Jun 082021

Facts of the case:

Measurement Consideration
Total area purchase in FY 2003-2004 36 Acres or

1559123 Sq Ft

Rs. 14,19,99,602/-
Transfer to Bangalore Development Authority in FY 2005-2006 326635.30 Sq Ft
Area retain by the assessee 1232771 Sq Ft

The assessee entered into a JDA (Joint Development Agreement) with M/s Brigade Enterprises Private Limited on 8-01-2004 and retained land measuring 1232771 Sq.ft which was put to development as per the covenants of JDA.

The cost of acquisition includes a sum of Rs. 1 crore paid to M/s Bentley Investment as commission. The Commission paid was with respect to the purchase of aforesaid land. The assessee though had an obligation to pay the commission amount immediately after the purchase of land, had to defer the payment due to negotiation differences. The assessee has paid the commission amount of Rs. 1 crore in the FY 2007-2008 and details of the same are under:-

(a) Rs. 83,30,000/-paid from Vijaya Bank Ch.No 674658 dtd 10-1-2008
(b) Rs. 16,70,000/- paid from Axis Bank Ch.No 462924 dtd 17-3-2008.

The assessee had a confirmation letter from M/s Bentley Investment for having acknowledged the commission amount.

Now the issue is whether the above commission ought to be paid after deduction of commission and/or the above commission is allowable in computing the cost of acquisition of property?

Analysis of facts:

Can commission paid to be treated as a cost of improvement? No, the commission claimed to have been paid for the services rendered in acquiring the property by the assessee, but not for anything done to improve the value of the property after its acquisition.
Can the above transaction be a business transaction? Assessee is not engaged in any business activity in real-estate but has only transferred his property to the Developer for the purpose of development and hence receipts arising out the transaction can not be treated as business receipts, but only as capital receipts; and

Also, he agreed to make certain payments as commission not at the time of the acquiring the property, but only after he starts receiving the fruits of his subsequent transfer to the Developer meaning thereby a capital transaction.

The commission is paid almost after 4 years? There is no time limit is prescribed by the provisions of section 48(1) and 55(1)(b) of the Income-tax Act, 1961.
Cash system or mercantile system of accounting? Method of accounting is relevant for computing profits and gains from business.
The written agreement of dealings? Even if the assessee does not have an agreement with the payee but payment has been made through the banking channel and the same was offered for tax in payee partnership profits also. Thus, it can not be said that that commission paid to a partnership firm is a means to reduce the tax bill.


The party who has received the commission payment confirmed that they have received the commission and payment has been made by cheque. Therefore, no one cannot doubt the genuineness of this payment.


These payments are inextricably linked to the acquisition of the impugned property and it should be considered as the cost of acquisition while determining the capital gain on entering into JDA.