Capital Gains Tax on Unregistered Immoveable Property

Under Transfer of property act, an immoveable property whose value is more than Rs. 100 can be transferred only by a registered instrument. This means that transfer of immoveable property is not complete unless the sale deed is registered. There may be situations where the buyer has acquired the possession of the property and the seller has been paid the price for the sale even though the property has still not been registered in the name of the purchaser. In cases where there is ‘Part performance of a contract of sale’, a question arises, whether there is any Capital Gains Tax liability and if yes, at what point.

For the purposes of Capital Gains, ‘Part performance of a contract of sale’ falls within the definition of ‘Transfer’ as per 2(47) (v) of the Income Tax Act. The definition reads as below:

["transfer"32, in relation to a capital asset, includes
(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 53A36 of the Transfer of Property Act, 1882 (4 of 1882) ;”
In the case of immoveable property, Transfer of property act considers a sale as complete only on registration of the sale deed. But Transfer of Property act also provides for certain allowed exceptions to this general rule. This exception is in the form of Sec 53A, which talks about part performance of the contract of sale of immoveable property and the rights of the transferee on the property concerned. It provides that where an immoveable property has been transferred and buyer has taken possession and has made or is willing to make the payment of purchase price, then even though the deed is not registered, seller cannot enforce against the transferee any rights in respect of the property. The wordings of Section 53A of Transfer of Property Act reads as below:

“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 the contract, though required to be registered, has not been registered, or, 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.”

For the purposes of capital gains tax liability, if the following conditions are satisfied, we can conclude that the immoveable property has been sold:

  1. Contract for Sale of immoveable property for consideration has been signed
  2. The transferee has, in part performance of the contract, taken possession of the property
  3. The transferee has performed or is willing to perform his part of the contract

The capital gains tax liability arises at the point when the above conditions are satisfied and not postponed until registration of the sale deed.

The sale consideration will be higher of the consideration in the contract of sale or stamp duty valuation of the property at the time when capital gains tax liability arises. If there is any increase in the stamp duty value of the property between date of transfer and date of registration, that change will not have any impact on the capital gains tax computed on the date of transfer.