The real impact of the amended provision of the Registration & other Relevant Laws (Amendment) Act ‘2001 on taxation of transfer of capital assets under the circumstances referred to in clause (v) of section 2 ( 47) of the income tax Act.
The existing provision of section 2(47)(v) of the income tax Act is mainly focusing on taxability of transfer of capital assets of the nature referred to in section 53 A of the Transfer of property Act . If we consider the provisions contained in sec. 53A of the Transfer of property Act,1882 ( TP Act,1882 ) as subordinate or explanatory one to interpret the real intention of the income tax law as to levy capital gain tax on all genuine transfer / sale of capital assets irrespective of registration of backup documents , the mere shifting the possession from one to other as part performance of nature referred to in section 53A of the TP Act will be deemed as transfer / sale of capital asset in the Income tax Act irrespective of the amendment made subsequently in the subordinate Act as referred above. Whether the reference of section 53 A of the TP Act made in the Income tax Act , particularly in section 2 ( 47) (V ) , is acting as subordinate or explanatory provision in the overall picture of capital gain taxation is debatable one .
There was an amendment made in section 17 (1A) of the Registration Act ‘1908 in the year 2001 in such a manner that the documents containing contracts to transfer for consideration any immovable property for the purpose of section 53 A of the Transfer of property Act ,1882 shall be registered if they have been executed on or after the commencement of the Registration and other Related laws (Amendment ) Act , 2001 and if such documents are not registered on or after such commencement ,then ,they shall have no effect for the purpose of section 53A of TP Act subject to one safeguard that unregistered agreement of sale executed earlier would be taken as a tool to enforce part performance of the contract by other part ,and hence we may partially conclude that GPA for sale , agreement to sale , contract to sale etc. should be compulsorily registered as per the amended provisions of the registration Act , otherwise the transferee would not get clear title on the property involved therein . But the question of taxability of capital assets as per provisions contained in section 2 ( 47) ( v ) based on unregistered documents after considering the amendment made in the Registration and other Related laws in the year 2001 is still debatable issue
The hot question that to be answered is that whether the deemed transfer of capital asset of the nature referred to in the amended section 53 (A ) of TP Act supported by an unregistered sale agreement / contract of sale or other similar document is considered as transfer under the existing provision of section 2 (47(v) of Income tax Act and taxable accordingly, one more debatable and contentious issue that also need to be discussed is that whether an unrestricted & unconditional registered GPA executed by the property owner would amount to agreement of sale in the absence of registered agreement of sale so as to make the legal owner of property responsible for capital gain tax as per provisions contained in section 2 (47) (v) , if not whether the GPA holder would be responsible for capital gain tax as per sec. 2 (47) (vi) of the Income tax Act .
Questioning the taxability of deemed transfer after the amendment made in the Registration Act ‘1908
If we read out the provisions contained in section 2 ( 47) ( v) of the Income tax Act and section 53A of the Transfer of property Act by having in mind the amendment made in the Registration Act as to compulsory registration of all documents , the taxability of deemed transfer of capital assets by applying the existing provisions contained in section 2 ( 47) (v) of income tax act would be questioned because of the fact that the agreement of sales or contracts of sale or any other supporting documents ( acting as documentary evidences in support of transfer of possession of immovable property as part performance of the contact of nature referred to in section 53A of Transfer of property Act ) without getting registered under the amended provisions of registration act would not be taken as valid documents towards the deemed transfer /sale of immovable property . Now we may examine in the subsequent paragraphs the taxability of deemed transfer by interpreting the intended purposes aimed to be achieved by the income Tax Law .
Inherent necessity behind referring Sec 53 A of TP Act while drafting provision in sec. 2( 47) (v) of Income Tax Act
It is accepted that there is a reference made in clause (v) of section 2 ( 47) of the Income tax Act in such a manner that transactions of the nature referred to in section 53A of transfer of property will be considered as deemed transfer to levy tax on deemed transfer but it does not mean that capital gain tax would be levied on the deemed transfers as explained above subject to strict compliance of the relevant provisions of the Transfer of property Act, particularly with reference to the provisions that now emphasizing on compulsory registration of documents in support of transfer of legal title of immovable properties from transferor to transferee. The underlying principle which emerged from section 53A of Transfer of property Act is that the transferor or any other person claiming under him shall be debarred from enforcing against the transferee and person claiming under him any right in respect of the property of which the transferee has taken or continued in possession ,and hence we may infer that provision contained in section 53A of transfer of property is mainly to protect the interest of the transferee who has already performed / is right to perform his part of job as per the terms of contract agreed and not to decide about the validity and taxability of deemed transfer under the income tax Act . Hence the inherent necessity of referring sec .53A of TP Act in the income tax Act while drafting the provisions under section 2(47) (v) was to levy tax on transfer made in a peculiar circumstances wherein the actual purpose of transfer of capital assets from the transferor to transferee might be served whereas the registration of backup documents such as agreement of sale /contact of sale would take place at later stage . Now we may partly conclude that Section 53 A is acting subordinate or explanatory provision to interpret section 2 (47) (v) of the Income tax Act,1962 .
