Balancing Revenue Recovery and Taxpayer Rights : Clause 250 of the Income Tax Bill, 2025 Vs. Section 132B of the Income-tax Act, 1961

Clause 250 Application of seized or requisitioned assets.

Income Tax Bill, 2025

Introduction

Clause 250 of the Income Tax Bill, 2025, proposes a comprehensive framework for the application of assets seized or requisitioned during search and seizure operations under the forthcoming legislation. This provision is intended to replace and modernize the existing regime u/s 132B of the Income-tax Act, 1961. Both provisions address the manner in which seized or requisitioned assets are to be appropriated towards outstanding tax liabilities, the procedural safeguards for release of such assets, and the payment of interest on excess retention. Clause 250, while retaining the core structure of Section 132B, introduces certain modifications and clarifications, reflecting legislative intent to streamline procedures, expand coverage, and ensure taxpayer rights. The significance of these provisions lies in their central role in the tax administration's enforcement arsenal. The ability to seize and apply assets towards tax dues is a potent tool, but it must be balanced against the rights of taxpayers and the requirements of due process. The transition from Section 132B to Clause 250 marks an evolution in the legislative approach, seeking to harmonize efficiency in recovery with procedural fairness.

Objective and Purpose

The principal objective of Clause 250, like Section 132B, is to provide statutory authority for the application of assets seized or requisitioned during search and seizure or requisition proceedings towards the discharge of tax liabilities of the person from whom such assets are taken. The provision aims to:

• Ensure prompt recovery of tax, penalty, and interest dues by empowering the Assessing Officer (AO) to appropriate seized assets.
• Lay down clear procedures for the release of assets where the taxpayer satisfactorily explains the source and nature of acquisition and after liabilities are met.
• Mandate the timely release of excess assets and provide for payment of interest to the taxpayer for prolonged retention beyond prescribed timeframes.
• Clarify the scope of liabilities that may be recovered out of seized assets, including those under predecessor laws and related statutes such as the Black Money Act.
• Incorporate procedural safeguards, including approval requirements and timelines, to protect taxpayer rights and prevent arbitrary retention.

The legislative history of Section 132B reflects a consistent policy to balance the state's interest in revenue recovery with the need to protect individual property rights and ensure administrative accountability. Clause 250 seeks to further this objective, updating the framework to address contemporary requirements and close interpretative gaps.

Detailed Analysis of Clause 250 of the Income Tax Bill, 2025

Clause 250 is structured into nine sub-clauses, each addressing a specific aspect of the application of seized or requisitioned assets. The following is a clause-by-clause analysis, referencing the corresponding provisions of Section 132B for comparative purposes.

1. Scope of Recoverable Liabilities [Clause 250(1)]

Clause 250(1) empowers the AO to recover tax liabilities (including penalty and interest, but excluding advance tax) out of assets seized u/s 247 or requisitioned u/s 248. The aggregate liability encompasses:

• Existing liabilities under the new Act, the Income-tax Act, 1961, or the Black Money Act, 2015.
• Liabilities determined up to the date of completion of assessment, reassessment, or recomputation arising from the search/requisition.
• Liabilities in respect of which the person is in default or deemed to be in default under the new Act or the 1961 Act, determined post-assessment/reassessment/recomputation and up to the date of release of assets.
• Liabilities arising from an application before the Interim Board of Settlement u/s 245C(1) of the 1961 Act.

Key Observations:

- Clause 250(1) is more streamlined, reflecting legislative intent to focus on active statutes.

- The inclusion of liabilities under the Black Money Act in both provisions ensures coverage of undisclosed foreign income/assets.

- The reference to liabilities determined after assessment/reassessment/recomputation and up to the date of asset release is a clarificatory addition, potentially addressing situations where additional liabilities arise post-search but before asset release.

2. Release of Seized Assets [Clause 250(2)]

Clause 250(2) allows the AO to release seized assets (or a portion thereof) to the person from whose custody they were taken, upon application within 30 days from the end of the month in which the asset was seized, subject to:

• Satisfaction as to the nature and source of acquisition of the asset.
• Recovery of any existing liability as per sub-section (1).
• Prior approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner.

Key Observations:

- The procedural safeguard of requiring higher authority approval is retained.

- The time limit for application and the requirement to explain the source/nature of the asset are consistent across both provisions.

- The language in Clause 250 is clearer and more structured, potentially reducing interpretative disputes.

3. Timelines for Release [Clause 250(3)]

Clause 250(3) mandates that assets eligible for release under sub-section (2) must be released within 120 days from the date of execution of the last authorization for search or requisition.

Key Observations: - The statutory timeline is unchanged, ensuring prompt release and preventing undue retention.

