Transfers to defraud revenue void [Section 281] :

As a safeguard against non-realisation of revenue due to fraudulent transference of assets by a defaulting assessee it is provided under this Section that, certain transfers specified therein are deemed to be void for purpose of income-tax. Accordingly, in cases where, during the pendency of any proceeding under the Income-tax Act, 1961 or after the completion thereof, but before the service of notice by the Tax Recovery Officer any assessee creates a charge on, or parts with, the property by way of sale, mortgage, gift, exchange, or any other mode of transfer whatsoever of any of his assets in favour of any other person such a charge or transfer must be deemed to be void as against any claim in respect of any tax, penalty, interest or fine payable by the assessee as a result of the completion of the proceedings or otherwise. However, the charge or transfer made by the assessee would not be void in case where it is made.

(a) for adequate consideration and without any notice of the pendency of such proceeding or, as the case may be, without any notice of such tax or other monies remaining payable by the assessee; or

(b) with the previous permission of the Assessing Officer.

This provision applies to all cases where the amount of tax or other sum of money which is payable or likely to be payable exceeds Rs 5,000 and the assets which are charged or transferred by the assessee exceeds Rs 10,000 in value, in the aggregate. For this purpose, the term ‘assets‘ should be taken to mean land, buildings, machinery, plant, shares, securities and fixed deposits in bank to the extent to which any of these assets do not form part of the stock-in-trade of the business carried on by the assessee. In other words, if these items of Properties represent the stock-in-trade of the assessee‘s business, their transfer would not be treated as void.