RECOMMENDATION FOR AMENDMENT IN SECTION 281B TO PROVIDE RELEASE OF ATTACHED PROPERTY ON SUBMISSION OF BANK GUARANTEE
Under Section 281B, AO has the power to provisionally attach the assets, with the approval of the CIT/CCIT. Such attachment is supposed to be temporary, with a limit of 6 months, extendable to a maximum of 24 months. However, in view of the fact that in many such cases, the proceedings itself get stayed as a result of applications made by the taxpayer, the time limit has been amended by the Finance Act 2014 till 60 days after assessment. In many cases, taxpayer challenges the validity of proceedings itself by a Writ, wherein proceedings for assessment may be stayed, or opts for an advanced ruling before the Authority of Advanced Ruling (AAR) and obtains a stay on assessment till the AAR decision, which can further prolong the duration of the attachment under this section.
In many cases, assets are attached because of a proposal on the part of the non-resident taxpayer to alienate the assets. In such cases, attachment can become the central issue of dispute, in some cases, becoming even more important than the taxability of its income in India. As the attachment of its property can obstruct its business reorganization plans, it can become the primary source of its grievance with the Indian tax authorities.
One possible way of protecting the revenue interest of India, while allowing the taxpayers to continue with their business plans could be in substituting the attachment of property with financial security (such as Bank Guarantee). At present, there is no clarity on the powers and obligations of the Assessing Officer for accepting a request for substituting the attachment of assets with a Bank Guarantee of the same value. In some cases, taxpayers may not be clear about this option, in other cases the Assessing Officer may not be willing to accept such a request. There can also be cases where the Assessing Officer may want a financial security in respect of the whole anticipated tax demand, instead of the value of the asset attached, for which the taxpayer may not agree. Lack of clarity on such obligations is likely to be a major hindrance in resolution of such matters, affecting ease of doing business. It is also necessary to ensure that the value of the asset attached is commensurate with the anticipated demand and not in far excess of it.
International experience in Mutual Agreement Procedure (MAP) under tax treaties suggests that taxpayers are usually not averse to providing a Bank Guarantee in respect of disputed tax demand. However, in respect of section 281B attachment, another major factor that may deter taxpayers from coming forward with a financial security, is the possibility of recovery from it immediately after the assessment, even if the taxpayer prefers to appeal against the tax demand.
After taking into account these various factors, the Committee recommends that such grievances and hardships on part of the taxpayers can be avoided by providing a statutory option to the taxpayer to submit a Bank guarantee for the value of the assets attached u/s 281B or a lower amount covering the tax demand anticipated by the Assessing Officer, and seek relief from attachment of its assets. The Committee also recommends that prohibiting recovery from such Bank Guarantee till the time for filing an appeal against the Assessment order has expired, or in case where such an appeal is filed, till the time that appeal is disposed, would be a necessary assurance for the taxpayer for exercising this option, and facilitate resolution of disputes related to attachment of property u/s 281B without impacting taxpayer’s business plans.
There could be a need to clarify the conditions or format of the Bank Guarantee, including the Banks from which such Guarantee would be acceptable and the time for which such Bank Guarantee needs to be furnished. Taking into account that the Bank Guarantee would be only for a limited period, and the appellate proceedings may not be disposed during that period, the option of encashing a bank guarantee that is due to expire shortly, say 15 days, would need to be provided to the Assessing Officer. This would also shift the onus on the taxpayer to extend the validity of the Bank Guarantee before the trigger of recovery sets in.
The Committee also recommends that a sub-section may be inserted in Section 281B to provide for the display of the attachment in the portals of the website of the Department of Revenue, Govt. of India, or in such other website as may be notified by the Govt. of India. This is with the view to providing information to those who are dealing with the particular assessee in whose case the attachment is made. The Committee has taken note that even as per the existing regulations, such information as is relevant to the credit rating of any individual or other entity is required to be put up in certain websites.
Rules may also be required for vesting the power of valuation of asset in a Valuation Officer or authorized valuer, and providing other details of the manner in which the value of the property attached should be determined.
Accordingly, the Committee recommends that the following subsections be inserted in section 281B:
“(3) Where, an assessee referred to in sub-section (1) furnishes a Guarantee from a scheduled Bank, as prescribed, for an amount equal to the value of the property attached under sub-section (1), the Assessing Officer shall release such property by order in writing, within 15 days of receipt of such guarantee.
Provided that where the Assessing Officer is satisfied that a Guarantee from a scheduled Bank for an amount less than the value of the property would protect the interest of the revenue, he may accept it under this sub-section.
Explanation – For the purpose of this sub-section, the value of the property would be determined in the manner as prescribed.
(4) Where, a notice of demand specifying a sum payable is served upon the assessee in consequence of an order in the proceeding referred in sub-section (1) or any other proceeding, and the assessee fails to pay that sum within the time specified in the notice of demand or sixty days after such notice is served, whichever is later, the Assessing Officer may invoke the Guarantee referred in sub-section (3) to recover such amount.
Provided that where the assessee has filed an appeal against the order under section 246 or clause (d) of sub-section (1) of section 253 of this Act, the sum payable by the assessee shall not be recovered by invoking the Guarantee referred in sub-section (3) during the pendency of such appeal.
(5) Notwithstanding anything in the Proviso to sub-section (4), the Assessing Officer shall, if it is necessary to do so to protect the interest of the revenue, invoke the Bank Guarantee, if the assessee fails to renew the Guarantee referred in sub-section (3) or furnish a fresh Guarantee from a scheduled Bank for an equal amount, one month before the expiry of the Guarantee referred in sub-section (3).
(6) Where the Assessing Officer is satisfied that the Guarantee referred in sub-section (3) is not required anymore to protect the interests of revenue, he shall release that Guarantee forthwith.
(7) Every order of provisional attachment and any extension thereof shall be displayed in the website of the Department of Revenue, Government of India, or in such other website as may be notified by the Government of India.
Explanation – For the purpose of this section, ‘scheduled Bank’ means a Bank included in the Second Schedule of the Reserve Bank of India Act, 1934.”