401•• G Note G Note -- Vol. 55 Pg. 1764Vol. 55 Pg. 1764•• New s. 145 New s. 145 -- A.Y. 1997A.Y. 1997--9898


AS I on AS 9AS I on AS 9•• Exposure Draft Exposure Draft –– April, 2005, ICAIJApril, 2005, ICAIJ•• Real Estate salesReal Estate sales•• Time of recognitionTime of recognition

–– Significant risks and rewardsSignificant risks and rewards–– Effective controlEffective control–– Amount of considerationAmount of consideration–– Possible recoveryPossible recovery

•• AS 2 for InventoriesAS 2 for Inventories–– WIP and WIP and FGsFGs–– Treatment of costsTreatment of costs

•• Agreement valueAgreement value•• Buyer’s commitmentBuyer’s commitment


Guidance Note Guidance Note •• Revenue from real estate salesRevenue from real estate sales

–– EnterpriseEnterprise-- Builders & DevelopersBuilders & Developers•• Material departuresMaterial departures

–– Effect of flat sale agreement Effect of flat sale agreement –– Performance for buyerPerformance for buyer-- contractor contractor –– Escalation and such claims Escalation and such claims –– Percentage of completion method Percentage of completion method –– Reference to AS 7Reference to AS 7–– Examples in Examples in parapara 88–– Retention of effective controlRetention of effective control–– Disclosure of Accounting policyDisclosure of Accounting policy

•• EAC ASI and GNEAC ASI and GN


Road Ahead in TaxationRoad Ahead in Taxation

•• Proviso to S. 145 and ASProviso to S. 145 and AS--77•• New S. 145New S. 145•• Rationale behind case lawRationale behind case law•• Relevance of decided casesRelevance of decided cases•• Relevance of CCMRelevance of CCM•• Imp. of Champion Const. 5 ITD 495 (Mum)Imp. of Champion Const. 5 ITD 495 (Mum)•• New scrutiny guidelinesNew scrutiny guidelines•• Matching conceptMatching concept

–– RajgirRajgir Builders, 70 ITD 226 (Mum)Builders, 70 ITD 226 (Mum)–– Calcutta Co. 37 ITR 1 (SC)Calcutta Co. 37 ITR 1 (SC)–– TapariaTaparia Tools, 260 ITR 102(Mum)Tools, 260 ITR 102(Mum)


B. HOUSING POJECTSB. HOUSING POJECTS


IntroductionIntroduction-- S.80IB(10)S.80IB(10)

•• Business of Developing & Building Business of Developing & Building –– Housing ProjectsHousing Projects

•• Any assesseeAny assessee•• 100% of Profits derived from 100% of Profits derived from hsghsg. .

projectproject•• Effective from AY: 1999Effective from AY: 1999--20002000•• Any assessment yearAny assessment year•• Amendments by FA(No.2) 2004Amendments by FA(No.2) 2004


RequirementsRequirements

•• Commencement on or after 1.10.1998Commencement on or after 1.10.1998•• Approval by local authority Approval by local authority

–– before 31.03.2007before 31.03.2007

•• Plot sizePlot size--Minimum of 1 acreMinimum of 1 acre•• Size of Residential Unit Size of Residential Unit

–– BUA 1000/1500 sq. ftBUA 1000/1500 sq. ft

•• Time for completion Time for completion --4 years 4 years ++•• Shops and Commercial establishmentsShops and Commercial establishments


ConditionsConditions•• Books of accountBooks of account•• Stand alone businessStand alone business-- s. 80IA(5)s. 80IA(5)•• Audit and report with ROIAudit and report with ROI–– s. 80IA(7)s. 80IA(7)•• Transfers to and fro at MV Transfers to and fro at MV –– s. 80IA(8)s. 80IA(8)•• Close ConnectionsClose Connections--ALP ALP –– s. 80IA(10)s. 80IA(10)•• Double deduction not possible Double deduction not possible -- s.80IA(9)s.80IA(9)•• Amalgamated and resulting co.Amalgamated and resulting co.–– s. 80IB(12)s. 80IB(12)