Legal pronouncement & understanding by the Court of Law
Once we try to get into the legal understanding arrived at by the court of law on the failure of compulsory registration of supporting documents such as GPA , agreement of sale or other similar documents pertaining to sale or transfer of immovable property, we may partially conclude that the transfer of possession of immovable property as part performance of the contact of nature referred to in section 53 (A) of TP Act without having registered agreement of sale is taxable even after the date of amendment made in the Registration Act ‘1908. In a leading case, M/s .Suraj Lamps & Industries Pvt .Ltd Vs. State of Haryana and Anr.183 (2011)DLT 1 (SC) , the Supreme court has observed the below facts while expressing its final verdict on the issue of validity of transfer or sale of immovable property without going for registration of backup documents immediately in support of genuinely concluded deal.
- Unregistered sale agreement , GPA and will transfers do not convey title and do not amount to a transfer of immovable property
- Further held that such transactions cannot be recognized as a valid mode of transfer
- the validity of genuine agreement of sale and power of attorney would not be affected on the basis of above observation
- Transactions effected through an unregistered agreement of sale , GPA and will would not get affected if these were executed before the date of amended made in the Registration Act which makes it clear that compulsory registration of all documents is necessary w.e.f 24th Sep,2001 .
- Also observed that the unregistered sale agreement, GPA and will transfers could also be used to obtain specific performance or to defend possession under section 53A of the Transfer of property Act .
- It was also finally clarified that any genuine or good faith transactions would not be invalidated by this decision
Since the Supreme court has protected the genuine transactions , those were executed previously ( before the date of making compulsory registration of all transfer documents under the registration Act 1908 ) and supported by unregistered documents , by providing an option to get it registered and claim better title on the property involved therein, we may infer that transfer or sale of capital assets took place under the category of deemed concept as per section 2 (47)( v) prior to the amendment made in the Registration and other Relevant laws in the year 2001 through unregistered agreement of sale /contract of sale as back up document would be considered as transfer for capital gain taxation. But the taxability of deemed transfer of capital assets as per section 2 (47)(v) after the amendment made in the Registration and other Relevant Act including the Transfer of property Act is debatable issue irrespective of a safeguard provided in the amended Act in such manner that the amendment made in the Registration and other Relevant Act in the year 2001 would not affect the genuine transaction under section 53A of TP Act
The limited purpose of applying the provisions of other statutes woud not defeat the intended purpose of the Income tax Law
The limited purpose of application of the provisions contained in section 53A of Transfer of property Act in the Income tax law is to interpret the implied meaning of deemed transfer of property as explained in the existing provision of section 2(47) (v) of Income tax Act and not to decide about the taxability of transfer of capital assets concerned ,that is , the limited application of provisions of other statutes would not defeat the intended or implied purpose build in the relevant laws , and hence we may infer that the change in the Transfer of property Act as to compulsory registration of transfer / sale of immovable properties to claim better title on the property concerned would not have any direct impact on the existing provision of income tax laws which is focusing to levy capital gain tax on deemed transfer of capital assets concluded by unregistered documents subject to fulfilling other conditions referred in the relevant section , and this fact was impliedly accepted by ITAT Bench of Tribunal in case of Sreenivasan Vs. DCIT 28 Taxmann .com 200 ( Cochin) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganesh wade Vs.ITO 21 Taxmaan .com136 (Pune)
Whether the General power of attorney ( GPA ) to effect sale of immovable property would amount to back up document for transfer /sale of capital assets
Now another relevant question is that whether the person having power of attorney would be considered as transferor or not in the circumstance wherein one who granted or executed power in favor of GPA holder failed to meet out his obligation of paying capital gain tax on transfer /sale of property which was concluded and registered by the grantee or holder of power. The answer would be based on the type of the GPA as explained bellow
If a registered irrevocable unconditional & unrestricted GPA executed in favor of power holder or grantee of power by the legal owner of the property empowering the former to act on behalf latter in all aspects with reference to sale transaction without any specific restrictions and conditions as to conclude the end deal and make registration accordingly , we may infer that the legal owner of property had transferred the possession of property in the circumstances narrated and explained in section 53A of TP Act ion which resulted in transfer of capital assets as per the provisions clearly outlined in the section 2 (47) ( v) of the Income tax Act .
