Section 250: application of seized or requisitioned assets

Introduction

Section 250 governs how seized or requisitioned money and assets are applied against specified tax liabilities and how any remainder is returned.

The section also provides a process for seeking release of assets and addresses interest on money held for the stated period.

Key takeaways

Liabilities that can be recovered from seized/requisitioned assets

The following amounts may be recovered out of assets seized under Section 247 or requisitioned under Section 248:

• Any existing tax liability (other than advance tax under Part C of Chapter XIX) under this Act, the Income-tax Act, 1961, or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, where the person is in default or deemed in default
• The liability determined on completion of assessment/reassessment/recomputation for the year in which the search was initiated or requisition made (including penalty or interest), or the liability determined for a block-period assessment under Part B of Chapter XVI, where the person is in default or deemed in default
• Liability arising on an application made before the Interim Boards for Settlement under Section 245C(1) of the Income-tax Act, 1961

Release of assets to the taxpayer

The Assessing Officer may release a seized asset (or part of it) to the person from whose custody it was seized, on an application made within thirty days from the end of the month in which the asset was seized, provided:

• The Assessing Officer is satisfied, based on the explanation furnished, that the nature and source of the asset's acquisition is explained
• Any existing liability has first been recovered out of the asset
• Prior approval has been obtained from the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner

Timeline for release

Where release is approved, the assets must be released within one hundred and twenty days from the date on which the last of the authorisations for the search or requisition was executed.

Applying money and other assets toward liabilities

If the seized assets consist wholly or partly of money, the Assessing Officer may apply that money toward discharging the liabilities described above, and the assessee is discharged of liability to that extent.

Non-money assets can also be applied toward any liabilities that remain undischarged - they are deemed to be under distraint as if effected by the Assessing Officer or Tax Recovery Officer under Section 416(7), with recovery carried out as prescribed.

This mode of recovery does not prevent the department from using any other recovery mode available under the Act.

Leftover assets and interest on money held

Any assets or sale proceeds remaining after the liabilities are discharged must be handed over or paid back to the person from whose custody they were seized.

The Central Government must pay simple interest at the rate of 0.5% per month (or part of a month) on money seized/requisitioned but not released or applied, calculated using the formula (A - B) + (C - D), where A is the money seized/requisitioned, B is the amount released under sub-section (2), C is sale proceeds of assets applied toward liabilities, and D is the aggregate amount needed to meet the liabilities.

This interest runs from the day immediately after the expiry of one hundred and twenty days from the date the last search/requisition authorisation was executed, up to the date the assessment, reassessment or recomputation is completed.

Step-by-step flow for applying Section 250

1. 1

   Were the assets seized under Section 247 or requisitioned under Section 248?

   • No: Section 250 does not apply.
   • Yes: Go to the next step.
2. 2

   Has the person applied for release within thirty days from the end of the month in which the asset was seized?

   Under Section 250(2), the Assessing Officer may release the asset or a part of it only after (a) being satisfied, on the person's explanation, that the nature and source of acquisition is explained, (b) recovering any existing liability out of the asset, and (c) obtaining prior approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner. Under Section 250(3), released assets must be released within one hundred and twenty days from the date on which the last of the authorisations for the search or requisition was executed.

   • Released in full: Nothing further is held under Section 250.
   • Not released, or released only in part: Go to the next step for the assets still held.
3. 3

   Which liabilities can be recovered from the assets?

   Section 250(1): (a) any existing liability under this Act, the Income-tax Act, 1961 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, other than advance tax, for which the person is in default or deemed in default; (b) the liability determined on completion of the assessment, reassessment or recomputation for the year of the search or requisition, or of the block-period assessment under Part B of Chapter XVI, including penalty or interest, for which the person is in default or deemed in default; and (c) liability arising on an application before the Interim Boards for Settlement under section 245C(1) of the Income-tax Act, 1961.

4. 4

   Apply money first, then other assets

   Seized money may be applied to the liabilities and the assessee is discharged to that extent (Section 250(4)). Other assets may be applied to the undischarged balance; they are deemed to be under distraint as if under section 416(7), and recovery is made in the manner prescribed (Section 250(5)). Other modes of recovery under the Act remain open (Section 250(6)).

5. 5

   Return the balance and work out interest

   Assets or proceeds left after the liabilities are discharged must be made over or paid to the person forthwith (Section 250(7)). The Central Government pays simple interest at 0.5% for every month or part of a month on (A − B) + (C − D), for the period from the day after the expiry of one hundred and twenty days from the last authorisation to the date of completion of the assessment, reassessment or recomputation (Sections 250(8) and 250(9)).

Practical checklist

Frequently asked questions