I want to sell an asset or mortgage business assets while a tax demand is pending. How do I get permission?
Apply to the Assessing Officer in the prescribed form at least thirty days before the proposed transaction. Permission is to be granted where there is no demand and none likely within six months, where an undisputed demand is paid with interest, or where a disputed demand is stayed and secured by bank guarantee, sufficient other assets or a departmental first charge; refusal must be by a reasoned order approved by the range head.
Decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes) on 2011-07-19, reported as Circular No. 4/2011, dated 19-7-2011 [F. No. 402/69/2010-ITCC]. It bears on section 281, section 281B, section 499 (Act of 2025) of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
This is the practical route for a taxpayer, buyer or lender who wants certainty before completing a transaction, instead of litigating the s.281 proviso afterwards. It puts the officer under fixed timelines — ten working days, fifteen where provisional attachment under s.281B is being considered — and requires a reasoned, range-head-approved order to refuse. Where a demand is likely within six months, the officer is directed to consider provisional attachment of other assets rather than simply refusing.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 281 renders void a transfer or charge created by an assessee during the pendency of proceedings or after completion, but the proviso saves a transfer made with the previous permission of the Assessing Officer. In practice the Department had no uniform standard for dealing with applications for that permission, leaving taxpayers and lenders uncertain. The Board issued this circular to lay down when permission should be granted, in what form the application should be made, and within what time it must be disposed of. It applies to transfers of assets and to the creation of a charge (for example a mortgage in favour of a bank) on business assets.
An application for prior permission must be made in the form annexed to the circular, Form I.T.N.S. 281 'Application u/s 281 of the IT Act, 1961', and must be filed at least thirty days before the proposed date of the transaction. Permission is to be granted where there is no demand outstanding and none likely in the next six months; where an undisputed demand is outstanding and none is likely in the next six months, once the taxpayer pays it with interest; and where a disputed demand is outstanding, once the taxpayer obtains a stay and indemnifies the demand by bank guarantee, sufficient assets, or the Department retaining first charge on the asset being transferred or charged, to the extent of the demand. Where a demand is likely to arise in the next six months the Assessing Officer is to explore action under section 281B. Timelines are ten working days, or fifteen where section 281B is being considered; a refusal must be by a speaking and reasoned order with the approval of the range head. Range-head approval is required where the value of the assets, or the amount of the charge being created, is Rs. ten crores or more. A permission is valid for one hundred and eighty days from the date of issue of the approval, or until service of an order of attachment under section 281B, whichever is earlier. Once the transfer is made or the charge created, the taxpayer must submit the documents to the Assessing Officer for his record.
The Board issued the circular because references had been received about the grant of prior permission under section 281, and it wanted uniformity. What it does is convert an otherwise unstructured discretion into a regulated administrative process, so that a transferee or a lender can obtain protection under the proviso rather than litigate afterwards. Four situations are mapped - no demand and none expected within six months; an undisputed demand outstanding with none expected within six months; a disputed demand outstanding; and a demand likely to arise within six months, where the officer is directed to explore action under section 281B rather than simply refuse. Each carries its own timeline, and para 5 closes the gap where the taxpayer neither pays nor secures the demand by requiring the application to be disposed of within ten working days by a speaking and reasoned order approved by the range head. Only one level of intervention is contemplated, at range-head level, and only where the assets transferred or the charge created amount to Rs. ten crores or more. The one hundred and eighty day life of a permission, and its earlier lapse on service of a section 281B attachment order, keep the revenue's position current, and para 7 closes the loop by requiring the executed documents to be filed with the Assessing Officer. The Bombay High Court has treated the circular as a real constraint on the officer: in Vedanta Ltd. v. ACIT, Goa it set aside a refusal that rested on generalities and remitted the application, holding that section 281 is asset-specific and transfer- or charge-specific and that what the section and the circular require is that the known claims of the revenue be sufficiently secured.
The taxpayer would have to file the form at least thirty days prior to the proposed date of transaction.
