B. Ramakotaiah, A.M:— This appeal by the Revenue is against the order of Ld. CIT(A)-V, Hyderabad dated 31.10.2012 The issue contested by Revenue is about the deduction directed by Ld. CIT(A) of Rs. 31,32,000, out of full value of consideration. The Revenue has raised following two grounds.
“2. The CIT(A) ought to have upheld the disallowances in respect of capital gains considering that the A.O could not have been expected to allow deductors beyond the purview of sec. 48 of the I.T Act.
3. The CIT(A) failed to appreciate the legal constraints and thereby allowed the assessee's appeal on capital gains.”
2. Briefly stated facts are that assessee is an individual, received an amount of Rs. 7,55,98,125 as sale consideration from sale of 1288 sq. yards of land and built-up area of 24 flats situated at Miyapur, Hyderabad. While calculating the long term capital gain, assessee claimed deduction from the sale consideration of the following amounts:
(i) Infrastructure expenditure Rs. 24 lakhs (ii) Corpus Fund Rs. 06 lakhs (iii) Amount payable to builder towards Wood quality difference 24 × Rs. 5500 Rs. 1,32,000
Assessing Officer was of the opinion that the above amounts are not allowable as an expenditure under section 48 of the Act and disallowed the same referring to the said section.
3. Before the Ld. CIT(A), assessee submitted that as per the agreement entered between the assessee-land owner and M/s. SMR Builders P. Ltd., assessee is required to pay corpus fund, infrastructure fund and difference on account of teak wood used in the flats falling to his share. The builder instead of collecting the same from flat owners, passed on the responsibility to the land owner. The above is by virtue of clause in the agreement and there is an obligation created under the agreement. It was also further submitted that assessee at the time of sale of 24 flats assigned to him as part of development agreement, have collected above amounts from the buyers and passed on to M/s. SMR Builders P. Ltd., and filed copies of some sale deeds indicating the above facts and also certificate from M/s. SMR Builders P. ltd., that the amounts were received by way of cheque. Considering the above, Ld. CIT(A) allowed assessee's contention by stating as under:
“4.3 I have carefully considered the submissions of the appellant and the facts of the case. After verification of documents submitted by the appellant, it is clear that an obligation is created between the builder and the land owner i.e, the appellant to collect the charges from buyers and remit the same to the builder. In the agreement between the builder and the appellant, this clause is clearly stated in page nos. 2 and 3 of Annexure-II of the agreement dated 3rd November, 2005, which is as under:
“…………………. That the First Party further agreed to pay the corpus fund and infrastructure amount and the difference amount for the teak wood used etc., will be paid to the Second Party before taking possession of the flats in various blocks as mentioned block wise.
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Agreed cost of infrastructure per flat Rs. 1,00,000 Corpus fund per flat Rs. 25,000/-
Extra cost for teak wood Rs. 6,000/- per flat
4.4 As per the obligation, the appellant had fulfilled the reimbursement of infrastructure of Rs. 24,00,000/-, corpus fund of Rs. 6,00,000/- and wood quality difference of Rs. 1,32,000/-, totaling to Rs. 31,32,000/- out of the full value of consideration received by him. This payment of Rs. 31,32,000/- is also evidenced by a confirmation letter submitted by the SMR Builders Pvt. Ltd., dated 30.10.20125 in which it was clearly mentioned that the appellant has paid an amount of Rs. 73,73,000/- towards refund of development advance, cost of infrastructure, corpus fund and wood quality difference for his share of flats in SMR Vinay City and the payment was also received by them through cheque no. 327885 dated 06.04.2007
4.5 In the light of the above evidences submitted by the appellant and also on the facts of the case, this addition of Rs. 31,32,000/- should not have been made by the Assessing Officer as the same were not actually received by the appellant. Hence, it cannot the income appellant. Accordingly, the Assessing Officer is directed to deduct the above amount from full value of consideration while calculating the capital gains.”
4. After considering the rival contentions and perusing the facts on record, we do not see any merit in Revenue grounds. It is an obligation created as part of the agreement and there is no dispute that the amounts are collected from the buyers and paid to the developer. Since, these amounts are included in the sale consideration, assessee can certainly claim the amount in order to arrive at full value of consideration. Since, there is contractual obligation to pay the above amounts, Ld. CIT(A) is correct in allowing the amounts. Hon'ble A.P High Court in the case of CIT v. Manohar Rao, Managing Director 155 ITR 696 considered the scope of full value of consideration in a case and held that capital gain had to be computed by taking into account only the amount which was actually received by assessee. In that case, assessee owns 4.27 gts of land, had entered into an agreement to sell the land at Rs. 25,000 per acre. Subsequent to that, the land was acquired by Government and only an amount of Rs. 2,20,220 was received by assessee. As assessee has entered into agreement, assessee paid an amount of Rs. 1,05,220 immediately on receipt of compensation to the agreement holder and offered the balance amount of Rs. 1,20,000 as capital gain. Considering the facts of the case and the fact that there is a legal right in the compensation amount, Hon'ble High Court held that this is a case of diversion of income by overriding title. Since, in assessee's case also there is contractual right in paying amounts, we confirm the order of Ld. CIT(A) and dismiss Revenue grounds.
5. In the result, appeal of Revenue is dismissed.
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