Mr A gave power of attorney to his brother Mr B to sell a land in the year 2001. Mr B sold it in 2001 to Mr C but no sale deed was registered to save stamp duty, although possession was passed to Mr C and all payments were duly received by Mr A. Mr A did not paid capital gain tax at that time. Now in the year 2014 Mr C is selling the said land to Mr D. Mr D wants to get the sale deed registered and pay the stamp duty on it. Will any capital gain arise on Mr A as he will be signing the sale deed which now Mr D will get registered after paying the stamp duty.
18 July 2024
In the scenario described, here’s how the capital gains tax implications would generally be assessed:
1. **Original Transaction (2001):** - Mr. A gave power of attorney to Mr. B to sell the land. - Mr. B sold the land to Mr. C in 2001, but no sale deed was registered to avoid paying stamp duty. - Mr. A received the sale proceeds from Mr. C.
2. **Capital Gains for Mr. A in 2001:** - Capital gains tax would have been applicable in 2001 when Mr. A transferred the rights in the land to Mr. C through Mr. B. - The capital gain would have been calculated as the difference between the sale proceeds received by Mr. A and the indexed cost of acquisition of the land (adjusted for inflation).
3. **Current Situation (2014):** - Mr. C is now selling the land to Mr. D, who intends to register the sale deed and pay stamp duty. - Mr. A, being the original owner of the land, will need to sign the sale deed when Mr. D purchases the land from Mr. C.
4. **Capital Gains Tax Liability:** - Since capital gains tax should have been paid by Mr. A in 2001 when he transferred the rights to Mr. C, there should ideally be no fresh capital gains tax liability arising now in 2014. - The transaction between Mr. C and Mr. D is a subsequent sale between two other parties, and any capital gains tax implications would generally be between them.
5. **Registration of Sale Deed:** - Mr. A’s involvement in signing the sale deed in 2014 is procedural to transfer the legal ownership to Mr. D. - He should ensure that the transaction is properly documented and all legal formalities are followed, including the payment of stamp duty by Mr. D.
6. **Consultation:** - It’s advisable for Mr. A to consult with a tax advisor or a chartered accountant to review the specific details of the original transaction in 2001 and ensure compliance with tax laws. - They can provide guidance on any retrospective tax implications or rectifications that may be necessary concerning the original capital gains transaction.
In conclusion, while Mr. A will sign the sale deed in 2014 for the transfer of ownership from Mr. C to Mr. D, he should not have any additional capital gains tax liability arising from this transaction. The tax liability should have been addressed in 2001 when he initially transferred the rights in the land to Mr. C.
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