4. Application of Money Seized [Clause 250(4)]

Clause 250(4) provides that if the assets consist solely or partly of money, the AO may apply such money to discharge the liabilities under sub-section (1), with the assessee deemed discharged to the extent so applied. 

Key Observations: - The operational mechanics of applying seized cash towards liabilities are unchanged.

5. Application of Non-Monetary Assets [Clause 250(5)]

Clause 250(5) allows the AO to apply non-monetary assets towards discharge of undischarged liabilities. Such assets are deemed to be under distraint as if authorized by the competent authority, and recovery is to be effected in the prescribed manner.

Key Observations:

- Clause 250 refers to recovery "in the manner as prescribed," suggesting that detailed rules may be framed under the new Act, potentially offering more flexibility or clarity.

- Section 132B specifically references the Third Schedule, which may or may not be retained in the new legislation.

6. Non-Exclusivity of Recovery Modes [Clause 250(6)]

Clause 250(6) clarifies that the mode of recovery under sub-section (1) does not preclude recovery by any other mode provided in the Act.

Key Observations: - This ensures that the tax department is not restricted to the application of seized assets and may use other statutory recovery mechanisms as appropriate.

7. Return of Excess Assets [Clause 250(7)]

Clause 250(7) requires that any assets or proceeds remaining after discharging the liabilities under sub-section (1) must be forthwith returned or paid to the concerned person.

Key Observations: - The obligation to promptly return excess assets is a critical safeguard against arbitrary or excessive retention.

8. Interest on Excess Retention [Clause 250(8)]

Clause 250(8) mandates that the Central Government must pay simple interest at the rate of 0.5% per month (6% per annum) on the amount determined by the formula: (A-B)+(C-D), where:

• A = aggregate amount of money seized/requisitioned
• B = amount of money, if any, released under sub-section (2)
• C = proceeds, if any, of assets sold towards discharge of liability under sub-section (1)
• D = aggregate amount required to meet the liabilities under sub-section (1)

Key Observations:

- The formula is now explicitly set out in the provision, potentially reducing disputes over calculation.

- The interest rate is unchanged from the current regime.

9. Period for Interest Calculation [Clause 250(9)]

Clause 250(9) specifies that interest runs from the day after expiry of 120 days from the date of execution of the last search/requisition authorization, until completion of assessment/reassessment/recomputation.

Key Observations: - The period for which interest is payable remains consistent, reinforcing the importance of timely assessments.

Other Notable Features

- Coverage of Advance Tax: Both provisions exclude advance tax from the scope of "existing liability," as clarified by Explanation 2 to Section 132B and the language of Clause 250(1).

- Reference to Settlement Mechanisms: Clause 250(1)(d) refers to the Interim Board of Settlement, reflecting the phasing out of the Settlement Commission and transition to new dispute resolution mechanisms.

- Legislative Streamlining: Clause 250 omits references to defunct statutes (Wealth-tax, Expenditure-tax, etc.), aligning with contemporary legislative practice.

Practical Implications

The practical impact of Clause 250, as with Section 132B, is significant for taxpayers subject to search and seizure or requisition proceedings:

• Swift Recovery: The tax department is empowered to promptly recover dues from seized assets, reducing the risk of non-recovery.
• Procedural Safeguards: Taxpayers retain the right to seek release of assets upon satisfactory explanation and after liabilities are met, with mandatory approval and time-bound decisions.
• Interest Compensation: Taxpayers are compensated by way of interest for the retention of assets beyond prescribed periods, incentivizing timely completion of assessments.
• Clarity and Predictability: The explicit formula and timelines reduce ambiguity and potential for litigation over computation and delay.
• Expanded Coverage: Inclusion of liabilities under the Black Money Act and settlement mechanisms ensures comprehensive recovery powers.

For tax administrators, Clause 250 offers a robust, clear, and enforceable framework, while for taxpayers, it provides procedural rights, transparency, and protection against excessive retention.

Comparative Analysis with Section 132B of the Income-tax Act, 1961

Section 132B of the 1961 Act is the existing statutory provision governing the application of seized/requisitioned assets. The comparison below highlights both the similarities and key differences between the two provisions.

1. Scope of Liabilities

Section 132B:

• Covers existing liabilities under the Income-tax Act, Wealth-tax Act, Expenditure-tax Act, Gift-tax Act, Interest-tax Act, and Black Money Act;
• Includes liabilities determined upon assessment/reassessment for the year of search or for the block period (in the context of Chapter XIV-B);
• Includes penalties and interest related to such assessments;
• Expressly excludes advance tax as per Explanation 2.

Clause 250:

• Refers to liabilities under the new Act, the 1961 Act, and the Black Money Act;
• Does not mention the Wealth-tax, Expenditure-tax, Gift-tax, or Interest-tax Acts (possibly reflecting the repeal or diminished relevance of these laws);
• Includes liabilities determined up to completion of assessment/reassessment/recomputation arising from the search;
• Includes liabilities arising from applications before the Interim Board of Settlement.

