Section 281B Can’t Cover Non-Assessee Property, Rules Karnataka HC

Introduction

In a significant ruling, the Karnataka High Court (Karnataka HC) has underscored a
fundamental limitation on the power of the tax authorities under Incometax Act, 1961 (“the
Act”) to attach property of a non-assessee person. In the case of Smt Vanitha S vs Deputy
Commissioner of Incometax (Central Circle1)(3), Bengaluru (DCIT), the Court held that a
property purely owned by a third party (and not by the assessee) cannot be provisionally
attached under Section 281B of the Act. This ruling has important implications for both the
Revenue and assessees, clarifying that the statute contemplates attachment of the assessee’s
property, and not arbitrary assets of others.

Facts of the Case

The background facts in Vanitha’s case are as follows:
 A partnership firm, M/s Sri Vayuputhra Electro World, was constituted on 19 April
2019 by the petitioner (Vanitha) and one Mr Venkatachalapathi Ramamurthy Rajesh.
The firm purchased an immovable property on 29 August 2019 (BBMP Khata No.
758/662/784/756 at BEML 3rd Stage, Halagevaderahalli Village, Kengeri Hobli,
Bengaluru South Taluk).
 Subsequently, the partnership firm sold this property via registered sale deed dated 22
December 2021 to one Smt Vinutha J.
 Later, on 25 January 2023, Smt Vinutha J. sold the same property to the petitioner
(Vanitha) via registered sale deed, making her the sole and exclusive legal owner.

 Meanwhile, tax assessment proceedings were underway in respect of Mr Rajesh as the
sole assessee (the petitioner and the firm were not assessees). The DCIT issued a
provisional attachment order under Section 281B on 3 August 2022 and later on 28
May 2024, including the above property among the assets said to belong to the
assessee Mr Rajesh.
 The petitioner challenged the attachment insofar as it related to the property she had
acquired and over which Mr Rajesh had “no right, title or interest … whatsoever” at
the time of attachment.

Court’s Discussion

The Karnataka HC analysed the legal ambit of Section 281B and the factual ownership
circumstances of the property in question. Key observations and reasoning include:

1. Statutory scope of Section 281B: The Court reiterated that Section 281B empowers
   the Deputy Commissioner to provisionally attach the property of the assessee when
   he forms an opinion that further proceedings may jeopardise the revenue’s interest.
   The language is confined to the “assessee’s property”.
2. Ownership status and assessee’s interest: The material on record showed that
   neither the petitioner nor the partnership firm were assessees. The only assessee was
   Mr Rajesh. At the time of the attachment, the property stood in the name of the
   petitioner (having bought it on 25 January 2023) and Mr Rajesh had no title, interest
   or possession. The Court found these facts undisputed.
3. Error in treating non-assessee property as asset of the assessee: Given that the
   property was validly sold by the partnership firm prior to the attachment order, and
   later the petitioner became the owner, the action of the revenue to include this
   property among those belonging to Mr Rajesh was found to be erroneous and
   unsustainable.
4. Resulting decision: The Court held that the provisional attachment orders (dated 3
   August 2022 and 28 May 2024) insofar as they affected the petitioner’s property,
   were vulnerable and were accordingly quashed. In the Court’s words: “Property
   exclusively owned by a non-assessee cannot be attached under Section 281B for
   recovery of tax from another assessee.”
5. Implications on the procedural safeguards: Although the Court did not dwell at
   length on other procedural prerequisites (such as formation of opinion under Section
   281B) in this judgment, the case reinforces the necessity that the property subjected to
   attachment must indeed belong to the assessee in question.

Conclusion

The Karnataka HC’s ruling in Smt Vanitha S vs DCIT serves as a vital precedent
underscoring the protective boundary around the power of provisional attachment under
Section 281B of the Income-tax Act. Key take-aways include:
 A plain reading of the statute confirms that only the property of the assessee may be
subject to provisional attachment in order to protect the revenue.
 When the property is owned by a third-party non-assessee (and the assessee has no
right, title or interest), any attachment under Section 281B is invalid and may be
quashed.
 For assessees, this ruling offers a safeguard against over-reach: property must truly be
theirs or under their title/interest to be liable under Section 281B.
 For the Revenue, this decision emphasises the importance of meticulous due-diligence
regarding ownership, title chain and the status of the owner before including assets in
attachment orders.
 In practice, this judgment may often support bona fide third-party purchasers or
subsequent transferees who find their property mistakenly subjected to attachment due
to mis-attribution to an assessee.
In sum, the decision brings clarity and limits the reach of Section 281B in the context of non-
assessee owned property, reinforcing the principle that attachment powers must be exercised
within the statutory ambit and on correct factual foundation. Tax professionals, assessees and
revenue authorities alike would do well to note this precedent when dealing with provisional
attachments under the Act.