Beware before buying a High Value Property? Please check that the Seller has No Ongoing Income Tax Assessment!

You have a money in hand and eager to buy a new property. Property might be of any kind - land, building, plant, machinery of might be even unlisted shares or securities. As a precautionary measure, you even check the legal documentation of the proposed property to be rest assured that the said property has a clear title and no encumbrances or mortgages or any kind of third-party charge on it.

However, not many buyers are aware about one of the most important sections of Income Tax Act, 1961 i.e. Section 281. As per this section, any transfer of property by a seller on whom there is an ongoing Income tax litigation shall be termed as VOID! It means, if you buy a property from a seller on whom there is an ongoing Income tax proceeding, the IT department might term such transfers as Void, if not permitted by the concerned ward office and the buyer might suffer a huge loss for no fault of theirs.

Section 281 of the Income Tax Act imposes an overriding charge on an assessee’s assets for all pending income tax dues, whether crystalized or not. When transferring or creating a charge on business assets, an assessee must obtain prior permission from an Assessing Officer under Section 281 of the Income Tax Act. This provision is critical because if an assessee fails to seek such permission, the Income Tax Department may declare any sale, gift, exchange, or mortgage void. This could have serious ramifications for the assessee, including the possibility of recovery proceedings.

the Income Tax Department can recover dues from assessees by attaching their assets without their consent or permission. This includes situations in which the assets are owned or charged to someone else, as well as situations in which the transferee has paid adequate consideration for the transfer. The provision applies to demands or dues of a company or partnership firm where the assessee is a director or partner, and recovery can also be in the capacity of a representative assessee.

Failure to obtain prior consent from the assessing officer can result in severe consequences, such as the Income Tax Department declaring any transfer or mortgage of an asset covered by Section 281 void. Even a genuine transferee who has paid adequate consideration will not be recognised as the asset’s owner. This can result in substantial losses for the buyer or mortgagee.

Therefore its always advisable to obtain NOC (No Objection Certificate) from the Income Tax Officer of the Seller under section 281. Such request for NOC certificate shall be made by the seller before 30 days of the proposed sale transaction.

As a buyer, obtaining such NOC becomes even more essential when the seller has a track record of tax evasions, IT search and surveys, ED and PMLA notices, etc.

Generally obtaining a certificate from the assessing officer regarding income tax dues may take a significant amount of time, which can be a hindrance in completing urgent transactions. In such cases, the purchaser can request a certificate from a chartered accountant to expedite the process. This certificate will inform the purchaser about the seller’s income tax obligations, allowing them to make an informed decision.