It is a commonly found mindset in the majority of the public that ‘Agreement for sale’ is sufficient for transfer of property. In instances where the property is purchased from a developer is transferred only through an agreement, after which the possession is obtained by the buyer. Does this constitute a ‘Transfer of title’ under Transfer of Property Act, 1882?
Section 54 of the Transfer of Property Act (T.P.), 1882 defines “Sale” as - Sale is a transfer of ownership in exchange for a price paid or promised or part paid and part promised.
Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible things, can be made only by a registered instrument.
On a bare reading of Section 54 of the T.P. Act, it can be easily understood that an essential element for a Transfer of Property is the presence of a Registered instrument. In this regard, a common misconception which prevails is that an Agreement of Sale constitutes a registered instrument. The Supreme Court of India in the matter of Suraj Lamp & Industries (P) Ltd (2) v State of Haryana (2012) clearly stated that: -
“Immovable property can be transferred/conveyed only by a deed of conveyance (sale deed), duly stamped and registered as required by law. We, therefore, reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.”
“Any contract of sale, which is not a registered deed of conveyance (deed of sale), would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act and will not confer any title, nor transfer any interest in an immovable property.”
Section 54 of T.P. Act, defining “Contract of Sale” as “A Contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.” Therefore if a person has purchased a property without a ‘sale deed’ then such transfer of possession does not constitute a Transfer of title of the property in itself. The Agreement of Sale is merely a document creating a right to obtain another document of sale on the fulfilment of terms and conditions specified therein. On the strength of such an agreement, the buyer does not become the owner of the property.
When Is Transfer Of Title Final?
In the recent judgment of The Principal Commissioner of Income Tax-25 Vs. M/s Talwalkars Fitness Club, (2018) Bombay HC held that in case of delay between the date of registration and execution of the agreement, the property does not get transferred from the vendor to the purchaser on registration of agreement.
In the matter of M/s Talwalkars fitness club, where the respondent had agreed to sell a flat for Rs 2.2 crores and received an advance of Rs 20 lakhs against the deal. The agreement to sell was executed on February 14, 2011 and was duly registered. The agreement had a clause to the effect that the sale/transfer would take effect, on the full consideration of Rs 2.2 crores being paid. As per the terms of payment in the agreement, the final payment was to be made by May 26, 2011 upon which the possession of the property was to be transferred, i.e., in the next financial year. As the date of the agreement and the date of final payment/possession fell in two different financial years, a dispute arose between the tax authorities and the taxpayer, as to the year in which the profit on the sale of this property would become taxable.
The Income Tax Department treated the date of registration of the property, as the date on which the transfer took place and had, accordingly, taxed the capital gains in the assessment year 2011-2012. However, the Income Tax Tribunal came to the conclusion that the sale or transfer was not complete on the date of execution of the agreement and that the transfer of the property took place when the balance payment was made and possession handed over to the buyer, which happened during the financial year 2011-2012. Hence, the capital gains were taxable in the assessment year 2012-2013 and not in the assessment year 2011-2012.
The Bombay High Court, while deciding the case on October 29, 2018, upheld the decision of Income Tax Tribunal and stated that the sale/transfer of the property in question was complete only during the financial year 2011-2012. The court also observed that the tribunal was right in its conclusion that on facts, the agreement executed on February 14, 2011, was a mere agreement for sale of immovable property and does not constitute a transfer of title.
The decision of Bombay HC clearly established that the final transfer of title will be on the date when all the conditions, as enumerated in the agreement for sale are complied with. However, in cases, various other terms and conditions are imposed on buyer and seller such conditions are also to be taken into consideration. Example- If the vendor agrees to treat the consideration, partly or fully as a loan to the buyer and where no other conditions are needed to be complied with, then in such cases the date of registration will be taken as the date of transfer.
Courtesy/By: Jayant Upadhyay
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13 Apr 2019
