Contribution of Leasehold Rights to LLP Against Profit-Sharing is a Taxable Supply

Facts

The Asset: The applicant, Aryapride Hotel and Convention Private Limited, holds leasehold rights to one acre of land (leased from IDCO) intended for a Hotel-cum-Restaurant project.
The Proposal: Upon completion of the construction, the applicant intends to form a Limited Liability Partnership (LLP) with another entity (Pride Hotel Limited).
The Transaction: The applicant proposes to contribute the constructed hotel floors and associated infrastructure to this LLP. In exchange, the applicant would receive a 56% partnership interest and rights to a share of future profits.
The Dispute: The applicant sought an advance ruling to determine if this contribution of developed leasehold and commercial rights to the LLP constitutes a “supply” under the GST framework.

Decision

Final Verdict: In favour of the Revenue.
Ratio Decidendi:
- Intention of Transfer: The Authority noted that the construction and development were undertaken with the predetermined intent of transferring these commercial rights to the LLP.
- Nature of Consideration: The acquisition of partnership interest and the right to share in profits constitutes “consideration” in a non-monetary form for the transfer of the asset.
- Scope of Supply: Under Section 7 of the CGST Act, “supply” includes all forms of transfer or disposal of assets made or agreed to be made for a consideration in the course or furtherance of business.
- Conclusion: The transfer of leasehold/commercial rights to an LLP as a capital contribution is a taxable supply of service, and GST is leviable on the value of the capital contribution and profit-sharing rights so received.

Key Takeaways

Capital Contribution is Not Tax-Neutral: Businesses should be aware that contributing immovable property or leasehold rights to a partnership or LLP is not a tax-free event under GST. It is treated as a supply of service.
Valuation Challenges: Since the consideration is in the form of partnership interest and future profit sharing, determining the “open market value” for GST payment will be critical. Taxpayers must rely on Valuation Rules (Rule 27 of CGST Rules) to determine the taxable base.
Leasehold Rights Scrutiny: This ruling reinforces that “commercial rights” associated with land are distinct from the land itself. While the sale of land is outside GST, the transfer of leasehold or development rights remains a taxable service.
Pre-Formation Planning: Entities planning joint ventures via the LLP model should factor in the GST outflow on the value of assets contributed at the inception stage.

AUTHORITY FOR ADVANCE RULING , ODISHA BENCH

Aryapride Hotel and Convention (P.) Ltd., In re*

Harsh Vardhan and MS. PRATIMA MOHANTY, Member

No.- 10/ODISHA-AAR/2025-26

MARCH 18, 2026

Bikram Kshari Barik and Biplab Roy, Advs. for the Applicant.

PROCEEDINGS

1. The Applicant is Private Limited Company and has sought advance ruling in respect of the following question:

Q.1.

Whether GST liability would accrue, if at all, to the Party of the First Part upon transferring the developed leasehold land and constructed structure (the Hotel Project) as its capital contribution to the LLP?

Q.2

The primary issue revolves around the nature of the transaction and the timing of the transfer-specifically, whether the transaction constitutes a sale of immovable property or supply of service under the GST framework?

Q.3

Whether this transaction would be treated as a “supply” of goods or services made in the course or furtherance of business and, if so, whether it attracts GST, particularly in respect of the under-construction portion of the property.

1.1 At the outset, we would like to make it clear that the provisions of both the CGST Act and the OGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the OGST Act. The present application has been filed under Section 97(1) of the CGST Act, 2017 and OGST Act, 2017 seeking advance ruling on taxability of transactions propose to be undertaken by the applicant. The questions raised relate to determination of liability to pay tax on a proposed arrangement and fall within the scope of Section 97(2) (e) of the CGST Act, 2017. The application is, therefore, admitted under Section 98 of the CGST Act, 2017.

2. The applicant furnishes some facts relevant to the stated activity :

2.1

The applicant, Aryapride Hotel and Convention Private Limited, Bhubaneswar, Odisha (hereinafter referred to as the “Applicant”), is the leaseholder of land measuring 1 (one) acre (43,560 sq. ft.) situated at Village Bhagabanpur, Tehsil-Bhubaneswar, Odisha. The said land has been leased by Orissa Industrial Infrastructure Development Corporation (IDCO) (hereinafter referred as “Lessor” for establishment of a Hotel-cum-Restaurant and Hotel Unit, subject to conditions set forth in the lease deed.

2.2

The project constitutes a composite scheme for construction and development of a Hotel – Cum-Commercial Building comprising:

(a)

Ground floor to 4th floor – Jewellery Mall (commercial complex);

(b)

5th floor to 22nd floor – Hotel (hereinafter referred to as the “Hotel Project”).

2.3

Upon completion of construction, the applicant proposes to enter into a Limited Liability Partnership (LLP) with Pride Hotel Limited, New Delhi (hereinafter referred to as the “Party of the Other Part”) in the ratio of 56:44 for the purpose of operating the Hotel Project.

