Circular No. 4/2011

What this is

Circular No. 4/2011 was issued by the Central Board of Direct Taxes on 19 July 2011. Its subject is Section 281 of the Income-tax Act, 1961 - Certain Transfers to BE Void - Guidelines for Prior Permission under section 281 to Create A Charge on the Assets of Business.

What it does

Lays down uniform guidelines for granting prior permission under section 281 to transfer an asset or create a charge on it. The taxpayer applies in the prescribed form at least thirty days before the proposed transaction. Permission is to be granted where no demand is outstanding and none is likely in the next six months; where an undisputed demand is outstanding, on its payment with interest; and where the demand is disputed, once the taxpayer obtains a stay and indemnifies the demand by bank guarantee, sufficient assets, or by the department retaining a first charge on the asset to the extent of the demand. Where demand is likely to arise in the next six months the Assessing Officer is to explore action under section 281B. There is one level of intervention only, the Range head, and his approval is needed where the value of the asset or the amount of the charge is Rs. ten crore or more. Timelines are fixed — generally ten working days, fifteen where section 281B is being considered — a refusal must be a speaking and reasoned order approved by the Range head, and the permission is valid for one hundred and eighty days from issue or until an attachment order under section 281B is served, whichever is earlier.

Why it was issued

References came to the Board asking for guidelines on granting prior permission under section 281, and the Board wanted uniformity on the issue.

Who it reaches

• Assessees selling or mortgaging assets while a demand is pending
• Businesses creating a charge on assets to raise finance
• Banks and lenders taking security from a taxpayer with outstanding demands
• Assessing Officers and Range heads processing these applications

The provisions it speaks to

The instrument, as the Board published it

SECTION 281 OF THE INCOME-TAX ACT, 1961 - CERTAIN TRANSFERS TO BE VOID - 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.

Form I.T.N.S. 281

Application u/s 281 of IT Act, 1961

DATE OF APPLICATION
To,
The Assessing Officer,
………………………..
………………………..
………………………..

I/M/S ……………………………………………………………………. (name of the assesse in block letters) son/daughter of …………………….do, hereby, request that permission may be granted under clause (ii) of the proviso to section 281 creating a charge on, or to part with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of asset(s) given in D4 of Part D below in favour of person(s) to be mentioned in D1 of Part D below.

PART A - GENERAL PARTICULARS

A1 First Name

A2 Middle Name

A3 Last Name

A4 SEX

Male Female

A5 Date of Birth/Date of Incorporation

A6 Designation of Assessing officer (Ward/Circle)

A7 Flat/Door/Block No

A8 Name of Premises/Building/Village

A9 Road/Street/Post Office

A10 Area/Locality

A11 Town/City/District

A12 State

A13 Pin code

A14 E-mail Address

A15 Residential/Office Phone No. with STD Code

A16 Mobile No. With Country Code

A17 Fill only one Resident Non-Resident Resident but not ordinarily resident

A18 Fill Status (Only one) Individual HUF FIRM AOP/BOI Company Others

PART B - POSITION OF OUTSTANDING DEMAND AS ON THE DATE OF APPLICATION

Assessment Year

Demand Section

Outstanding Demand (In Rs.)

Particulars of stay of demand, if any

Remarks

B1

B2

B3

B4

B5

B6

B7

B8

B9

B10

PART C - Particulars of 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 as on the date of application

Description of the Asset

Particulars of Place where Situated

Value of the Asset as Shown in the Books of Account as on the Date of Application (In Rs.)

Whether any Charge Exists in Part or Full on the Asset

Remarks [Please Indicate the Amount (in Rs.) of Charge Existing On the Asset]

C1

Yes No

C2

Yes No

C3

Yes No

C4

Yes No

C5

Yes No

C6

Yes No

C7

Yes No

C8

Yes No

PART D - The particulars of the proposed transaction(s) transferring the assets/creating charge for which permission is sought

D1

Name of the Party/Parties with Whom Transaction is Proposed

D2

Address of the Party/Parties with Whom Transaction is Proposed

D3

PAN of the Party/Parties with Whom Transaction is Proposed

D4

The Complete Particulars of the Assets Proposed to be Transferred or for which a Charge is to be Created

D5

Expected Date of Transfer or Creation of Charge (DD/MM/YYYY)

D6

The Period For Which Charge is being Created (If Applicable)

D7

Any Other Information Considered Relevant by the Assessee

D8

Nature of Transaction Creation of Charge Transfer

D9

How the assessee proposes to pay or indemnify the Income Tax Department for outstanding demand disclosed ?

