Certain Transfers Declared Void

Understanding Section 281 of the Income-Tax Act 1961

Certain Transfers Declared Void

Section 281 Provisions

Section 281 of the Income-Tax Act, 1961, delineates certain transfers as void. Specifically, if an assessee (taxpayer) engages in asset transfers or creates charges on their business assets during the pendency of income tax proceedings or after assessment, these transactions may be deemed null and void unless prior permission has been obtained under Section 85 of the Act.

Guidelines for Prior Permission

To obtain prior permission under Section 85, the assessee must submit an application to the Income Tax Authority (ITA) along with supporting documents. The ITA will review the application and grant permission if satisfied that the proposed transfer or charge is not detrimental to revenue interests.

Factors Considered by ITA

When considering an application for prior permission, the ITA will assess various factors, including:

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The nature and purpose of the transfer or charge.

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The value of the assets involved.

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The financial impact of the transaction on the assessee.

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The intent of the assessee and whether it is aimed at evading tax liabilities.

Importance of Prior Permission

Obtaining prior permission under Section 85 is crucial to ensure that asset transfers or charges are legally valid. Failing to do so may lead to the transaction being declared void, potentially resulting in:

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Loss of control over assets.

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Revocation of tax exemptions.

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Legal challenges and penalties.

Conclusion

Section 281 of the Income-Tax Act, 1961, plays a significant role in preventing the evasion of tax liabilities through improper asset transfers. As an assessee in India, it is essential to understand the provisions of Section 281 and adhere to the guidelines for obtaining prior permission under Section 85 to maintain the validity of asset transactions.