Capital Gain on Registration of property bought 20years ago.

Hi, In 2000 at Noida, a Commercial property was bought through an unregistered sale agreement, jointly in two names A & B and a Power of Attorney was executed and Registered at the same time jointly in names of C & D.

Today A & B wants the Power of Attorney C & D to register the sale in their name through a Transfer from the NOIDA authority. Apparently, NOIDA authority recently started a policy to transfer commercial property only to single person, partnership or LLP or a Pvt Ltd Company.

Today, If one is forced to create a PARTNERSHIP FIRM between A & B, in order to register the Transfer/Conveyance deed to follow the NOIDA Authorities guidelines, would this document registration attract Capital Gain Tax. How would one resolve this, since there is no transaction between the parties involved?

Is there any other way of dealing this issue?

Thanks for your time in advance.

This is a nuanced situation involving property registration, transfer, and capital gains tax. Let's unpack it carefully:

Scenario Summary:

Commercial property in Noida bought 20 years ago (2000) via unregistered sale agreement by A & B jointly.
A Power of Attorney (PoA) was executed and registered in favor of C & D (also jointly).
Now, A & B want C & D (PoA holders) to register the sale in their name via transfer from NOIDA authority.
NOIDA policy requires transfer only to single person, partnership, LLP, or Pvt Ltd company.
So, A & B consider creating a Partnership Firm to comply.
Concern: Will registering property in Partnership firm's name attract Capital Gains Tax (CGT)?
Seeking ways to avoid CGT since no real transaction between parties.

Key Issues:

Is creation of Partnership Firm and transfer of property to it considered a “transfer” triggering Capital Gains tax?
How to structure registration to avoid CGT if no actual sale/consideration?

Capital Gains Tax Analysis:

Under Income Tax Act, ‘transfer’ includes sale, exchange, relinquishment, or any other form of disposal of capital asset.
Transfer of property from individuals to their partnership firm is generally considered a transfer and thus capital gains tax is triggered.
This is because firm is a separate legal entity and this transfer is considered as sale or exchange.
Even if no actual money changes hands, fair market value of property on transfer date is considered as sale consideration for capital gains.
So, transferring property from A & B (individuals) to Partnership Firm will trigger capital gains tax on the difference between FMV and cost of acquisition.

Possible Exemptions or Alternatives:

No exemption on transfer to Partnership Firm:
- Unlike transfer to a spouse or certain family members, transfer to partnership firm is taxable.
Transfer to LLP:
- Section 47(xiiib) exempts transfer of capital asset by partner to LLP in certain cases.
- But this applies to LLP, not Partnership Firm.
- So, consider whether LLP structure can be used instead of partnership firm.
Joint ownership in individual names:
- NOIDA’s policy restricts transfer only to single or firm/company.
- Need to confirm if transfer directly to one individual or jointly is allowed.
Partition among co-owners:
- If A & B are co-owners, they can partition property, but partition between co-owners is not a transfer and no capital gains tax arises.
- But may not solve NOIDA’s registration policy.
Regular sale with proper agreement:
- If sale to a firm or individual, capital gains tax is inevitable.
Get legal advice to check if NOIDA accepts transfer to LLP:
- Transferring property to an LLP (Limited Liability Partnership) formed by A & B might avoid immediate capital gains tax due to Section 47(xiiib).

Summary / Recommendations:

Point	Comment
Transfer to Partnership Firm	Considered transfer; triggers capital gains tax on FMV minus cost of acquisition
Transfer to LLP	May be exempt under Sec 47(xiiib) if conditions met
Partition between A & B	Not a transfer; no capital gains tax, but may not satisfy NOIDA's registration requirements
Transfer directly to individuals	Not accepted per NOIDA policy
Consult Legal/Tax Advisor	To explore LLP option or other alternatives

Final thought:

If you must create a partnership firm and transfer the property to it for registration, capital gains tax will ariseon this “transfer”.
The best approach might be to form an LLP instead of partnership firm, if NOIDA accepts LLP, and claim exemption under Section 47(xiiib).
Alternatively, consult NOIDA for any relaxation or alternate mechanism.