The real estate sector has been witnessing sluggishness for a long time. The downfall has led to a serious decline in the number of buyers in the market. The real estate business has been hit by sector specific issues such as high interest rate, delay in possession, etc., followed by government reforms such as demonetisation and introduction of Goods and Service Tax. The Bombay High Court has recently delivered a judgement that would favourably impact the builders. It clarified that the point of taxability of a builder\u2019s income will arise on the transfer of possession of the property to the buyer. Multiple tax issues The complex nature of the real estate business has given rise to multiple tax issues from time to time. One of such issues arose when the year of transfer of possession was different than that of issuance of allotment letter. The allotment letter was issued to the buyer of the property upon receipt of advance money whereas the possession was transferred in the subsequent year when all the remaining parts of the payment were received. The concern regarding the year of taxability may not always hold good for the courts as the income gets ultimately offered to tax in the subsequent year, thereby meaning only a timing difference. Though the judiciary may not wish to deal with such cases in the interest of time, the income-tax department probes the year of taxation of income in such cases, ignoring the fact that the taxpayer is not evading taxes. The court in a recent case disagreed with the contentions of the tax officer by referring to the terms of the agreement wherein it was clear that the possession of the property was not clubbed with the issuance of allotment letter. Thus, income would be charged to tax in the year in which the possession of the property was transferred to the buyer. This is a fair decision for the builders as it has linked the taxability of their income with the year in which it was earned and not just when the advance payment was received. Thereby, it removed the burden of payment of tax on the receipt of advance. Such a movement would also discourage cash blockage and facilitate wealth creation. Guidlines have been laid for the builders to determine the incidence for accrual of income from the sale of property. Though this ruling would benefit the real estate developers and builders, it doesn\u2019t cover an agreement of \u2018construction worker\u2019 since the taxability in such case is governed by the general provisions for taxation of business income. Income arising on the transfer of building held as stock in trade is taxed as the business income of the tax payer since its taxability has not been specifically provided by the law. With the advent of Income Computation Disclosure Standards (ICDS), some cases of specific negotiation for construction of the property such as Joint Development Agreement have been covered under the specific provisions given therein for recognising the revenue generated by such contracts. Thus, this ruling shall not provide any relief to those cases which are covered by the provisions of ICDS. The writer is partner, Nangia & Co. Inputs from Radhika Arora.