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Capital gains on power of atorney transactions

N.N.RAJAN (PROFESSIONAL) (243 Points)

01 February 2010

Dear Members, In one case the assesse had sold land and given power of attorney to the buyer and handed over possession. Under 50 C the value adopted by the stamp valuation authority is to be taken. If the buyer does not want to register now. If later on at the time of registration (say some one year after), if the stamp value increases, will it be questioned? In other words, is immediate registration necessary in 50C cases?

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7 Replies

Anumanchipalli Sathikonda (Tax Consultant) (1349 Points)
Replied 01 February 2010

Mr.Nagarajan.N If it is an irrevocable power of attorney, it can be presumed that 'transfer' has been taken place on the date of execution of power of attorney. Becuase on the date of execution of power of attorney all the rights of the owner have been extinguished and the possession of the property has been also given on the same date. Please refer to section 4(47) of Income-tax to ascertain the definition of tranfer under income-tax act. Best Wishes Sathikonda

1 Like

Amir (Learner) (4016 Points)
Replied 01 February 2010

Dear Nagarajan,

I think Stamp Duty is to be paid at the time of registration as per the rates prevailing at the time of registration..

Therefore, If Buyer has deferred the registration of property then the value determined on a later date of registration is irrelevant for 50C..

Therefore the Valuation u/s 50C has to been seen on the date of Transfer & not on the registration date...

But I m not too sure whether in this case Sec 50 C will be applicable or Not..I mean is it possible to defeat Sec 50 C by deferring the registration of property??

1 Like

C.Balaji (Learner) (1867 Points)
Replied 01 February 2010

Mr. Nagarajan

i think that the date of possession tranferred to the Buyer is relevant.....even if the registration is done after one or two years, the value at the time of handing over the possession will be taken....

I beleive that Date of Handing over the Possession is relevant in this case....

There is a case law regarding this issue.. i will try to post it soon....

1 Like

C.Balaji (Learner) (1867 Points)
Replied 01 February 2010

Madathil Brothers vs Deputy CIT (2008 301 ITR 345 Madras),see this case law....

1 Like

Anumanchipalli Sathikonda (Tax Consultant) (1349 Points)
Replied 02 February 2010

Dear All You have not found the mistate in my message. It section 2(47) but not section 4(47). Sorry for the typographical mistake. Best Wishes Sathikonda

chiranjivsodhi (20 Points)
Replied 25 March 2012

Dear Professional Colleagues,

I seek your expert comments on the following problem:

Stage 1:

Mr B purchased a plot from Mr A for Rs 10 lacs. An agreement of sale was executed and Mr B paid the full consideration by cheque. In return, Mr A gave Power of Attorney (POA) to Mr B.

Please note, the title deed was not transferred. Only POA was given. Title deed was still in the name of Mr A.

Stage 2:

After 5 years, Mr B sold that plot for Rs 22 lacs to Mr C.

Mr C paid full consideration to Mr B. Being the holder of POA, Mr B received all the sale consideration by cheque in his name and transferred title deed of plot to Mr C.

Now what will be the position of capital gain under the provisions of Income-tax Act? (For this transaction only)

a) Who will be the liable for capital gain tax?

b) Whether it is payable by Mr B (Capital gain = Rs 22 lac - Indexed cost of Rs 10 lac) ?

c) Whether it is payable by Mr A, who is the owner in records?

d) If it is payable by Mr A, then what will be the treatment for the cheque received by Mr B from Mr C and cheque paid to Mr A by Mr B?

Please guide.

Thanks & Regards.

CA. Chiranjiv Sodhi

Anumanchipalli Sathikonda (Tax Consultant) (1349 Points)
Replied 26 March 2012

Mr.Chiranjiv Sodhi

In your case it has to be ascertained when B purchased the property and a power of attorney was executed in his favour, whether the possesion of the property was given to B or not.

After ascertaining the above point please refer to section 2(47). You can decide yourself who will have to pay the capital gain tax.

Best Wishes

Sathikonda