D10

Whether Credit Information Report (CIR) from Credit Information Bureau (India) Ltd. (CIBIL) is available

Yes No (if yes, attach a copy)

VERIFICATION
I, ………………………………………………………………. son/daughter of ……………………………………………………. holding permanent account number …………………………………………………………… solemnly declare that to the best of my knowledge and belief, the information given in the proforma above is correct and complete. I further declare that I am submitting this application in my capacity as …………………………….. and I am also competent to make the return of income and verify the return of income.

Place

SIGN HERE

APPLICATION U/S 281- INSTRUCTIONS
Instructions for Application u/s 281 of the IT Act, 1961
1. This form needs to be used by the taxpayer to seek permission from the Assessing Officer before creating a charge or parting with the possession of an asset. According to section 281, no taxpayer shall make a sale or mortgage or gift or exchange or any other mode of transfer of any asset in favour of any other person, during the pendency of any proceedings or after the completion of proceedings, but before service of notice under rule 2 of the Second Schedule. However, the following exceptions are provided in the Act:
l The transfer is made for adequate consideration and without any notice of proceedings or pendency of tax
l The previous permission of the Assessing Officer is obtained
l The tax payable does not exceed Rs. 5000/- and the value of the asset does not exceed Rs. 10000/-
2. Asset means land, building, plant, machinery, shares, securities and fixed deposits in bank (other than Stock-in-trade)
3. " Previous Year" is the financial year (1st April to the following 31st March) during which the income in question has been earned. "Assessment Year" is the financial year immediately following the previous year.
4. Scheme of the Form
The form has been divided into four parts, the details of the same are provided below:
i. Part A seeks general information requiring identificatory and other data
ii. Part B seeks the position of outstanding demand as on the date of Application
iii. Part C seeks particulars of assets as on the date of application
iv. Part D seeks the particulars of the proposed transaction(s) transferring the assets/creating charge for which permission is sought
5. Item by Item Instructions

Part A
l A1-A3: In case of Individual, fill your First name, Middle name and Last name in A1, A2 & A3 as per details entered in PAN Card. In any other case, use the space given in A1-A3 to fill the name of the person
l A4: In case of Individual, indicate the Date of birth. In others, indicate the date of incorporation. The format should always be in DD-MM-YYYY
l A5-A11: Fill in the communication Address. A11 -PIN CODE is mandatory to enable faster communications from/with the department
l A12: Indicate your e-mail address
l A13: Fill the STD code in the first five digits and then the telephone No. in the next eight digits. No Special Characters or Alphabets are allowed in A13
l A14: Fill the Country code in the first two digits and then fill the 10 digit mobile number in the next ten digits. No special characters or Alphabets are allowed in A16
l A15: Shade the appropriate circle
l A16: Shade the appropriate circle
l A17: Fill in the Ward/Circle. Example: Ward 15(1), Circle 14(1)

Part B
l Indicate the Assessment Year in which the demand was raised in Column i. This should be of the format 2010-11, 2011-12.
l Indicate the section under which Demand was raised in Column ii. A detailed list of various demand section is given below:

Demands under various sections

Description

115O

Tax on distributed profits of domestic companies

115P

Interest payable for non-payment of tax by domestic companies.

115R

Tax on distributed income to unit holders.

115S

Interest payable for non-payment of tax u/s 115R

115WE(1)

Summary Assessment-Fringe Benefits Tax

115WE(3)

Regular Assessment-Fringe Benefit Tax

115WF

Best judgment assessment-FBT

115WG

Fringe benefits escaping assessment

115WK

Interest for default in furnishing return of fringe benefits

144

Best judgment assessment

147

Income escaping assessment

148

Issue of notice where income has escaped assessment

154

Rectification of mistake

139(1)

Time-Limit for filing the Return

139(4)

Belated Return

142(1)

Inquiry before assessment

143(1)

Summary Assessment

143(3)

Regular Assessment

153A

Assessment in case of search

153C

Assessment of income of any other person

158BA

Assessment of undisclosed income as a result of search

158BFA

Levy of interest and penalty in certain cases .

174

Assessment of persons leaving India

174A

Assessment of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose

175

Assessment of persons likely to transfer property to avoid tax

184

Assessment as a firm

201

Consequences of failure to deduct or pay

220(2)

Interest in case demand not paid within 30 days from the date of service

220

Interest in case demand not paid within 30 days from the date of service

221

Penalty payable when tax in default

254

Orders of Appellate Tribunal

263

Revision of orders prejudicial to revenue passes by Commissioner

264

Revision of other orders by Commissioner

271

Failure to furnish returns comply with notices concealment of income, etc.