2.4

As per the proposed LLP agreement, the capital contribution of the applicant shall consist of:

(i)

Construction of 5th to 22nd floors together with developed leasehold land attributable to the Hotel Project;

(ii)

High-side civil works up to respective floors;

(iii)

Electrical installations up to DB room on each floor;

(iv)

HVAC systems and piping up to respective floors;

(v)

Drainage shafts up to bathroom level;

(vi)

Plumbing water line till rooms; (vii)

Fire-fighting systems and pumps at designated locations on each floor.

2.5

The capital contribution of the Party of the Other Part in the LLP shall comprise all remaining works required for hotel operations and provision of working capital. The initial capital of the LLP will thus be constituted as per the aforesaid contributions by both parties. Any subsequent capital requirement of the LLP shall be met solely by the Party of the Other Part.

2.6

Prior to formation of the LLP, ownership of the entire project shall remain with the applicant. Upon formation of the LLP, the applicant shall contribute the Hotel Project portion as capital contribution, with prior written consent of IDCO.

3. Submission of jurisdictional tax authority on Advance Ruling Application:

The Jurisdictional Tax Authority vide letter dated 03.12.2025 has made following submissions:

Q1. Whether GST liability would accrue, if at all, to the party of the First Part upon transferring the developed leasehold land and constructed structure (Hotel Project) as its capital contribution to the LLP?

Reply:

In the present case, transfer of completed developed leasehold land along with constructed and ready-for-use hotel building as capital contribution to the LLP does not constitute a supply under Section 7 of the CGST Act, 2017.

Schedule III expressly provides that sale of land and sale of building after issuance of completion certificate or after first occupation shall be treated as activities which are neither supply of goods nor supply of services. Since the hotel building stands completed and no element of under-construction service is involved, the transaction retains the character of transfer of immovable property.

The mode of transfer, namely capital contribution to an LLP, does not alter the intrinsic nature of the asset or convert it into a taxable supply, as introduction of immovable property as capital is merely a method of restructuring ownership and not a provision of service. Accordingly, the transaction falls outside the ambit of GST and no GST liability would accrue to the Party of the First Part.

It is further clarified that the non-taxability of the said transaction does not arise by virtue of any exemption notification issued under Section 11 of the CGST Act, but because the transaction is outside the scope of GST by operation of law under Schedule III. Hence, no GST liability arises.

Q2. Whether the transaction constitutes a sale of immovable property or supply of service under the GST framework?

Reply:

Since the transaction involves transferring developed leasehold land and constructed structure (Hotel Project), it constitutes sale of immovable property and does not qualify as supply of services in terms of Schedule III to the CGST Act, 2017. Therefore no GST liability arises.

The non-applicability of GST flows from the statutory provision of Schedule III, not from exemption under Section 11. Thus the transaction is not an exempt supply but a non-supply under the Act.

Q3. Whether the transaction would be treated as a “Supply” made in the course or furtherance of business and whether it attracts GST, particularly in respect of the under-construction portion of the property?

Reply:

Transfer of assets as capital contribution in an LLP is, in substance, an exchange for a share or interest in that entity and may qualify as consideration in non-monetary form. In that situation the transaction, being made for consideration and in connection with business, may be in the course or furtherance of business.

Under the CGST Act, 2017 read with Schedule II, construction of a complex, building, civil structure or part thereof intended for sale to a buyer is treated as supply of service if consideration is received before issuance of completion certificate or before first occupation, whichever is earlier. Therefore, in the instant case GST will be leviable on the under-construction portion of the property.

4. Personal Hearing:

During personal Hearing, Sri Bikram Keshari Barik, Advocate, Authorized Representative & Shri Biplab Roy, Advocate/ Authorized Representative of the applicant appeared before the Advance Ruling Authority on 25.11.2025 wherein the Authorized representative led by Shri Biplab Roy has reiterated the facts made in their written submission.

5. Discussion & findings:

Based on the facts placed before us, the core issues that has to be determined are:

(i)

Whether the proposed contribution of constructed hotel floors and associated infrastructure by the applicant to the LLP constitutes a “supply” under Section 7 of the CGST Act, 2017;

(ii)

Whether the consideration received by the Applicant from the proposed profit sharing ratio of 56:44 against their contribution by contributing the structure building (partially) for operation of Hotel Business has been made for furtherance of business?

(iii)

Whether the transaction can be regarded as a mere capital contribution outside the ambit of GST.

Before proceed further, we have to analysis the nature of supply in the proposed transaction in consonance with the definition of prescribed in GST Act.

Section 7 of CGST Act, 2017 prescribes:

Scope of supply.

7. (1) For the purposes of this Act, the expression “supply” includes –

(a)

all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

[(aa)

the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation. – For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]

(b)

import of services for a consideration whether or not in the course or furtherance of business [and];

(c)

the activities specified in Schedule I, made or agreed to be made without a consideration [****];

(d)

[****]

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]

(2) Notwithstanding anything contained in sub-section (1), –

(a)

activities or transactions specified in Schedule III; or

(b)

such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of [sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

(a)

a supply of goods and not as a supply of services; or

(b)

a supply of services and not as a supply of goods.

