Service Tax issues in Joint Ventures & Collaborations in Real Estate Transactions

Factors determining Structure Commercial Considerations Indirect Taxes Direct Taxes 2

Reasons For Joint Venture & Collaboration Restriction on ownership of Land – Agricultural Land Limited resources of Land owner to develop Development costs are high Developer has resources & technical expertise to develop 3

Types of Agreement Joint Venture Agreements Development Agreements Collaboration Agreements Objective of Such Agreements Land owner provides land Builder undertakes development/ construction Land owner & builder share developed areas typically known as – “Owner’s area” and “Developer’s Area” Also share proportionate undivided land 4

Case Study Facts Owner Contributes Land Developer contributes funds, technical knowledge and execution skills Share developed area including corresponding undivided share in Land Developer in additional pays additional lump sump amount to land owner No direct contract for construction Land owner also has certain obligations Owner would execute all documents for transfer of land Owner not to obstruct construction Owner to keep land free from all encumbrances Owner to Apply for completion Certificate Owner to make application to Civil Authority Owner to seek environment clearance Owner to get CLU done 5

Contention of Developer Not a contract for construction Contract for mutual benefit Contract not for providing services Co-Adventurer with Land Owner in a Joint Venture 6

Characteristics of a Joint Venture Joint Ownership Sharing of Profit & Losses Active participation in Management Common purpose Sharing of risk & rewards 7

Effect of a Joint Venture There is no relationship of service provider and service receiver Hence, No Service Tax Such Joint Venture are rare More Hybrids Agreements 8

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