Analysis: The scope in Clause 250 is streamlined, focusing on the main direct tax statutes currently in force. The omission of references to other tax Acts may indicate legislative intent to align with the contemporary tax regime and avoid redundancy.

2. Process for Release of Assets

Section 132B:

• Taxpayer can apply for release within 30 days from the end of the month of seizure;
• AO must be satisfied about the nature and source of assets;
• Release requires prior approval of senior officers;
• Assets must be released within 120 days from the last authorization execution.

Clause 250:

• Replicates the same process and timelines as Section 132B;
• Emphasizes the satisfaction of the AO and prior approval from senior officials;
• Codifies the 120-day release period.

Analysis: There is substantial continuity in the process, reflecting best practices and judicial pronouncements that have shaped the interpretation of Section 132B.

3. Application of Money and Other Assets

Section 132B:

• Money seized is applied first towards liabilities;
• Non-monetary assets may be appropriated and are deemed under distraint, with sale conducted as per the Third Schedule.

Clause 250:

• Mirrors the approach for application of money and non-monetary assets;
• Deems non-monetary assets under distraint, with recovery as prescribed (presumably by rules to be notified).

Analysis: The approach remains the same, though Clause 250 references "as prescribed," possibly allowing for future procedural modifications by subordinate legislation.

4. Non-exclusivity of Recovery Modes

Both provisions affirm that application of seized assets does not preclude other recovery modes under the Act, ensuring flexibility for tax authorities.

5. Refund of Excess Assets

Both provisions require the prompt return of any excess assets or proceeds after discharging liabilities. The term "forthwith" is retained, underscoring the urgency of returning taxpayer property.

6. Interest on Excess Retention

Section 132B:

• Interest at 0.5% per month (or part thereof) is payable on the excess amount retained, calculated by a specified formula;
• Interest runs from the expiry of 120 days after the last search/requisition authorization to the date of assessment/reassessment/recomputation.

Clause 250:

• Retains the 0.5% per month rate and a similar formula for computation;
• Interest period is defined identically.

Analysis: The continuity here aligns with judicial trends emphasizing taxpayer compensation for delayed return of property.

7. Other Notable Differences

• Legislative Drafting: Clause 250 is more streamlined, with simplified language and removal of references to obsolete statutes. It also refers to "rules as prescribed," allowing for greater administrative flexibility.
• Settlement Mechanism: Clause 250 refers to the Interim Board of Settlement, reflecting changes in the settlement regime post-abolition of the Settlement Commission.
• Block Assessment References: Section 132B contains references to block assessments and Chapter XIV-B, which are omitted in Clause 250, reflecting the changed assessment framework.

8. Ambiguities and Potential Issues

• Ambiguity in Definitions: Both provisions leave certain terms (e.g., "satisfaction" of the AO) open to subjective interpretation, which may lead to disputes.
• Procedural Prescription: Clause 250's reference to "as prescribed" for recovery of non-monetary assets may create uncertainty until detailed rules are framed.
• Interest Calculation Complexity: The formula for interest, while precise, may be challenging for taxpayers to apply without detailed guidance, especially in cases involving partial releases or sales of assets.

Comparative Table: Key Features

Feature	Section 132B of the Income-tax Act, 1961	Clause 250 of the Income Tax Bill, 2025
Scope of Liabilities	Income-tax, Wealth-tax, Expenditure-tax, Gift-tax, Interest-tax, Black Money	Income-tax (new and 1961), Black Money
Advance Tax Exclusion	Explicitly excluded	Implied (advance tax not mentioned)
Release Application Period	30 days from end of month of seizure	Same
Timeline for Release	120 days from last authorization execution	Same
Interest on Excess Retention	0.5% per month	0.5% per month
Reference to Settlement Mechanism	Settlement Commission	Interim Board of Settlement
Procedural Rules	Third Schedule for sale of assets	"As prescribed" (rules to be notified)

Conclusion

Clause 250 of the Income Tax Bill, 2025, represents a careful and thoughtful evolution of the regime governing the application of seized or requisitioned assets for tax recovery. While retaining the essential structure and safeguards of Section 132B of the Income-tax Act, 1961, it introduces clarifications, streamlines statutory references, and modernizes procedures to address the needs of contemporary tax administration. The comparative analysis reveals a commitment to balancing effective revenue recovery with procedural fairness and taxpayer rights. The explicit formula for interest, prescriptive timelines, and focus on active statutes are significant improvements. However, successful implementation will depend on timely notification of subordinate rules and continued vigilance to ensure that taxpayer rights are not compromised in the pursuit of efficiency.

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Full Text:

Clause 250 Application of seized or requisitioned assets.

 

Dated: 30-5-2025