From the above provision of law, it is evident that, Section 7(1)(a) of the CGST Act, 2017 defines supply to include all forms of supply of goods or services or both made for a consideration in the course or furtherance of business. The above inclusive definition of supply also includes rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

It is a settled position of law that capital contribution in kind is not automatically excluded from GST. What is material is whether goods or services are provided by one distinct person to another for consideration.

Section 2(84) of CGST Act, 2017 provides definition of person which reads as:

(84) “person” includes-

(a)

an individual;

(b)

a Hindu Undivided Family;

(c)

a company;

(d)

a firm;

(e)

a Limited Liability Partnership;

(f)

an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g)

any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(h)

any body corporate incorporated by or under the laws of a country outside India;

(i)

a co-operative society registered under any law relating to co-operative societies;

(j)

a local authority;

(k)

Central Government or a State Government;

(l)

society as defined under the Societies Registration Act, 1860 (21 of 1860);

(m)

trust; and

(n)

every artificial juridical person, not falling within any of the above;

From the above provision it transpires that, the applicant and the proposed LLP are two distinct persons. Contribution of assets by the applicant to the LLP therefore constitutes a transaction between two separate taxable persons.

Section 2(31) of the CGST Act provides the definition of consideration under GST which reads as:

(31) “consideration” in relation to the supply of goods or services or both includes –

(a)

any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b)

the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Consideration under Section 2(31) of the CGST Act, 2017 includes non-monetary consideration and any payment made for the inducement of, the supply of goods or services or both. The applicant, in return for contributing the Hotel Project, receives partnership interest, profit-sharing rights and commercial benefits in the LLP. It is noteworthy to mention here that, the proposed LLP is yet to be formed and terms and conditions are also yet to be finalized. What appears from the submission of the applicant is, the ownership of the whole building will be rest with the applicant and the LLP will be only permitted to use the permissible portion of the building of operation of Hotel Business without any ownership rights on the said Asset.

In the proposed business LLP, we find that, the LLP receives an asset (e.g., land/building). In return, the partner receives economic benefit (profit share, development rights, etc.). Therefore, the benefit is given to induce the partner to transfer the asset to the firm. Therefore, the argument that capital contribution lacks consideration is untenable.

The applicant does not transfer absolute ownership of land. What is transferred to the LLP is the right to use and enjoy the leasehold land and constructed structure for the duration of the lease. Schedule II, Entry 2(a) of the CGST Act, 2017 deems any lease, tenancy, easement or licence to occupy land as a supply of service.

The contribution of developed leasehold land along with construction is therefore in substance a service of transferring leasehold rights coupled with construction-related services.

Schedule III excludes sale of land and completed buildings from GST. However, the present transaction does not involve sale of land. What is transferred is a bundle of rights in leasehold land along with underconstruction / commercially pre-arranged structures, which is specifically taxable under GST.

Commercial Intent – Pre-arranged Commercial Exploitation

From the factual matrix placed before this Authority, it is evident that the construction of the Hotel Project and the formation of the LLP are not independent or unrelated events. The applicant has conceived the project from the inception with a predetermined arrangement that the hotel portion of the building (5th to 22nd floor) would be commercially exploited through a jointly operated LLP with Pride Hotel Limited.

The construction of the said portion of the building is therefore undertaken with a clear commercial objective of transferring the developed leasehold rights and associated commercial infrastructure to the LLP for the purpose of operating a hotel business.

The proposed contribution of the Hotel Project to the LLP is thus not a passive or incidental capital restructuring but forms an integral step in a pre-planned business model for commercial exploitation of the immovable property.

In GST jurisprudence, the true nature of a transaction must be determined on the basis of its economic substance rather than the nomenclature adopted by the parties. Where a transaction is structured as part of a pre-arranged commercial arrangement resulting in transfer of valuable business rights to another taxable person, the same falls within the scope of “supply” under Section 7 of the CGST Act, 2017.

Accordingly, this Authority finds that the applicant has undertaken construction and development of the Hotel Project with the clear and predetermined intention of transferring the developed leasehold and commercial rights to the LLP for consideration in the form of partnership interest and profit-sharing rights. Such a transaction squarely constitutes a taxable supply of service under the GST framework.

In view of the foregoing discussions, we are of the opinion that:

The proposed contribution by the applicant to the LLP is not a mere capital contribution in isolation but is a structured commercial transaction.

The activity constitutes supply of service under Section 7 read with Schedule II of the CGST Act, 2017.

6. In view of the above, we pass the following order:

RULING

Q.1. Whether GST liability would accrue, if at all, to the Party of the First Part upon transferring the developed leasehold land and constructed structure (the Hotel Project) as its capital contribution to the LLP?

Ans : Appropriate GST would be leviable as discussed above in the proposed business model considering the capital contribution as envisaged by the applicant the consideration so received in terms of profit sharing.

Q.2 The primary issue revolves around the nature of the transaction and the timing of the transfer-specifically, whether the transaction constitutes a sale of immovable property or supply of service under the GST framework?

Ans: It will be treated as supply of Service.

Q.3 Whether this transaction would be treated as a “supply” of goods or services made in the course or furtherance of business and, if so, whether it attracts GST, particularly in respect of the under-construction portion of the property.

Ans: The transaction would be treated as supply of Service as discussed above.