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Handle my notice → Ask a CA on WhatsAppApply to the Assessing Officer in the prescribed form at least thirty days before the proposed transaction. Permission is to be granted where there is no demand and none likely within six months, where an undisputed demand is paid with interest, or where a disputed demand is stayed and secured by bank guarantee, sufficient other assets or a departmental first charge; refusal must be by a reasoned order approved by the range head. This was decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes) and bears on section 281, section 281B, section 499 (Act of 2025) of the Income Tax Act 1961. It is reported as Circular No. 4/2011, dated 19-7-2011 [F. No. 402/69/2010-ITCC]. This is the practical route for a taxpayer, buyer or lender who wants certainty before completing a transaction, instead of litigating the s.281 proviso afterwards. It puts the officer under fixed timelines — ten working days, fifteen where provisional attachment under s.281B is being considered — and requires a reasoned, range-head-approved order to refuse. Where a demand is likely within six months, the officer is directed to consider provisional attachment of other assets rather than simply refusing. If it applies to you, the first step is this: Lodge the application at least thirty days before the intended date of the transaction and build that lead time into the deal timetable.
Section 281 renders void a transfer or charge created by an assessee during the pendency of proceedings or after completion, but the proviso saves a transfer made with the previous permission of the Assessing Officer. In practice the Department had no uniform standard for dealing with applications for that permission, leaving taxpayers and lenders uncertain. The Board issued this circular to lay down when permission should be granted, in what form the application should be made, and within what time it must be disposed of. It applies to transfers of assets and to the creation of a charge (for example a mortgage in favour of a bank) on business assets. The matter was decided on 2011-07-19 by the CBDT Circulars & Instructions (Central Board of Direct Taxes). On those facts the CBDT Circulars & Instructions held as follows. An application for prior permission must be made in the form annexed to the circular, Form I.T.N.S. 281 'Application u/s 281 of the IT Act, 1961', and must be filed at least thirty days before the proposed date of the transaction. Permission is to be granted where there is no demand outstanding and none likely in the next six months; where an undisputed demand is outstanding and none is likely in the next six months, once the taxpayer pays it with interest; and where a disputed demand is outstanding, once the taxpayer obtains a stay and indemnifies the demand by bank guarantee, sufficient assets, or the Department retaining first charge on the asset being transferred or charged, to the extent of the demand. Where a demand is likely to arise in the next six months the Assessing Officer is to explore action under section 281B. Timelines are ten working days, or fifteen where section 281B is being considered; a refusal must be by a speaking and reasoned order with the approval of the range head. Range-head approval is required where the value of the assets, or the amount of the charge being created, is Rs. ten crores or more. A permission is valid for one hundred and eighty days from the date of issue of the approval, or until service of an order of attachment under section 281B, whichever is earlier. Once the transfer is made or the charge created, the taxpayer must submit the documents to the Assessing Officer for his record.
The Board issued the circular because references had been received about the grant of prior permission under section 281, and it wanted uniformity. What it does is convert an otherwise unstructured discretion into a regulated administrative process, so that a transferee or a lender can obtain protection under the proviso rather than litigate afterwards. Four situations are mapped - no demand and none expected within six months; an undisputed demand outstanding with none expected within six months; a disputed demand outstanding; and a demand likely to arise within six months, where the officer is directed to explore action under section 281B rather than simply refuse. Each carries its own timeline, and para 5 closes the gap where the taxpayer neither pays nor secures the demand by requiring the application to be disposed of within ten working days by a speaking and reasoned order approved by the range head. Only one level of intervention is contemplated, at range-head level, and only where the assets transferred or the charge created amount to Rs. ten crores or more. The one hundred and eighty day life of a permission, and its earlier lapse on service of a section 281B attachment order, keep the revenue's position current, and para 7 closes the loop by requiring the executed documents to be filed with the Assessing Officer. The Bombay High Court has treated the circular as a real constraint on the officer: in Vedanta Ltd. v. ACIT, Goa it set aside a refusal that rested on generalities and remitted the application, holding that section 281 is asset-specific and transfer- or charge-specific and that what the section and the circular require is that the known claims of the revenue be sufficiently secured. In the words reproduced by the source cited on this page: "The taxpayer would have to file the form at least thirty days prior to the proposed date of transaction."