Now we would think about the method of taxing capital gain accrued on the first deemed transfer that took place between the legal owner and GPA holder having registered irrevocable unconditional GPA which might be treated as transfer documents . The legal owner would be responsible for capital gain tax that to be computed on the basis of guideline value of property prevailed on the date of execution of unconditional GPA . The registered irrevocable & unconditional GPA would be considered as implied transfer document to confirm the implied transfer /sale take place between the legal owner & GPA holder . The reason for treating the irrevocable unconditional GPA as transfer document in support of the implied sale is that the legal owner is responsible to pay out tax on transfer /sale of immovable property after considering the provisions stated in section 50C of the Income tax Act if the actual sale price of the property involved is less than guideline value prevailed on the date of transfer ( in the given case of deemed transfer , it is date of execution of unconditional GPA ) , and in the given case the actual price of the property on the date of execution of this unconditional GPA would not be ascertainable so that full guideline value would be taken as deemed consideration or sale value for the implied transfer between the legal owner & holder of unconditional GPA .
The second transfer that would take place later between the GPA holder and the buyer of the property which is referred in the GPA would be treated as another transfer of capital assets notwithstanding the fact that the power holder acted on behalf of legal owners of the property and the question of taxability of this second transfer would be based on the actual transfer price or guide line value prevailed on the date of second transfer . If there is no change between the guideline value prevailed on the date of execution of unconditional GPA and the date of actual sale effected by holder of GPA , the power holder will not be liable for capital gain tax . If the actual price of last sale concluded by GPA holder is higher than the guideline value prevailed on date of final sale , GPA holder will be responsible for capital gain tax on the differential value arrived at after deducting the guideline value prevailed on the date of execution of GPA from the actual sale price of last sale concluded by GPA holder subject to confirmation of fact that the person /grantee ( owner of property ) who executed unconditional GPA in favor of grantor has paid his portion of capital gain tax by taking guideline value prevailed on the date of execution of GPA as sale consideration .
If the legal owner of the property has executed a restricted / conditional / specific / revocable registered power of attorney empowering the power holder to carry out the well defined jobs that are clearly narrated in the power documents as to complete the sale transaction as per law and the power holder has done his part of duty strictly as per the terms & conditions referred to in the power , then , the legal owner of the property / grantee of power is the only person liable for capital gain tax payable on the value of property sold or transferred subject to compliance of the provisions contained in section 50C of Income tax Act . As unlike the registered unrestricted & unconditional GPA as explained in the previous paragraph acted as agreement of sale , the restricted or specific power of attorney executed here would not be taken as agreement of sale as to make the power holder responsible for capital gain tax in case the grantee of the power failed to meet out his obligation of paying capital gain tax on the property involved herein.
At the concluding stage of this article, we may end up with the below understanding on the subject matter of our discussion the amended provision of the Registration Act ‘1908 is mainly cautioning the transferee of immovable property ( the persons who have acquired or purchased immovable property without opting for immediate registration ) and also aiming to reduce circulation of black money by invalidating the sale or transfer of immovable property if not registered as per the provisions stated therein.
We cannot simply say that all transfer of capital assets under the deemed provision of section 2 (47) (v) of the Income tax Act ( after considering the amendment made in the Registration Act’ 1908 ) is invalid if not supported by registered sale documents , because of the fact that the transferee who got the possession of immovable property under the circumstances of part performance of the contract of nature referred to in section 53 (A )of the Transfer of property Act has right to force the transferor to do his part of contract on the basis of unregistered agreement of sale if the transaction is genuine .
The limited application of provision of other statutes to interpret the income tax law would not defeat the intended purpose of tax laws , and hence we may infer that the transactions of genuine nature as defined in 53 ( A) of TP Act will be treated as transfer under the deemed provisions of income tax law even after the amendment made in the Registration and other Relevant Acts including the Transfer of Property Act ,1882 if the transactions are genuine and supported by relevant supporting documents ,whether registered or not , but subject to fulfilling other conditions specified in section 53A of the TP Act .
The author of above Article -
R.Vaiyapuri Kannan , B.Com, FCA,ACS, ACMA , Chennai
Practicing member of the Institute of Chartered Accountant of India
Mail id : rvkfca@yahoo.co.in
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