Capital Gain

1. Once the capital asset is sold resulting in gains it will be charged to tax. Exemptions are available if the sale consideration is utilized for making certain investments. 
2. Unless if it is utilized for the specified investments the gain will be taxed in the hands of the owner of the capital asset. 
3. In your case, if the transfer results in gains it will be subject to capital gains tax. It is irrelevant in here whether the same was utilized for repaying the debt or not. Hence, capital gains arising on transfer of property will be subject to tax. 
Please correct me if the above solution has an alternative view.