An article about " SALE OF DEVELOPMENT RIGHTS TAXABLE "

SALE OF DEVELOPMENT RIGHTS TAXABLE.  

                            

The tax payer instead of developing the land, transferred the development rights in respect of part of the land to a separate construction company. As per the agreement, the tax payer jointly with the trust was required to convey the land to the proposed buyers. Instead of developing land, the tax payer parted with the development rights in respect of part of the land forever. The possession of the land had also been given during the year along with development rights. This was an independent activity having no connection with the development of the remaining part of the land. The tax payer was following mercantile system of accounting as per which income accrues when it becomes due for payment.  In the instant case, the entire amount become due to the taxpayer in the relevant year on signing of development agreement and on handing over of the possession of the land. Under the mercantile system of accounting the accrual of income does not depend upon receipt of income.  Therefore, the income had accrued during the year since the transfer was complete during the year.  The postponement of payment does not stop accrual of income.  Therefore, even if part of the payments were received in subsequent years, the entire income had accrued during the year.  However, the Tribunal allowed the deduction in respect of cost of acquisition of development right.