271(1)(b)

Failure to comply with a notice under sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142

271(1)(c)

Concealment of the particulars of income, or furnishing inaccurate particulars thereof

271(1)(d)

has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits

271A

Failure to keep, maintain or retain books of account, documents, etc.

271AA

Penalty for failure to keep and maintain information and document in respect of international transaction

271AAA

Penalty where search has been initiated

271B

Failure to get accounts audited

271BA

Penalty for failure to furnish report under section 92E

271BB

Failure to subscribe to the eligible issue of capital

271C

Penalty for failure to deduct tax at source

271CA

Penalty for failure to collect tax at source

271D

Penalty for failure to comply with the provisions of section 269SS

271E

Penalty for failure to comply with the provisions of section 269T

271F

Penalty for failure to furnish return of income

271FA

Penalty for failure to furnish annual information return

271FB

Penalty for failure to furnish return of fringe benefits

271G

Penalty for failure to furnish information or document under section 92D

272A

Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

272AA

Penalty for failure to comply with the provisions of section 133B

272B

Penalty for failure to comply with the provisions of section 139A

272BB

Penalty for failure to comply with the provisions of section 203A

272BBB

Penalty for failure to comply with the provisions of section 206CA

273

False estimate of, or failure to pay, advance tax

275A

Contravention of order made under sub-section (3) of section 132

275B

Failure to comply with the provisions of clause (iib) of sub-section (1) of section 132

276

Removal, concealment, transfer or delivery of property to thwart tax recovery

276A

Failure to comply with the provisions of sub-sections (1) and (3) of section 178

276AB

Failure to comply with the provisions of sections 269UC, 269UE and 269UL

276B

Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B

276BB

Failure to pay the tax collected at source

276C

Wilful attempt to evade tax, etc.

276CC

Failure to furnish returns of income

276CCC

Failure to furnish return of income in search cases

276D

Failure to produce accounts and documents

277

False statement in verification, etc.

277A

Falsification of books of account or document, etc.

278

Abetment of false return, etc.

278A

Punishment for second and subsequent offences

278B

Offences by companies

278C

Offences by Hindu undivided families

l Indicate the value of the Outstanding Demand in Column iii
l Indicate the details of stay of demand in Column iv

Part C
l Indicate the type of asset in column i. The following types of assets can be indicated
i. Land
ii. Building
iii. Plant and Machinery
iv. Shares and Securities
v. Fixed Deposits in Bank
The above assets should not form part of the Stock-in-Trade
l Indicate the particulars of place where the asset is situated in column ii. Complete Address where the Assets are situated needs to be furnished

Part D
l D1 : Indicate the name of the party/parties with whom the transaction is proposed
l D2 : Give the complete Address of the party/parties with whom the transaction is proposed
l D3 : Give the PAN of the Party/Parties with whom the transaction is proposed. If there are multiple PAN's, then indicate in the space after the boxes provided for writing PAN
l D4 : Indicate the details of all the Assets proposed to be transferred or for which a charge is to be created
l D5 : Fill the expected date of transfer or creation of charge
l D6 : If applicable, fill the period for which the charge is being created
l D7 : Fill any other information considered relevant by the taxpayer
l D8 : Fill the appropriate circle
l D9 : Explain in detail, how the taxpayer proposes to pay or indemnify the Income Tax Department for outstanding demand disclosed. The taxpayer should submit his latest asset/liability statement including the guarantees given by him.
nn

What to watch

• Apply at least thirty days ahead — a permission sought on the eve of completion cannot be processed within the guidelines.
• The permission lapses after one hundred and eighty days, or earlier if an attachment under section 281B is served, so a delayed transaction may need a fresh application.
• Where the asset value or the charge is Rs. ten crore or more, the Range head's approval is a separate step in the Assessing Officer's file.
• After the transfer or charge is completed the documents must be filed with the Assessing Officer for his record.

Where you meet it

When a sale or mortgage is being closed for a taxpayer with a pending demand and the buyer's or lender's counsel asks for the section 281 clearance, and later if the transfer is sought to be treated as void for want of it.

An example

A company with a disputed demand of Rs. 4 crore wants to mortgage a property worth Rs. 12 crore. It applies thirty days ahead, obtains a stay of the demand and offers a bank guarantee for Rs. 4 crore. Permission follows within ten working days of that indemnification, and because the asset value crosses Rs. ten crore the Range head's approval is taken; the letter holds good for one hundred and eighty days.

What it names

Rules it names. Rule 2 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

It mentions. Circular No. 4/2011

← ORDER [F.NO. 142/09/2011-SO(TPL)]  ·  Circular No. No.402/92/2006-MC (15 of 2011) →