COMMA351 - Taxpublishers.in

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers Transfer by Exchanges 1. Prologue Among the various methods of Transfer of Property Act, sections 118 to 121 deal with exchanges of property whether movable or immovable and money. This chapter discusses the various provisions relating to exchange. 2. Exchange--Definition [Section 118] Section 118 of the Transfer of Property Act defines the word 'exchange' as follows : 'When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things basing money only, the transaction is called an 'exchange'. The above definition covers the exchange of immovable property as well as the barter of goods or movable property. Thus, the provisions relating to exchanges are applicable to movable as well as immovable property. An essential requirement of an exchange is that there must be a transfer of a thing for another thing and either both or one of these things may be movable or immovable. For example, there can be exchange of a table for chair or of a house for another house. In the same way one form of currency may be exchanged for another form of currency, for example, dollars for rupees or rupees for notes. The definition of 'exchange' requires that there must be exchange of thing for another thing and not for money or money for money and not money for a thing. When a thing is transferred for money it evidently is a sale and not exchange. Thus, an exchange differs from sale in that neither of the things transferred is price of the other. The difference between sale and exchange lies in the nature of consideration for such transfer. Thus, exchange naturally means something changing hands from one to another in consideration of another thing changing hands from the other to that person CIT v. G. Narasimhan & Ors. (1979) 118 ITR 60 (Mad). An exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of another CIT v. Raisklal Maneklal (HUF) (1989) 177 ITR 198 (SC). The definition of exchange does not include within its purview a transfer of a thing for which the consideration is money only. However, if along with the consideration of a thing some money is paid to make the things equal in value, the transaction is one of exchange. For example, if A exchanges his house worth Rs. 10,000 for B's house worth Rs. 8,000 and B agrees to pay Rs. 2000 to A to conclude the transaction. Here the transaction is not a sale but an exchange Ram Badan Lal v. Kunwar Singh ILR 1938 All 229. A partition or a family settlement is not an exchange since on both the transactions, there is no transfer of ownership. 3. Mode of effecting exchange Second part of section 118 of the Transfer of Property Act lays down that a transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale. This means that mode of effecting an exchange is same as for effecting a sale as laid down under section 54 of the Transfer of Property Act. Thus, transfer by exchange, 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 thing, can be made only by a registered instrument. In the case of tangible immovable property, of a value less than one hundred rupees, such transfer by exchange may be made either by a registered instrument or by delivery of the property where the exchange is of movable properties, a mere delivery of the same is enough to complete the transaction. For effecting an exchange of two immovable properties, mutual conveyances are enough and two separate deeds are not necessary Gopi Ram v. Durjan ILR 1929 All 63. 4. Right of party deprived of thing received in exchange [Section 119] If any party to an exchange or any person claiming through or under such party is by reason of any defect in the title of the other party deprived of the thing or any part of the thing received by him in exchange, then, unless a contrary intention appears from the terms of the exchange, such other party is liable to him or any person claiming through or under him for loss caused thereby, or at the option of the person so deprived, for the return of the thing transferred, if still in the possession of such other party or his legal representative or a transferee from him without consideration. [Section 119]. The above section contemplates a contingency when a party to an exchange is deprived of the property or any part of it, received in exchange, due to defect in title of the other party. In such a case, such a party is entitled to the following remedies : (i) to sue for damages from the other party or any person claiming through or under them for the loss caused; or (ii) to sue for the return of the thing transferred, if the same is still in possession of other party or his legal representative or a transferee from him without consideration. The rights under section 119 also accrue to a party in case instead of a subsequent deprivation there is no transfer at all [Ranganathan v. Calcutta Tramway Co. AIR 1956 Mad 285]. However, the rights mentioned above cannot be availed of by the party deprived of the property, if the terms of exchange express a contrary intention. For example, in Subramania v. Saminatha ILR 21 Mad 69, the terms of exchange provided that one of the parties was bound to pay a certain amount in the event of dispossession of the other party. In this case it was held that the said terms were contract to the contrary and the right to rescind the transaction or recover his property was not available to the dispossessed party. 5. Right and liabilities of parties to exchange [Section 120] Section 120 of the Transfer of Property Act states that save as otherwise provided in this chapter, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and has the rights and is subject to the liabilities of a buyer as to that which he takes. Thus, the rights and liabilities of the parties to an exchange are precisely those provided in respect of buyer and seller in a transaction of sale. These rights and liabilities have been laid down under section 55 of the Act and discussed under chapter 'Sales of Immovable Property'. In addition to these rights and liabilities, the party deprived of thing received in exchange due to defect in title of the other party has special right to sue for damages or for return of the thing transferred, under section 119 of the Transfer of Property Act. 6. Exchange of money [Section 121] On an exchange of money, each party thereby warrants the genuineness of the money given by him [Section 121]. In case of exchange of money, like any movable property, a mere delivery to a person, conveys a perfectly valid and indefeasible title. In such a transaction there is no warranty of title since it passes on a mere delivery of the money to the one who receives it honestly. However, section 121 fixes an implied warranty on each party as to the genuineness of the money given by him. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers Transfer by Exchanges 1. Prologue

Among the various methods of Transfer of Property Act, sections 118 to 121 deal with exchanges of property whether movable or immovable and money. This chapter discusses the various provisions relating to exchange.

