Business

Capital gains: liability before registration

Sec. 2(47) of the Income-tax Act defines “transfer” for purposes of capital gains widely so that even where there is no completed sale under the property laws, there could be liability for income-tax purposes as deemed transfer. The normal instance is one covered under Sec. 53A of the Transfer of Property Act, 1882, incorporating the principle known as “doctrine of part performance”.

However, it is necessary to notice the amendment made by Registration and Other Related Laws (Amendment) Act, 2001 (48 of 2001) to Sec. 53A of the Transfer of Property Act by omitting the words “the contract, though required to be registered, has not been registered”.

The effect of the amendment is that the exception made for unregistered agreement for sale under Sec. 53A would no longer be effective from September 24, 2001, from which date the amendment became effective.

The self-same (very same) Amendment Act, 2001 has also inserted sub-section (1A) in Sec. 17 of the Registration Act, 1908, making it mandatory to register all contracts relating to immovable property so as to cover any agreement of sale of immovable property by further providing that “if such documents are not registered on or after such commencement, then, they shall have no effect for the purpose of the said Sec. 53A”, so that there can be no application of Sec. 53A, where the agreement for sale is not registered.

Such unregistered agreement for sale will not be actionable, if they are dated on or after September 24, 2001.

Consequently, the assessing officer may not be able to depend upon Sec. 53A, if possession is with reference to such unregistered document. But such a view is subject to other modes of transfer deemed under Sec. 2(47), which besides cover exchange, relinquishment, extinguishment of rights, compulsory acquisition, conversion of investment into stock-in-trade and transmission of shares in a company or a co-operative society enabling possession. There is also a blanket provision in Sec. 2(47)(vi) covering a transaction “by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring or enabling enjoyment of any immovable property”. Hence any arrangement by which consideration for the property has either been received or such receipt secured with possession being made available unconditionally, would attract tax, notwithstanding the fact that registration may not have been made.

Power of attorney sales may well be covered, where the consideration is received by the owner, while granting power of attorney.

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