There are 194IC and Section 194IA , two sections of the income tax act which attracts on the transaction of any type of development agreement
The exact wording of the sections are as below:
Section 194IC- Payment under specified agreement.
194-IC. Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon.
Definition of specified agreement:
“specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash;
Section 194IA- Payment on transfer of certain immovable property other than agricultural land.
194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum 91[or the stamp duty value of such property, whichever is higher,] as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an 92[immovable property and the stamp duty value of such property, are both,] less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation.—For the purposes of this section,—
(a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(aa) “consideration for transfer of any immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;
(b) “immovable property” means any land (other than agricultural land) or any building or part of a building;
(c) “stamp duty value” shall have the same meaning as assigned to it in clause (f) of the Explanation to clause (vii) of sub-section (2) of section 56.
Analysis:
Generally under specified agreements, there are two components involved. one is monetary consideration and second is in kind consideration.
-If there is revenue sharing agreement then only monetary consideration is there,
-If there is area sharing agreement then only in kind consideration is there or
-there may be the both consideration in the specified agreement
If you thoroughly read the sections, it says that specified agreement means registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, (being land or building or both in such project, whether with or without payment of part of the consideration in cash) means there should be an area sharing arrangements with or without monetary consideration. so as per my opinion, revenue sharing arrangement is not considered as specified agreement and Section 194IC is not applicable.
so Section 194IC is applicable only for area sharing agreements or the agreements in which area sharing and monetary consideration are both offered but it is applied only on the portion of monetary consideration.
194IA is applicable for any type of agreement exceeds 50 lakhs with some exceptions like agriculture land and it is applicable on the portion excluding monetary consideration because on that portion 194IC is applicable but for revenue sharing agreement 194IA is applicable on whole agreement value because it is not fit in the definition of specified agreements due to which there is no applicability of Section 194IC.
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Author Bio
Respected Sir, An LLP is entering into Development Agreement where in only the rights to develop Residential building on the plot of land is transferred for a Monetary Consideration with out any type of revenue sharing in the development project.
Please Note on the development right is being transferred and not the actual land.
in such scenario will section 194IC apply or 194IA or None?
Thank you