(1) Where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule*, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise :
Provided that such charge or transfer shall not be void if it is made—
(i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee ; or
(ii) with the previous permission of the Assessing Officer.
(2) This section applies to cases where the amount of tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceed ten thousand rupees in value.
Explanation.—In this section, "assets" means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the business of the assessee.
*Issue of notice (Rule 2 of the Second Schedule, Procedure for Recovery of Tax)
When a certificate has been drawn up by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule.
GUIDELINES FOR PRIOR PERMISSION UNDER SECTION 281 TO CREATE A CHARGE ON THE ASSETS OF BUSINESS
CIRCULAR NO. 4/2011 [F. NO. 402/69/2010-ITCC], DATED 19-7-2011
References have been received by the Board regarding issuance of guidelines for granting of prior permission u/s 281 of the IT Act, 1961 to transfer or create a charge on the assets of the assessee. The Board has considered the matter and in order to have uniformity on the issue, it has been decided that:
1. The taxpayers should apply in the prescribed form annexed hereto titled “Application u/s 281 of the IT Act, 1961″ which would be available on the departmental website, as well as with the Assessing Officers.
2. The taxpayer would have to file the form at least thirty days prior to the proposed date of transaction.
3. The circumstances under which prior permission u/s 281 should be granted by the Assessing Officers are as follows:
(i) If there is no demand outstanding and there is no likelihood of demand arising in the next six months, then the permission should be granted.
(ii) If undisputed demand is outstanding and there is no likelihood of demand arising in next 6 months, then the taxpayer should pay the same along with interest due thereon and then permission should be granted.
(iii) If there is disputed demand outstanding, then the taxpayer should obtain stay for the same and indemnify the outstanding demand by way of bank guarantee or sufficient assets or by Department retaining the first charge on the assets proposed to be transferred or on which such charge is being created, to the extent of such demand. Thereafter, the permission u/s 281 would be granted by the A.O.
(iv) If demand is likely to arise in the next six month, then the A.O. should explore the possibility of action prescribed u/s 281B.
4. There would be only one level of intervention i.e., at the level of the range head for granting permission. The cases in which A.O. would require such approval would be where
(a) value of assets being transferred or on which charge is being created, or
(b) the amount of charge being created is Rs. Ten crores or more.
5. The timelines for granting/refusing permission u/s 281 by the A.O. are as follows:
(i) If there is no demand outstanding and there is no likelihood of demand arising in the next six months, then the A.O. should grant the permission within ten working days of the receipt of the application.
(ii) If undisputed demand is outstanding and there is no likelihood of demand arising in next 6 months, then the A.O. should grant permission within ten working days of payment as in para 3(ii) above.
(iii) If there is disputed demand outstanding and the taxpayer has obtained stay and indemnified the demand, then the A.O. should grant the permission within ten working days of the indemnification of the demand.
(iv) If demand is likely to arise in the next six months and the A.O. is considering actions prescribed u/s 281B for the assets excluding the asset under consideration, then the A.O. should grant the permission within fifteen working days of the receipt of the application.
(v) If the taxpayer does not pay the undisputed outstanding demand or his application for stay of disputed demand is rejected or he is unable to indemnify the outstanding demand, the application shall be disposed of within a period of ten working days. In case the permission is not being granted, a speaking and reasoned order conveying refusal would be issued with the approval of the Range head within ten working days of expiry of time given to the taxpayer to pay the undisputed demand or rejection of his stay application, as the case may be.
These time limits should be followed scrupulously by the A.Os.
6. The validity of the letter granting permission u/s 281 would be:
(i) One hundred and eighty days from the date of issue of approval, or
(ii) Service of order of attachment u/s 281B whichever is earlier.
7. Once the asset is transferred or charge is created, the taxpayer should submit the documents, in this regard, to the A.O. for his record.
8. This circular shall come into force with immediate effect.