Housing ProjectHousing Project--Some issuesSome issues•• Meaning & Scope Meaning & Scope •• Persons eligiblePersons eligible•• CoCo-- sharerssharers•• Multiple agreementsMultiple agreements•• ExetnsionExetnsion of project of project –– eligibility & timeeligibility & time•• Local authorityLocal authority•• Measure of approval Measure of approval •• Modifications & extension of timeModifications & extension of time•• Actions of predecessors Actions of predecessors –– plans & constructionplans & construction•• Commencement of development Commencement of development •• Commercial establishmentCommercial establishment•• ‘Convenience’ or ‘Compulsion’‘Convenience’ or ‘Compulsion’•• Sharing rights Sharing rights •• Size of unit Size of unit –– projectionsprojections•• Surrounding Area RatioSurrounding Area Ratio•• Amenities Amenities –– club house, school, hall, poolclub house, school, hall, pool


Housing ProjectHousing Project--Some issues Some issues --IIII•• Farm house, Farm house, bunglowbunglow•• Adjoining unitsAdjoining units•• Disjointed plotsDisjointed plots•• ReservationReservation•• ‘Completion certificate’‘Completion certificate’•• Slum Rehabilitation Slum Rehabilitation ––Separate projects Separate projects -- Notification Notification •• Method of AccountingMethod of Accounting•• Subsequent sale Subsequent sale •• Lease Lease •• Substantial compliance and Partial exemption Substantial compliance and Partial exemption •• ‘Profits derived from’‘Profits derived from’•• TDR TDR realisationsrealisations & consumptions& consumptions•• Transfer pricing regulation Transfer pricing regulation –– Arm’s length Principle Arm’s length Principle •• MATMAT•• AmendmentAmendment-- RetrospectiveRetrospective--RetroactiveRetroactive


C.INFRASTRUCTURE FACILITIESC.INFRASTRUCTURE FACILITIES


Infrastructure Facility Infrastructure Facility s.80IA(4)(i)s.80IA(4)(i)•• ‘‘Enterprise’ carrying on ‘business’Enterprise’ carrying on ‘business’•• D D –– D.OP. D.OP. –– D.OP.MAIND.OP.MAIN•• Infrastructure facility Infrastructure facility –– ExplanationExplanation

–– Road, Toll Road, Bridge (toll), Rail SystemRoad, Toll Road, Bridge (toll), Rail System–– Highway Project Highway Project –– housing / othershousing / others–– Water supply project, water treatment system, Irrigation projectWater supply project, water treatment system, Irrigation project–– Sanitation & sewerage system, solid waste management systemSanitation & sewerage system, solid waste management system–– Port, airport, inland waterway or portPort, airport, inland waterway or port

•• 100% of profit100% of profit•• Ten consecutive yearsTen consecutive years


Infrastructure ……..Infrastructure ……..•• Eligible assesseeEligible assessee

–– Indian company Indian company –– Central or State Authority, Board, Corporation, BodyCentral or State Authority, Board, Corporation, Body

•• AgreementAgreement–– With Centre / State / Local Authority / BodyWith Centre / State / Local Authority / Body–– For developing, operating, maintainingFor developing, operating, maintaining–– New infrastructure facilityNew infrastructure facility

•• Commencement on or after 1Commencement on or after 1stst April, 1995April, 1995•• Circular no. 793 Circular no. 793 dtdt. 23.06.2000. 23.06.2000•• Circular no. 7/ 2002 Circular no. 7/ 2002 dtdt 26.08.200226.08.2002•• Continuity for transfereeContinuity for transferee

–– Amalgamation Amalgamation –– DemergerDemerger–– Operating & maintainingOperating & maintaining–– Accordance with agreementAccordance with agreement

