News › Weekly Alert Article

CBDT Guidance on Pre-requirement For Transferring Assets

India
The Central Board of Direct taxes ("CBDT") has issued guidelines to be followed by an Assessing Officer ("AO") for granting permission to transfer or create a charge on the assets of the taxpayer as contemplated under the Income tax Act, 1961 ("Act"). Taxand India looks at the guidelines.

The guidelines prescribe a form to be completed by the taxpayer if the taxpayer desires to transfer an asset or attempts to create a charge on the asset. This form is required to be filed by the taxpayer at least 30 days prior to the date of the proposed transaction.

In addition, the guidelines also prescribe the following circumstances and time frame for grant of prior permission by the AO pursuant to an application being filed by the taxpayer:

  • where no demand is outstanding and there exists no likelihood of any demand arising in the next six months, the AO is required to grant permission within 10 working days from the date of receipt of the application

  • if an undisputed demand is outstanding and there is no likelihood of a fresh demand arising in the next six months, then the taxpayer is required to pay the outstanding demand along with interest thereon. Permission in this case has to be given by the AO within 10 working days from the date of payment of the demand and interest thereon

  • if there is a disputed demand outstanding, the taxpayer is required to obtain a stay for the demand 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. Permission in this case has to be given by the AO within 10 working days of the indemnification of the demand

  • if the demand is likely to arise in the next six months and the AO explores action under the Act (which provides for the provisional attachment of property by the AO for protecting the interests of the Revenue) for the assets excluding the asset under consideration, the AO is then required to grant permission within 15 working days from the date of receipt of the application.

The circular also clarifies that where 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.

Where the AO issues a letter granting permission, it would be valid for one hundred and eighty days from the date of issue of the approval, or service of order of attachment, whichever is earliest.

The circular has come into force with immediate effect.

Taxand's Take


Although the provisions of the Act have been in the statute since 1975, practically, Acquirers have not been insisting and transferors have not been seeking prior approvals of the AOs under the Act while transferring /creating a charge in respect of specified assets, particularly in cases of taxpayers having no outstanding tax demands.

However, issuance of the circular reflects the increasing number of applications being filed by taxpayers under the Act and the increased significance being placed on the same by the Revenue. The circular prescribes the form for filing the application, clarifies applicability of the provisions in case of taxpayers with no outstanding demand and provides guidelines for disposal of the applications by the AOs along with time lines to be followed.

Acquirers in transactions involving acquisition /creation of charge in respect of the specified assets are likely to insist on the Seller / Transferor obtaining the requisite permission under the Act to ensure clear title /charge in respect of the assets and hence clearance is likely to become a prerequisite in such transactions.

Read the full article from Taxand India here

Your Taxand contacts for further queries are:
Abhishek Goenka
T. +91 80 4032 0000
E. abhishek.goenka@bmradvisors.com

Manoj Kumar
T. +91 124 339 5010
E. manoj.kumar@bmradvisors.com

Pranav Manani
T. +91 124 339 5010
E. pranav.manani@bmradvisors.com

Taxand's Take Author