Prior permission under section 281 of the Income Tax Act, 1961 to create a charge on the assets of business - issuance of guidelines. - Income Tax - 04/2011

CIRCULAR NO 04/2011, Dated: July 19, 2011 Subject: - Prior permission under section 281 of the Income Tax Act, 1961 to create a charge on the assets of business - issuance of guidelines. References have been received by the Board regarding issuance of guidelines for granting of prior permission u/s 281 of the I.T. 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 tax payer should pay the same along with interest due thereon and then permission should be granted. (iii) If there is disputed demand outstanding, then the tax payer 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 tax payer 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 off 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 tax payer should submit the documents, in this regard, to the A.O. for his record. 8. This circular shall come into force with immediate effect. F.No.402/69/2010-ITCC (Shanker Lal) Under Secretary (ITCC), Central Board of Direct Taxes 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 tax payer to seek permission from the Assessing Officer before creating a charge or parting with the possession of an asset. According to Section 281 , no tax payer 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: The transfer is made for adequate consideration and without any notice of proceedings or pendency of tax The previous permission of the Assessing Officer is obtained 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 31" 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 A1-A3: In case of Individual, fill your First name, Middle name and Last name in Al, 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 A4: In case of Individual, indicate the Date the birth. In others, indicate the date of incorporation. The format should always be in DD-MM-YYYY A5-A11: Fill in the communication Address. All -PIN CODE is mandatory to enable faster communications from/with the department A12: Indicate your email address 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 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 A15: Shade the appropriate circle A16: Shade the appropriate circle A17: Fill in the Ward/Circle. Example: Ward 15(1), Circle 14(1) Part B Indicate the Assessment Year in which the demand was raised in Column i. This should be of the format 2010-11, 2011-12. Indicate the Section under which Demand was raised in Column ii. A detailed list of various demand section is given below. Demands under various section 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 subsection (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 Indicate the value of the Outstanding Demand in Column iii Indicate the details of stay of demand in Column iv Part C 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 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 D1: Indicate the name of the party/parties with whom the transaction is proposed D2: Give the complete Address of the party/parties with whom the transaction is proposed 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 D4: Indicate the details of all the Assets proposed to be transferred or for which a charge is to be created D5: Fill the expected date of transfer or creation of charge D6: If applicable, fill the period for which the charge is being created D7: Fill any other information considered relevant by the tax payer D8: Fill the appropriate circle D9: Explain in detail, how the tax payer proposes to pay or indemnify the Income Tax Department for outstanding demand disclosed. The tax payer should submit his latest asset/liability statement including the guarantees given by him.