•• Conditions for transfer to government deletedConditions for transfer to government deleted•• Power to notify withdrawnPower to notify withdrawn


Infrastructure……Infrastructure……

•• Books of accountBooks of account•• Stand alone businessStand alone business-- s. 80IA(5)s. 80IA(5)•• Audit and report with ROIAudit and report with ROI–– s. 80IA(7)s. 80IA(7)•• Transfers to and fro at MV Transfers to and fro at MV –– s. 80IA(8)s. 80IA(8)•• Close ConnectionsClose Connections--ALP ALP –– s. 80IA(10)s. 80IA(10)•• Double deduction not possible Double deduction not possible -- s.80IA(9)s.80IA(9)•• Amalgamated and resulting co.Amalgamated and resulting co.–– s. 80IB(12)s. 80IB(12)


IssuesIssues–– Captive useCaptive use–– New facility New facility –– guidelinesguidelines–– DevelopingDeveloping–– ‘Operating’ & ‘maintaining’‘Operating’ & ‘maintaining’–– Profit derived fromProfit derived from–– Commencement & ‘start’Commencement & ‘start’–– Housing and other activityHousing and other activity–– ‘Projects’ and ‘systems’‘Projects’ and ‘systems’–– Toll bridgeToll bridge–– Transfer gainsTransfer gains

•• Industrial parks and S EZ Industrial parks and S EZ –– 80IA(4)(iii)80IA(4)(iii)–– Only notified Only notified –– rule 18Crule 18C–– Extended up to 31Extended up to 31stst March, 2009March, 2009


D. REDEVELOPMENTD. REDEVELOPMENT


Ownership propertyOwnership property

•• Society v. MemberSociety v. Member–– Ownership & Right to transferOwnership & Right to transfer–– Right to consideration & TaxabilityRight to consideration & Taxability

•• Society taxationSociety taxation•• Members taxation Members taxation –– varied receiptsvaried receipts•• Development by society/members/member Development by society/members/member •• Benefit of exemptions Benefit of exemptions u/su/s 54 and 54F54 and 54F•• COA & POH of new assetCOA & POH of new asset


Landlord’s propertyLandlord’s property

•• PAA in lieu of tenancyPAA in lieu of tenancy–– Whether a transferWhether a transfer–– Time of transferTime of transfer–– Exemption Exemption u/su/s 54/54F54/54F

•• Tenancy for tenancyTenancy for tenancy•• Cash for tenancyCash for tenancy•• Other related receiptsOther related receipts


Development Agreement & Development Agreement & TransferTransfer•• Typical agreementTypical agreement

–– Permission Permission –– License License –– Power Power –– ProfitsProfits•• Provisions of s. 2(47)(v) and s. 53A of TOPAProvisions of s. 2(47)(v) and s. 53A of TOPA•• Easements ActEasements Act-- s. 52 and s. 60s. 52 and s. 60•• No transfer No transfer –– 26 TTD 477 (Del), 70 ITD 9 (Mum), 80 ITD 58 26 TTD 477 (Del), 70 ITD 9 (Mum), 80 ITD 58

(Cal)(Cal)•• Transfer Transfer –– ChatrabhujChatrabhuj DwarkadasDwarkadas, 260 ITR 491 (, 260 ITR 491 (BomBom))

–– Date of substantial compliance and possession not relevantDate of substantial compliance and possession not relevant–– Objectives of s. 2(47(v) and (vi)Objectives of s. 2(47(v) and (vi)–– Disguised sale Disguised sale –– Date of contract relevantDate of contract relevant

•• Possible alternativesPossible alternatives–– Conversion and contractConversion and contract–– Piecemeal transferPiecemeal transfer–– Partial retentionPartial retention


THANK YOUTHANK YOU

tax structuring & incentives- including infrastruture … · 2017. 10. 17. · • revenue from...

Documents