Source: Kerala High Court 

Why in News? 

Recently, Division Bench of Justices Sathish Ninan and Shoba Annamma Eapen has held that cash in a bank account qualifies as 'property' liable for provisional attachment under Section 281B of the Income Tax Act. 

• The Kerala High Court held this in the matter of Assistant Commissioner of Income Tax v. Mohammed Salih (2025). 
• The court observed that the term "any property" includes bank deposits, even though they are not explicitly mentioned.  
• The decision came in a case where the Income Tax Department attached an assessee’s bank account after unaccounted cash was seized. 

What was the Background of Assistant Commissioner of Income Tax v. Mohammed Salih (2025) Case? 

• On 12^th April 2022, police intercepted a car and seized cash amounting to ₹1,56,00,000/- from two individuals (later respondents). 
• The seized amount was initially produced before the Judicial First-Class Magistrate's Court. 
• The Income Tax Department applied under Section 132A of the Income Tax Act, 1961 for release of the amount to the Department. 
• The respondents challenged this order before the High Court in Criminal Miscellaneous Cases. 
• The High Court, through an order dated 21thDecember, 2023, directed the release of cash to the respondents upon furnishing a bond for the amount. 
• Subsequently, the Income Tax Department initiated proceedings after finding no explanation for the cash and determining that income chargeable to tax had escaped assessment. 
• The Department issued a notice under Section 148 of the Income Tax Act to commence reassessment proceedings. 
• Anticipating that the expected demand on assessment, including penalties, would exceed two crores, the Department ordered provisional attachment of the respondents' bank accounts under Section 281B. 
• The respondents challenged these attachment orders through a writ petition, which was initially allowed by the Single Judge. 

What were the Court’s Observations? 

• The term "any property" under Section 281B (1) should be interpreted broadly and not in a restricted sense, encompassing money lying in bank accounts. 
• The presence of the word "any" before "property" in Section 281B (1) carries significant legal weight in determining the scope of attachable assets. 
• The Court held that except for properties exempted under the Code of Civil Procedure, 1908, all other properties are liable to attachment under Schedule II of the Income Tax Act. 
• Security furnished before the Magistrate's Court for interim release cannot be construed as sufficient security for potential tax demands under Section 147 of the Income Tax Act,1961. 
• The Court observed that provisional attachment orders must be proportionate to the probable demand including penalties. 
• The attachment should not be blanket orders covering properties valued significantly higher than the probable demand. 
• The Court acknowledged that while exact demand cannot be determined at the provisional attachment stage, authorities must form a reasonable opinion regarding probable demand. 
• The Court noted that attachment of bank accounts should be resorted to as a last measure, with preference given to immovable properties when possible. 
• The power of attachment under Section 281B must be exercised with extreme care and caution, being a drastic measure affecting taxpayer rights. 

What is Section 281B of Income Tax Act,1961? 

• Section 281 deals with certain transfers to be void. 
• Section 281B deals with provisional attachment to protect revenue in certain cases. 
  • The section empowers the Assessing Officer to provisionally attach any property belonging to an assessee during pending assessment or reassessment proceedings. 
  • The attachment power can only be exercised with prior approval from higher authorities (Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, Commissioner, Principal Director General, Director General, Principal Director, or Director). 
  • The attachment must be deemed necessary to protect the interests of revenue, requiring the Assessing Officer to form and record this opinion. 
  • The manner of attachment must follow the procedure laid down in the Second Schedule of the Income Tax Act. 
  • The attachment is temporary, initially valid for six months, though it can be extended up to two years or sixty days after assessment/reassessment order, whichever is later. 
  • The assessee can get the attachment revoked by providing a bank guarantee equal to or greater than the fair market value of the attached property. 
  • The Assessing Officer may accept a bank guarantee for a lower amount if satisfied it adequately protects revenue interests. 
  • For determining the property's value, the Assessing Officer can refer to a Valuation Officer who must submit a report within 30 days. 
  • If the assessee fails to pay the sum demanded after assessment, the Assessing Officer can invoke the bank guarantee to recover the amount, with any excess being deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner. 

What are the Key Provisions Indicating the Scope of "Any Property" under Section 281B of the Income Tax Act? 

• Section 281B provisions indicate that "any property". 
• Not restricted to any specific type of property. 
• Subject to valuation and substitution by bank guarantee. 
• Must be owned by the assessee. 
• Can only be attached through prescribed procedures. 
• Must be proportionate to protecting revenue interests.