It was decided by the CBDT Circulars & Instructions on 2011-07-19 and is reported as Circular No. 4/2011, dated 19-7-2011 [F. No. 402/69/2010-ITCC]. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 281, section 281B, section 499 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. An application for prior permission must be made in the form annexed to the circular, Form I.T.N.S. 281 'Application u/s 281 of the IT Act, 1961', and must be filed at least thirty days before the proposed date of the transaction. Permission is to be granted where there is no demand outstanding and none likely in the next six months; where an undisputed demand is outstanding and none is likely in the next six months, once the taxpayer pays it with interest; and where a disputed demand is outstanding, once the taxpayer obtains a stay and indemnifies the demand by bank guarantee, sufficient assets, or the Department retaining first charge on the asset being transferred or charged, to the extent of the demand. Where a demand is likely to arise in the next six months the Assessing Officer is to explore action under section 281B. Timelines are ten working days, or fifteen where section 281B is being considered; a refusal must be by a speaking and reasoned order with the approval of the range head. Range-head approval is required where the value of the assets, or the amount of the charge being created, is Rs. ten crores or more. A permission is valid for one hundred and eighty days from the date of issue of the approval, or until service of an order of attachment under section 281B, whichever is earlier. Once the transfer is made or the charge created, the taxpayer must submit the documents to the Assessing Officer for his record. It arises in Demand, Recovery & Stay matters, on section 281, section 281B, section 499 (Act of 2025) of the Income Tax Act 1961, and was decided by Central Board of Direct Taxes. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the demand is disputed, come with the security ready — stay order plus bank guarantee, particulars of sufficient other assets, or an offer of a departmental first charge on the asset being transferred. If permission is refused, ask for the written reasons and confirmation of range-head approval; a bare refusal does not meet the circular. For an asset or charge of Rs. 10 crore or more, expect range-head involvement and plan the timeline accordingly.
Still good law. The circular has not been withdrawn, corrected or superseded, and the database carries no supersession annotation on it. It has been applied judicially: in Vedanta Ltd. v. Assistant Commissioner of Income-tax, Goa [2017] 86 taxmann.com 120 (Bombay) / [2018] 406 ITR 439 / [2018] 302 CTR 412 (G.S. Patel and Nutan D. Sardessai, JJ., Writ Petition No. 439 of 2017, 19 September 2017) the Bombay High Court set aside a refusal of permission that had been given on generalities, directed the Assessing Officer to decide afresh having regard to section 281 and to Circular No. 4/2011, and observed that the circular itself provides ample guidance on how the known claims of the revenue are to be secured. Note the renumbering: the Income-tax Act 1961 is repealed and the successor provision is section 499 of the Income-tax Act 2025, in which the old proviso becomes sub-section (2), so that permission of the Assessing Officer is now clause (b) of section 499(2) rather than clause (ii) of the proviso to section 281(1), and the definition of 'assets' has been widened to include a virtual digital asset. Whether the Board has re-issued the guidelines or the form under the 2025 Act was not established. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The prescribed form is annexed to the circular itself: Form I.T.N.S. 281, 'Application u/s 281 of the IT Act, 1961', in four parts - general particulars, outstanding demand as on the date of application, particulars of the assets, and particulars of the proposed transaction - with a verification. The form seeks permission under clause (ii) of the proviso to section 281; under the Income-tax Act 2025 the corresponding provision is section 499(2)(b), and 'assets' there also includes a virtual digital asset. The circular is not confined to charges on business assets: it opens by referring to permission to transfer or create a charge on the assets of the assessee, and the form covers both a transfer and the creation of a charge over land, building, plant, machinery, shares, securities and bank fixed deposits other than stock-in-trade. Whether the Board has re-issued Circular No. 4/2011 or Form I.T.N.S. 281 under the Income-tax Act 2025, and what the successor of section 281B is in that Act, were not established. Whether the departmental website still carries the form in this format was not checked. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
An application for prior permission must be made in the form annexed to the circular, Form I.T.N.S. 281 'Application u/s 281 of the IT Act, 1961', and must be filed at least thirty days before the proposed date of the transaction. Permission is to be granted where there is no demand outstanding and none likely in the next six months; where an undisputed demand is outstanding and none is likely in the next six months, once the taxpayer pays it with interest; and where a disputed demand is outstanding, once the taxpayer obtains a stay and indemnifies the demand by bank guarantee, sufficient assets, or the Department retaining first charge on the asset being transferred or charged, to the extent of the demand. Where a demand is likely to arise in the next six months the Assessing Officer is to explore action under section 281B. Timelines are ten working days, or fifteen where section 281B is being considered; a refusal must be by a speaking and reasoned order with the approval of the range head. Range-head approval is required where the value of the assets, or the amount of the charge being created, is Rs. ten crores or more. A permission is valid for one hundred and eighty days from the date of issue of the approval, or until service of an order of attachment under section 281B, whichever is earlier. Once the transfer is made or the charge created, the taxpayer must submit the documents to the Assessing Officer for his record.
TaxSphere, “CBDT Circular 4/2011”, https://taxnotice.vittsphere.com/caselaw/case/cbdt-circular-4-2011-section-281-prior-permission/ (validity last checked 2026-08-19)
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