• Selling a property owned by a partnership firm

A parcel of land is owned by a partnership firm in Madhya Pradesh with multiple partners. The partners mutually agree to sell that land. The buyer of the land wants to start construction on that land which will be a verbal commitment by the sellers but not on the sale agreement. By the time the land will be registered in the buyer's name the land which doesn't have any structure right now will have a (partially) constructed structure.

1. Can the payment be received in the partner's accounts rather than the firm's account?
2. Does having a constructed structure as opposed to barren land increase the seller's tax outgo at the time of registration? As the permission to construct will be obtained on the seller's name what other things the sellers need to keep in mind? How can the sellers keep themselves safe from any legal issues, tax-liability issues or any other area of concern. Do the sellers need to enter into any Development agreement with the buyer?
Asked 4 years ago in Property Law
Religion: Hindu

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10 Answers

1. Payment has to be made in the firm account only if the land belongs to the firm.

2. No. Construction shall have no relevance to the tax.

Do enter into a sale agreement, do not pursue with the things on oral promises to avoid any legal issue.

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

hello

the land belongs to a firm which has multiple partners. how can the money be transferred to a person's account who is a partner? it can be done but a written arrangement is necessary otherwise some controversy may arise in the future. the permission to construct is verbal, nothing is written. complications may arise although if people are ok then no need to worry.the construction on the land will increase its price.

if you represent the seller, you shouldn't give permission to start construction until the agreement is final and the type and the extent of construction have been defined in the agreement, the price paid and the tax liability clarified.

regards

Rahul Mishra
Advocate, Lucknow
13755 Answers
65 Consultations

5.0 on 5.0

1) payment should be received only in firm account as land is owned by firm only

2) sale price would have to reflect the value of structure constructed on land as per circle rate

3) don’t grant any permission to carry on construction on land till sale deed is registered

4) you can enter into development agreement for development of land rather than sale of land

Ajay Sethi
Advocate, Mumbai
87899 Answers
6207 Consultations

5.0 on 5.0

Database it will be taken as revenue and charged to income tax as the partner is not the title holder after land for the purpose of calculation of capital gain . The partnership firm will have all the liability payment of taxes relating to the building

Vimlesh Prasad Mishra
Advocate, Lucknow
6848 Answers
23 Consultations

4.9 on 5.0

1. yes partners can receives sale proceeds in their personal account but the same would be treated as receipt by firm only if there is official resolution to sell the land by all the partners.

2. Yes, it increases the value of the land at the time of registration and if you show the same original rice then all of you may be implicated in tax evasion or revenue stealing.

3. If JDA is made then there would be more taxation burden on the partners and the value of the property would not be decreased in any manner at all.

Devajyoti Barman
Advocate, Kolkata
22515 Answers
402 Consultations

5.0 on 5.0

Firslty, as per the information mentioned in the above query, makes it clear that all are mutually agreed to sell the land.

Secondly, but, to get the payment in one of the partner’s account need to be mentioned somewhere otherwise may create problem for others, if he disagrees.

Thirdly, everthing foramlity will be on the buyer’s name not in the sellers name.

Fourthly, no need to go for the development agreement when nothing would be coming to the seller after the construction.

Sanjay Baniwal
Advocate, South Delhi
5464 Answers
13 Consultations

5.0 on 5.0

1. payment can be received by partners in proportion to their profit and loss sharing ratio

2. firm can execute a development agreement with buyer giving license to buyer to make construction on land

3. after construction is complete the firm can then convey the land to the society of unit purchasers in the structure constructed on the land

4. the proceeds received by the partners for grant of development rights will be subject to income tax

Yusuf Rampurawala
Advocate, Mumbai
6878 Answers
79 Consultations

5.0 on 5.0

Dear Client,

The registration of a valid deed of conveyance of immovable property would be the medium through which the transfer of immovable property can be effected that also on behalf of firm and not partners.

Without any registered sale deed, construction cost will go in dustbin. Neither any claim from firm or partner.

Structure/construction shall also be taken into account while levying stamp duty.

Permission has no value without registered agreement to sell or joint venture/development agreement.

And without sale such construction/cost is legally bidding on seller through Development agreement only.

Yogendra Singh Rajawat
Advocate, Jaipur
21481 Answers
31 Consultations

4.4 on 5.0

1. If the property belonged to the partnership firm then the partners cannot decide to alienate the property without passing any resolution authorising the sale of the property to the prospective buyer.The sale consideration amount has to be settled to the firm and not to the partners' names.

2. It will depend on what was sold, whether the vacant land or the land with a structure on it.

The sellers have to pay the capital gains tax accordinlgy.

The property belonging to the firm canot be sold by the partners of the firm.

T Kalaiselvan
Advocate, Vellore
78057 Answers
1543 Consultations

5.0 on 5.0

1) Better you make registered POA nd development agreement with proper layout plan sanctioned by municipal corporation sanction, RERA sanctioned, Collector NA plot sanctioned etc and make agreement to sale flats to the buyer on direct their name and registration charges will be born by the buyer including GST.

2) Better you make payment in the name of Partnership firm instead of partner, because you will be getting rights from firm and not from individual partners.

Ganesh Kadam
Advocate, Pune
12335 Answers
191 Consultations

4.9 on 5.0

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