Under these circumstances, how capital gain tax is attracted and at what point of time. i.e. in Jan 07 itself or say by Mar 09 only when final installment as well as constructed portion is expected to be received. If liability to LTCG arises in Jan 07 itself how can the assessee do any tax planning without any single rupee available out of this transaction before Mar 07?
Your question is whether there will be capital gains without any regsitration of document transferring the immovable property.
yes, as per the provison of the I T Act, the capital gains happen when there is transfer of capital asset. While in your case there is no dispute regarding capital asset, the question arises whether receipt of advance and signing a power of attorney constitute Transfer for the purpose of computation of capital gains/loss.
The transfer is defined under Section 2(47) of the I T Act which says :
“47) transfer, in relation to a capital asset, includes,
(i) the sale, exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or
(iva) the maturity or redemption of a zero coupon bond; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property”
“Part performance.
“53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,
and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is willing to perform his part of the contract,
then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract :
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.”
I find that since the person has signed Power of attorney , he has made a contract.
If he has given possession of the land to the Builder , that condition is also fulfilled.
If the builder also is willing to fulfill the contract , even that third condition shall be fulfilled.
Therefore, the capital asset (the land) of the person can be termed as transfer for the purpose of capital gains under the I t Act. Unless , there is some facts which leads to Non-Fulfilling the condition of transfer of property Act.
However, in the hindsight, the person , on account of receipt of only 20 % of the consideration as per contract in Jan 2007 , only minor part of the contract has been fulfilled . So, he may show the capital gains next year i.r Fy 2007-08 . But not in Fy 2008-09.
For tax planning , read section other articles in label Capital gains .
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