The real estate industry has experienced unprecedented growth in the past couple of decades. This has led both landowners and developers to enter into several innovative business models to optimise their resources and maximise returns. The landowners try to ensure that they participate in the future substantial value accretion of the project being developed while developers try to avoid shelling out the entire consideration for the land before commencing any work, to avoid depletion of their resources.
Thus, entering into a joint development agreement (JDA) has become particularly common. This is where the landowner and developer collaborate on the basis that the landowner contributes his land to the project while the developer brings in his expertise in construction to develop the project and both parties share the income earned from the developed project in a pre-determined ratio. Of course, depending on the facts and circumstances of the case, multiple variations of this structure can be seen in the marketplace, with the broad contours of the arrangement remaining the same.
For a long time, litigation has arisen over the taxability of income accruing or arising from a JDA. Primarily, Indian tax authorities contend that the landowner should be liable to pay tax at the time of entering into the JDA, whereas taxpayers have been contending that the tax should be payable only at the time of registration of the JDA.
This contentious issue has hopefully been resolved with the Hon’ble Supreme Court (SC) delivering its verdict in the case of Balbir Singh Maini [CIT v. Balbir Singh Maini, Civil Appeal No. 15619 of 2017]. In the said case, the SC upheld the contentions of the taxpayers, by confirming the decision of the Hon’ble Punjab & Haryana High Court (HC).