We generally consider land as an immovable property, it is a part of surface of Earth not covered by water or land is an area of ground, especially one that is used for a particular purpose such as farming or building.
Now we have to consider a land or an area of ground for building. A land has many rights with it, such as right to occupy, right to use, right to easement, right to sub-let, right to lease, right, right to develop, etc. The right to develop is called “Development Rights”.
“Development Rights”, is simply a document granting permission to a person to develop a structure on a land.
“Development Rights”, are of two types;
1. Simply attached with the land;
2. Can be transferred, sold, exchanged as “Transferable Development Rights”.
Lets’ us consider an example; – Mr. A has a piece of land and Mr. B, developer has approached Mr. A with development plan on the land of Mr. A. Mr. A allows, Mr. B to construct units on his land and after construction Mr. B, will sell the units to outsiders, wherein Mr. A in this case will act as consenting party. Further Mr. A, will transfer the undivided share in the land in favour of the Co-operative Society. This is case of “Transfer of Development Rights”, the consent of Mr. A will be transferred to the Co-operative Society.
Regulation 34 of Development Control Regulations for Greater Bombay, 1991 states that under certain circulates, the development potential of the plot land may be separated from the land itself and can be made available to the owner of the land in the form of Transferable Development Rights.
Let’s consider an example; – Mr. A has a plot of land, which has been encroached by the slum dwellers. The government approaches Mr. P with a plan of Slum Re-development scheme, where Mr. P can develop dwelling units for slum dwellers and in exchange government, will grant Transferable Development Rights to Mr. P, now Mr. P can use such Development Rights on any land, subject to fulfilment of certain conditions.
Section 7 of Central Goods and Service Tax Act, 2017 levy tax of “Supply” of Goods or Services or both.
“Sec-7, notwithstanding anything contained in subsection (1), -(a) activities or transactions specified in Schedule III; —–shall be treated neither as supply of goods nor a supply of services.”
Schedule III, covers sale of land, now whether Transfer of Development Rights in land is taxable, let’s us see some court decisions;
CIT Vs Motors and General Stores (P.) Ltd (1967) 66 ITR692 and in case of 20th Century Finance Corporation Ltd. Vs. State of Maharashtra (2000)6 SC 12; held that the word “Sale” denotes transfer of title, which is irrevocable and permanent. Hence “Sale of Land”, denotes “Transfer of Title in land”.
Section 3(a) of Land Acquisition Act, 1894, defines “Land” as it includes benefits to arise out of land and things attached to earth or permanently fastened to anything attached to the Earth.
Section 3(a) of the Bombay Land Revenue Code; – “Land” includes benefits to arise out of land and things attached to the Earth or permanently fastened to anything attached to the Earth and also shares in or charges on the revenue or rent of villages or other defined portions of territory.
Now it is clear that “Land”, includes benefits to arise out of land.
Nagen Hazarika Vs. Manorama Sharma AIR 2007 Gau 62; Guawahit High Court held that expression “Title” is a broad expression in law, which can not always be understood as akin to ownership. It conveys different forms of a right to a property, which can include right to possess such property.
It means that the “land” not only includes full title in the land but also rights, which gives benefits associated with it.
From above definitions and judgments of the apex courts, we can presume that “Sale of land”, connotes’ transfer (irrevocable and permanently) of title in land including rights in the form of benefits arising from it.
In Joint Development Agreements, the land owners have not only given land development right but also right to sell the units constructed on their land. The possession of land has been parted out by the land owner to the developer, through Power of Attorney, executed in favor of developer.
Now in this case “Right to develop” a land is a benefit arising out of land and hence same is squarely covered within definition of “Land”. Since the same right is given irrevocable and permanently, it is covered within the definition of “Sale of land. The same is covered in Entry 5 of Schedule III to Central Goods and Service Tax Act, 2017 and hence the same neither be considered as sale of goods or supply of services.
Thus, the sale of developments rights is not taxable under GST.
Same as above Transfer of Development Rights, shall also not be considered as “Goods”, because, it involves transfer of interest in immovable property.
Section 2(52) of CGST Act, 2017 -includes transfer of interest in movable properties.
Section 2(102) of CGST Act, 2017, Services includes anything other than goods. However, an activity, being other than goods, cannot be considered as service, if such activity dose not posses any element of service as understood in commercial parlance. Thus, transfer of development rights cannot be considered as Service.
We have come to conclusion that the Development Rights and Transferable Development Rights, related to a land can not be classified as Goods or Services and hence, not taxable under Central Goods and Service Tax Act, 2017.