The words "Joint Venture" is described as "a business activity by two or more people or companies working together". Many times an individual may own some land, but may not have funds to fully exploit it. Similarly a builder/developer who has resource may need some land to employ his resource profitably. For vertical development of land which comprises of a number of flats lot of money, manpower and expertise are necessary all of which an individ- ual cannot possess. More over, unlike in the case of construction of independent house, the group housing or construction of apartments is more complicated. It requires approval from various agencies like water supply board, sanitary department, electric power supply board, Airport Authorities, Pollution Control Board, Survey Department, Telephone Department, etc. The group housing project also has to get through a much stricter compliance of procedure for obtaining project loans from the banks.
Thus, Joint Development Agreements are entered into by the land owners and the developers for mutual benefit and for the development of the property to the best advantage of both the parties. Joint Development venture is an activity of bring together the land of the land owner and the talent and expertise of the developer for creation of an asset called the apartment building. While the land owners possess certain land which is fit for development, the Developer has all the resource and talent to develop the land for construction of apartment building. He has technical skill, financial resource, capable of getting the land conversion from agriculture to nonagricultural residential purposes, capacity to get layout and plan approval from the competent authority, select the work force and drive them to achieve his goal.
Thus, when both the land owner and the developer enter into development agreement, they would generally put forth all the relevant clauses requiring for development of the land including sharing ratio. But at that stage, the developer would not definitely calculate the financial implications involved in such ventures Based on this joint development agreement, the developer proceeds to chalk out the fine blue print of the development and takes steps for obtaining loan from the banks or financial institutions. Only upon getting the approval of the competent authority regarding land conversion, layout approval and building plan sanction the developer would take steps for ascertaining the cost of construction, or development, selection, contractors; required work force etc. The cost of units at which the developer intends to sell the individual apartment units to the prospective purchasers could be ascertained only when the final estimated figure of expenditure on men and material are ascertained by the developer which estimation at any cost cannot be done at the time of entering into joint development agreement.
Neither the land owner nor the developer would know at the time of entering into joint development agreement, the estimated court of construction or the development or the cost at which they would like to sell the apartment units to the prospective buyers and it would be premature to delve upon it at that stage.
With this background, let us analyze the Karnataka Stamp (Amendment) Act, 2009
Under this Amendment Act, amendment to Art.S (f) has intro- duced in addition to amendments in certain sections and other Articles. Article 5 deals with agreement or [its records or] memorandum of an agreement. Article 5(t) deals with the agreements relating to construction or development or sale of an immovable property, including a multi-unit house or building or unit of apartment or flat or portion of a multi-storied building by a person having a stipulation that after construction or development, such property shall be held jointly or severally by that person and the owner or lessee of such property, or that it shall be sold jointly or severally by them or that a part of it shall be held jointly or severally by them and the remaining part thereof shall be sold jointly or severally by them.
The stamp duty prescribed under the amended act is under:
"One rupee for everyone hundred rupees or part thereof on the market value of the property or the estimated cost of construction or proposed construction or development or proposed development of the property, which is the subject matter of such transfer under the agreement in accordance with the provisions of sec.28 of the Karnataka Stamp Act, J 957) or on the consideration for such transfer, whichever is higher.
A reading of this amended article would go to that the stamp duty is payable in respect of joint " development agreements or in respect of sale of multi-unit house or unit of apartment or flat etc., shall be at one rupee for every one hundred rupees or part thereof of the highest of the value of any one of the following:
A] Market value of the property;
B] Estimated Cost of construction or proposed construction on the property;
C] Estimated cost of development or proposed development of the property; or
D] On the consideration for such transfer of the property / flat / unit of apartment
It would be practically difficult and almost impossible to arrive at the estimated cost of construction or development in respect of which property or the sale consideration of apartment unit which is yet be constructed of only this, the estimated cost need not be final cost.
Suppose a developer pays stamp duty on the basis of estimated cost of construction and at a later date for obvious reasons the project comes to a halt or reduced in size, there is no provision in the Act to claim refund of the excess stamp duty paid on estimated value of cost of construction in cases where the construction is reduced in size and full refund of stamp duty paid in cases where the project is abandoned.
The situation would be much worse in cases where the development projects are shelved after the registration of joint development agreement.
Therefore, as a welfare state, the Government may give a fresh look to the issue of levy of stamp duty on joint development agreements to save the property developers from this unpleasant situation.
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