Architect Fee paid in connection with Transfer of Development Rights allowable as Deduction: ITAT .

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the architect fee paid by the assessee in connection with the transfer of development rights are allowable as deduction while computing the amount of capital gain under section 48 of the Income Tax Act, 1961.

The assessee has made payment of ₹33,67,200/- for architectural services to the architect vide invoice dated 8th July 2006 for determining the F.S.I. of the land component of MCGM and T.D.R. for the land component of MHADA in accordance with the development and control regulation of MCGM and MHADA. The Assessing Officer has disallowed the claim of expenditure incurred towards the architect fees of ₹33,67,200/- while computing capital gain on transfer of development right. The Assessing Officer was of the view that architect fees cannot be considered as incurred wholly and exclusively in connection with the transfer as per the provision of section 48(1) of the Act.

The Tribunal bench comprising Shri Kuldip Singh (Judicial Member) and Shri Amarjit Singh (Accountant Member) has observed that the CIT(A) has also agreed that the above fees was inevitable in the case of transfer and development rights in accordance with the development control regulation area/portion which needs to be surrendered to MCGM and MHADA should be necessary identified.

“The assessee has paid the fees to the architect for determining the quantum of FSI available in order to determine the area to be transferred to MCGM and MHADA in accordance with the development control regulation without which it would not have been possible to transfer the development right. The assessee has demonstrated from the agreement and copy of invoice as referred above in this order that the impugned architect fees was inevitable in case of transfer of development rights. In the light of the above facts and material on record, we consider that Ld. CIT(A) is not justified in disallowing the claim of the assessee, therefore, we directed the Assessing Officer to allow the deduction of the expenditure incurred for the architect fees. Accordingly, this grounds of appeal raised by the assessee is allowed,” the Tribunal observed.