Section 499 — Certain transfers to be void. Successor to s.281 of the 1961 Act.
Section 499 is in Chapter XXIII — Miscellaneous, which runs from section 499 to section 536.
Sub-section (1) voids certain dealings with assets. Where, during the pendency of any proceeding under the Act or after its completion but before service of notice by the Tax Recovery Officer under the procedure specified in section 413, an assessee creates a charge on any of his assets or parts with possession of them in favour of another person, that charge or transfer is void as against any claim in respect of tax or any other sum payable by the assessee as a result of the completion of that proceeding or otherwise.
Sub-section (2) saves two kinds of dealing: one made for adequate consideration and without notice of the pendency of the proceeding or, as the case may be, without notice of the tax or other sum payable by the assessee; and one made with the previous permission of the Assessing Officer. Sub-section (3) confines the section to cases where the tax or other sum payable or likely to be payable exceeds Rs. 5,000 and the assets charged or transferred exceed Rs. 10,000 in value. Sub-section (4) defines "assets" as land, building, machinery, plant, shares, securities, fixed deposits in banks and virtual digital assets, to the extent they do not form part of the stock-in-trade of the assessee's business, and provides that creating a charge on or parting with possession of such assets includes sale, mortgage, gift, exchange or any other mode of transfer.
The window between a proceeding starting and the recovery machinery reaching the assessee is the obvious moment to move assets out of reach, so the Act makes such dealings ineffective against the Department's claim without needing to prove intent. The two exceptions keep the rule from catching honest commerce — an outsider who paid a fair price and knew nothing, and a dealing the Assessing Officer allowed in advance. The thresholds in sub-section (3) keep small transactions outside it entirely.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Minimum liability for the section to apply | More than Rs. 5,000 | Tax or other sum payable or likely to be payable; both this and the asset value threshold must be exceeded | Sub-section (3) |
| Minimum value of the assets dealt with | More than Rs. 10,000 | Value of the assets charged or transferred | Sub-section (3) |
The transfer is not undone — it is void only as against the Department's claim, so as between the assessee and the transferee it stands, and the transferee keeps whatever he bought subject to the tax claim biting on the asset. The exception in sub-section (2)(a) has two limbs and both must hold: adequate consideration and no notice, so a fair price paid by someone who knew of the pendency does not save the dealing, and neither does an ignorant transferee who paid nothing. Timing is generous to the Department — the section runs from the pendency of any proceeding, not from a demand, and continues after the proceeding is completed right up to service of the Tax Recovery Officer's notice under section 413. The definition in sub-section (4) is confined to the listed classes of asset, expressly includes a virtual digital asset, and excludes anything forming part of the assessee's stock-in-trade.
While an assessment is pending, an assessee gifts a flat worth Rs. 90 lakh to a relative; the assessment later raises a demand of Rs. 40 lakh. Both thresholds in sub-section (3) are crossed, and a gift is a mode of parting with possession within sub-section (4)(b), so the transfer is void as against the demand and the flat can be proceeded against — the relative cannot rely on sub-section (2)(a), because a gift is not for adequate consideration. Had the assessee instead sold the flat at market value to an unconnected buyer who knew nothing of the proceeding, sub-section (2)(a) would have protected the sale.
A transferee usually meets this section when the Tax Recovery Officer proceeds against an asset he thought he had bought, or when a title search reveals a pending proceeding against the seller; an assessee meets it when applying to the Assessing Officer for previous permission under sub-section (2)(b) before charging or selling an asset while a proceeding is on foot.
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
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
See the full 1961 to 2025 concordance.
See the circulars index.
