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Capital Gain - Transfer - Extent of Coverage

Vidya (Student) (789 Points)

24 August 2008

An assessee gives an irrevocable power to attorney to a builder for construction of apartments in his land and gets full consideration. The Power is also registered. Is it compulsory on the part of the assessee to declare his Capital gain in the previous year of signing the Power or can he wait till original transfer by the builder to end purchasers of the apartments and account for his capital gain in the previous year in which the final transfer takes place? It can be said that 53 A of Transfer of Property Act can be applied. Please confirm whether it is compulsory to apply 53A or one can go with the definition of transfer in IT Act and account Capital Gain in the year of final transfer by the builder to the purchaser of Apartment?

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3 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 25 August 2008

ection 53 A of Transfer of Property Act says this:

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.

In your case the power of attorney is not a transfer nor is it for any consideration. The power of attorney is a mere authorisation given by the property owner to a person to execute a transaction on his behalf.

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Vidya (Student) (789 Points)
Replied 25 August 2008

Sorry Sir, but its still not clear for me. Hope you don't mind explaining further. Here the owner of land gives Irrecovable POA to the builder and takes full consideration [market value of the land]. Should he file his Capital Gain income this year or can he file it next year when the builder/promoter actually transfers the land to the end buyer? The advantage the assessee will get is that he can get better indexation benefit as we are facing bad inflation this year.