Introduction

The Transfer of Property Act of 1882 is the principal legislation governing the transfer of property from one living person to another. Among the several ways of transfer, sale, exchange, and gift are the most common methods to transfer the full ownership. In all these methods, the rights of the transferor in the property come to an end, and the rights are given to the transferee. The primary distinction between these modes is in consideration, which means what is given in return for the transfer. Knowing these differences is crucial for the validity of property transfers from a legal point of view and for all parties to adhere to the legal rules that are required. Moreover, these transfer patterns vary in relation to the need for registration, taxation treatments, and the nature of revocability after the transfer has taken place.

Definition / Relevant Section

The legal essentials that must be followed for transferring property under the Transfer of Property Act (TPA) are provided in the Act.

Sale (Section 54): Sale is defined as a transfer of ownership from one person to another for a consideration, which may be paid, promised, or partly paid and partly promised. A sale may be made by a registered instrument.

• Mode of Transfer: The transfer of an immovable property with a value of one hundred rupees or more can be affected only through a registered document. Transfer of immovable property worth less than one hundred rupees can be done either by a registered document or by physically transferring the property to the buyer.

• Parties to the Agreement: The agreement consists of two individuals: the seller and the buyer. Both have to actually agree for it to work—no surprises there. The seller and the buyer have to be capable of understanding what they are getting into when they sign the contract (competency under Section 7 of the TPA).

• The Subject Matter: The matter or property involved here must be transferable immovable property, whether physical or non-physical. 

• Price (Money): Price is the most critical component during the sales process. It must be paid only in money. If the consideration is other than in money, the transaction will lose its “sale” character, converting itself into an “exchange.”

• Transfer of Ownership: The seller relinquishes all property rights, while the buyer gains them.

Rights and Liabilities of Buyer and Seller (Section 55)

Section 55 imposes obligations on the parties involved, which distinguish a sale from other transfers. These include:

• Duty of Disclosure: The seller must inform the buyer about any defects in the property or the seller’s title that are known to the seller but not to the buyer.

• Production of Title Deeds: This requires the seller to provide all ownership documents related to the property.

• Covenant for Title: The Covenant for Title is an implied agreement that the person claiming the interest is entitled to transfer it.

• Payment of Public Outgoings: The seller must pay all public charges and rent that are due up to the date of the sale.

• Buyer’s Obligation of Disclosure: The buyer is required to inform the seller of any fact relating to the nature or extent of the seller’s interest that increases the value of the property and which the buyer knows but the seller does not.

Exchange (Section 118): “Exchange” means the mutual transfer of ownership of one thing for the ownership of another, where neither of the things is money alone.

• Mutual Transfer: Both parties give and receive property at the same time.

• No Price: Where the use of money is only to equalize value—for instance, trading a large house for a small house and some cash—it is nevertheless considered an exchange.

• Applicability: The rules of sale apply only to immovable property, while exchange applies in the case of both movable and immovable property.

• Mode of Transfer: Property transfer must be done as prescribed for a sale of the same type. If the value exceeds ₹100, it must be registered.

• Rights and Liabilities (Section 120): “Each party in an exchange has the rights and is subject to the responsibilities of a seller for the property he gives and of a buyer for the property he receives.”

Rights of Parties in Case of Eviction (Section 119)

One of the special features of an exchange is that it protects parties from receiving defective title. A party to an exchange who loses their property due to the defective title of the other party to the exchange has the right to recover the property they have given to the other party, provided that the property is still with the other party or their legal representative.

Gift (Section 122): A gift is defined as the voluntary transfer of existing movable or immovable property without any consideration.

• No Consideration: There is no trade of cash or property. Often gifts are given as a sign of love or affection.

• Donative Intent: There must be the intention to transfer the property, and the transaction must be without consideration.

• Existing Property: A gift can be made only of property that already exists. A gift cannot be made of future property, such as a house that has not yet been acquired.

• Acceptance: The party accepting the transfer (donee) has to accept the transfer during the lifetime of the transferor (donor) and when the transferor can make the transfer. The gift will be treated as void in case the donee dies before accepting the gift. 

• Mode of Transfer (Section 123): In the case of a gift of immovable property, a transfer is required to happen through a registered document that has the signature of the donor and is attested by at least two witnesses.

