Agricultural land
Nisha Mishra
(Querist) 25 March 2014
This query is : Resolved
Dear Sir,
We have land of 5 acre which we are planning to convert into agriculture land through Poly house & Open Cultivation under a company books of accounts. The Land is in the Individual name of Managing Director. So My query is should we show it on lease from MD Sir or Simply keep on his name. What is benefecial from Taxation point of view.
Kindly advice.
R.V.RAO
(Expert) 26 March 2014
To start with, hope the memorandum and articles of association of your company contains an object of agriculture? else alter the objects clause.
taxation:
1.)urban agr.land transfer attracts capital gains tax in the hands of the transferor, unless he reinvests the capital gains in prescribed manner, to avoid tax.
2.) if the land still remains in the name of owner(M.D) and leased to the co.,the owner gets in his hand annual /monthly lease rentals which are taxable in his hands. The company needs to enter into a regd.lease agreement with M.D ,by paying stamp duty etc..
M.D being a key managerial personnel as per the new co.s act 2013,the lease transaction will be related party transaction by the co. with its M.D,to be commented by your auditor in the co. annual report.
But at the same time,the company gets the lease rent paid as deductible exp. and saves income tax.
but if the agr.income for the company from the agr,.land is exempt from income tax ,then no I.T deduction available for the lease rentals paid by the co.
without any capital asset transfer/ or M.D's land lease to the company ,simply if the land remains in the hands of the owner,how can you bring the land into co's books and how can you account for the expenditure both capital exp. and revenue exp.incurred /to be incurred by the co. on such land from time to time?
ultimately how do you want to account for both the exp and income on such land in co. books?
sit with your auditor and or company advocate to take a final call on the issue.
note:
if the M.D's land is his joint family or ancestral property(instead of his self acquired property),then he can form a huf and transfer the ancestral land to HUF and the lease rentals will be income of HUF and therefore the tax incidence in HUF will be less as huf enjoys basic IT exemption limit. the co. in that case pays lease rentals to the huf after entering into a regd. agreement of lease.
Rajendra K Goyal
(Expert) 26 March 2014
Well advised by the expert RV RAO sir, agree to it.
R.V.RAO
(Expert) 26 March 2014
Thanks.sri Rajendra goyal ji