2. Exchange--Definition [Section 118]

Section 118 of the Transfer of Property Act defines the word 'exchange' as follows :

'When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things basing money only, the transaction is called an 'exchange'.

The above definition covers the exchange of immovable property as well as the barter of goods or movable property. Thus, the provisions relating to exchanges are applicable to movable as well as immovable property.

An essential requirement of an exchange is that there must be a transfer of a thing for another thing and either both or one of these things may be movable or immovable. For example, there can be exchange of a table for chair or of a house for another house. In the same way one form of currency may be exchanged for another form of currency, for example, dollars for rupees or rupees for notes. The definition of 'exchange' requires that there must be exchange of thing for another thing and not for money or money for money and not money for a thing. When a thing is transferred for money it evidently is a sale and not exchange. Thus, an exchange differs from sale in that neither of the things transferred is price of the other. The difference between sale and exchange lies in the nature of consideration for such transfer. Thus, exchange naturally means something changing hands from one to another in consideration of another thing changing hands from the other to that person CIT v. G. Narasimhan & Ors. (1979) 118 ITR 60 (Mad). An exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of another CIT v. Raisklal Maneklal (HUF) (1989) 177 ITR 198 (SC).

The definition of exchange does not include within its purview a transfer of a thing for which the consideration is money only. However, if along with the consideration of a thing some money is paid to make the things equal in value, the transaction is one of exchange. For example, if A exchanges his house worth Rs. 10,000 for B's house worth Rs. 8,000 and B agrees to pay Rs. 2000 to A to conclude the transaction. Here the transaction is not a sale but an exchange Ram Badan Lal v. Kunwar Singh ILR 1938 All 229.

A partition or a family settlement is not an exchange since on both the transactions, there is no transfer of ownership.

3. Mode of effecting exchange

Second part of section 118 of the Transfer of Property Act lays down that a transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale. This means that mode of effecting an exchange is same as for effecting a sale as laid down under section 54 of the Transfer of Property Act.

Thus, transfer by exchange, 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 thing, can be made only by a registered instrument.

In the case of tangible immovable property, of a value less than one hundred rupees, such transfer by exchange may be made either by a registered instrument or by delivery of the property where the exchange is of movable properties, a mere delivery of the same is enough to complete the transaction. For effecting an exchange of two immovable properties, mutual conveyances are enough and two separate deeds are not necessary Gopi Ram v. Durjan ILR 1929 All 63.

4. Right of party deprived of thing received in exchange [Section 119]

If any party to an exchange or any person claiming through or under such party is by reason of any defect in the title of the other party deprived of the thing or any part of the thing received by him in exchange, then, unless a contrary intention appears from the terms of the exchange, such other party is liable to him or any person claiming through or under him for loss caused thereby, or at the option of the person so deprived, for the return of the thing transferred, if still in the possession of such other party or his legal representative or a transferee from him without consideration. [Section 119].

The above section contemplates a contingency when a party to an exchange is deprived of the property or any part of it, received in exchange, due to defect in title of the other party. In such a case, such a party is entitled to the following remedies :

(i) to sue for damages from the other party or any person claiming through or under them for the loss caused; or

(ii) to sue for the return of the thing transferred, if the same is still in possession of other party or his legal representative or a transferee from him without consideration.

The rights under section 119 also accrue to a party in case instead of a subsequent deprivation there is no transfer at all [Ranganathan v. Calcutta Tramway Co. AIR 1956 Mad 285].

However, the rights mentioned above cannot be availed of by the party deprived of the property, if the terms of exchange express a contrary intention. For example, in Subramania v. Saminatha ILR 21 Mad 69, the terms of exchange provided that one of the parties was bound to pay a certain amount in the event of dispossession of the other party. In this case it was held that the said terms were contract to the contrary and the right to rescind the transaction or recover his property was not available to the dispossessed party.

5. Right and liabilities of parties to exchange [Section 120]

Section 120 of the Transfer of Property Act states that save as otherwise provided in this chapter, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and has the rights and is subject to the liabilities of a buyer as to that which he takes. Thus, the rights and liabilities of the parties to an exchange are precisely those provided in respect of buyer and seller in a transaction of sale. These rights and liabilities have been laid down under section 55 of the Act and discussed under chapter 'Sales of Immovable Property'. In addition to these rights and liabilities, the party deprived of thing received in exchange due to defect in title of the other party has special right to sue for damages or for return of the thing transferred, under section 119 of the Transfer of Property Act.

6. Exchange of money [Section 121]

On an exchange of money, each party thereby warrants the genuineness of the money given by him [Section 121].

In case of exchange of money, like any movable property, a mere delivery to a person, conveys a perfectly valid and indefeasible title. In such a transaction there is no warranty of title since it passes on a mere delivery of the money to the one who receives it honestly. However, section 121 fixes an implied warranty on each party as to the genuineness of the money given by him.