Onerous Gifts (Section 127)

Occasionally, a gift may come with a burden or a disadvantage. When a donor gives more than one property at the same time, and one of those properties carries a burden or liability, such as a mortgage, the receiver cannot accept one and refuse the other. follows the Doctrine of Onerous Gift.

Illustration

• Sale: Aryan is selling his flat to Rohan and sets the price at 80,000 dollars. Rohan pays the money, and Aryan executes the sale deed. As it is an exchange for a fixed amount of money, it is a sale.

• Exchange: While Meera owns property in town, Sara owns a farmhouse in the countryside. The two decide to exchange the properties. As the transaction involves property for property, this is an exchange.

• Gift: A grandmother presents her granddaughter with gold jewelry as a token of her love. She does it without taking anything in return. Since there is no consideration and it is voluntarily given, it qualifies to be a gift.

Case Law

1. Commissioner of Income Tax v. Motor & General Stores Ltd. (1967) 66 ITR (SC)

The Supreme Court held that the presence of “price” (money) is the point that distinguishes a sale from an exchange. A transaction in which property is transferred in return for anything other than money is only an exchange.

2. Kalyan Singh v. Itwari (1958) All 460

This case is important because it highlighted the importance of “acceptance” in gifts.

The court held that if the donee dies before accepting the gift, the gift becomes invalid. Possession of the property indicates acceptance.

3. Ku. Sonia Bhatia v. State of U.P. (1981) SC 1274

The Supreme Court of India explained the meaning of the term ‘consideration’ in the case of a gift as ‘valuable consideration.’ The Court stated that ‘love and affection’ may be the motive for making a gift but do not amount to ‘consideration.’ Therefore, a transaction based only on ​​love and affection would be treated as a gift and not a sale.

4. Madhavrao v. Kalyan (1966) Bom 169

In this case, the Court explained the concept of “Conditional Gifts.” It held that although a gift must be made voluntarily, the giver may impose certain conditions on the use and enjoyment of the property, as long as those conditions do not violate the Rule Against Perpetuities.

Practical Application

These definitional provisions influence the role of the parties’ finances and procedures in practical applications, such as the registration process.

• Registration: Section 17 of the Registration Act, 1908, provides for compulsory registration of the sale or gift of immovable property worth ₹100 or more than that. If property is exchanged and its value is ₹100 or more, it has to be registered; otherwise, it would be an illegal transaction. An unregistered gift deed of immovable property is deemed void.

• Stamp Duty: Stamp duty rates differ from one government to another for these transactions. Gifts made within the family usually attract lower stamp duty compared to sales between non-relatives. In the case of an exchange, stamp duty is generally not paid on both properties; instead, it is calculated based on the property having the higher value in the exchange transaction. This option is generally less expensive than completing two separate sale transactions.

Revocability: A sale or exchange becomes fully final once the deed is executed and ownership is transferred to the other party. Such transactions cannot be cancelled simply This is due to a change of mind by either party. A gift, on the other hand, may be cancelled under Section 126 of the TPA.

Under Section 126 of the TPA, a gift can be paused or cancelled only in the following two situations:

• By Mutual Agreement: The parties can agree to cancel the gift if a specified event occurs that is beyond the intention of the giving party.

Note: A gift that is revocable only at the will or pleasure of the giving party becomes null and void.

• Rescission of Contract: The acceptance of the gift, which is made under the condition that it could be set aside as a contract due to fraud, coercion, or undue influence, would qualify the gift as a contract in that regard.

Conclusion

In brief, though sale, exchange, and gift all involve the transfer of ownership, their “essentials” depend upon the return consideration. Sale needs money; exchange needs property; while in gift, nothing is required more than voluntary acceptance. In immovable properties, all these need a formal written document registered to have a valid transfer of ownership in the form of a title in the new owner. The legal effects of each are completely unique: Sale and exchange are commercial in nature and require strict compliance with warranties and price, whereas gifts are voluntary and focus on the intention of the donor. In the case of immovable property, all of these require a formal written document registered under the Registration Act to make the transfer of ownership valid. Failure to follow these technical requirements can result in the transfer being declared void and may cause the title and possession to remain disputed for a long time afterward. 

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