Defining Contours of Freezing Orders Issued U/S 132(9B) of the Income Tax Act

Aditya Singh Chauhan, National Law University, Jodhpur


There is an increase in the number of freezing orders, whereby the tax authorities recover the amount due directly from the bank account of the tax payer.[1] This is due to the overwhelming amount of tax defaults, and increase in the pressure on the tax department.[2] One such provision that allows the tax authorities to issue freezing orders – section 132(9B) of the Income-tax Act, 1961 (“Act”) – was introduced by the Finance Act, 2017 to ensure that the revenue’s stake over the assessee’s assets is not unfairly misappropriated.[3] Such orders, however, are intrusive and have severe consequences on the business and reputation of the tax payer. The situation becomes more indiscriminate when such orders are issued against the foreign assets of the companies that are resident in India.

The head offices of the banks where the assets that are to be frozen are located. While these banks may be incorporated in India,[4] they may have their branches located abroad.[5] The foreign banks have no obligation to comply with the orders of the Indian tax authorities, however, the foreign branches of Indian banks may be required to comply. If this power is not exercised sparingly, the faith of tax payers and foreign investors is severely impacted. In this article, we focus on freezing orders issued under section 132(9B) of the Act, and legalities thereof, whereby the relevant authorities may exercise discretion to “attach provisionally any property belonging to the assessee” during the course of search and seizure, or within a period of sixty (60) days thereafter.[6]

Determining Residency

For an assessee to be required to comply with a freezing order, it must be a resident of India. The Act, by virtue of section 6(3), read with section 2(42), provides that a company is a resident of India in any previous year if it is either an Indian company, or has its Place of Effective Management (“POEM”) in India for that year. The POEM is defined under section 6(3) as follows:

“[A] place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made.”

The Central Board of Direct Taxes (“CBDT”) released Circular Nos. 06/17 and 25/17, which provided the guidelines for POEM.[7] It is determined by identifying if the company  is engaged in “active business outside India” (“ABOI test”). This entails the passive income of the company being greater than fifty (50) per cent of the total income, less than fifty (50) percent of its assets and employees being situated or resident in India and, the pay-roll for the employees should be less than fifty (50) percent of the total pay-roll.[8] Lastly, majority of the meetings of the Board of Directors must be held outside India.[9] POEM Guidelines will not apply to the companies with a turnover of fifty (50) crores or less in one financial year.[10]

The Senior Management of the company (i.e., persons responsible for formulation and execution of strategies) and the location of its Head Office(s) (i.e., place where the company’s senior management are primarily or predominantly located) are determined.[11] If the ABOI test is not satisfied, then determining the person(s) responsible for key management and decision-making regarding the conduct of the company’s business, and then the place where this decision-making is done plays a very important role in ascertaining its residency.[12] Secondary factors such as place of substantial business activity of company and maintenance of accounts play an important role. The POEM is then determined on case-by-case basis.[13]

In Deputy Commissioner of Income-Tax v. Hemant Mansukhlal Pandya,[14] the Income-Tax Appellate Tribunal, Mumbai stated that the reason provided for ordering provisional attachment was that the French Govt. had found that Indian nationals and residents had foreign bank accounts in HSBC Private Bank, Geneva. The Tribunal ruled against tax authorities and observed the following:[15]

[T]he onus of proving that an amount falls within the taxing ambit is on the department and it is incorrect to place the onus of proving negative on the assessee. This legal proposition is supported by the decision of Hon’ble Supreme Court [(1965) 57 ITR 532 (SC)][.]

Confirming to Stricter Standard

Provisional attachment under section 132, sub-section (9B) of the Act provides for a stringent standard by the use of the words “is satisfied[.]” This section states the following:[16]

[T]he authorised officer, for reasons to be recorded in writing, is satisfied that for the purpose of protecting the interest of revenue, it is necessary so to do […].

Section 281B of the Act also provides for provisional attachment. Due to the different purposes of use of these sections, the latter has a less stringent standard in comparison by use of the words “is of the opinion[.]” This section states the following:[17]

[T]he Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue, it is necessary so to do […]

In Valerius Industries v. Union of India, the Gujarat High Court explained the purpose behind the use of words “necessary so to do” in section 281B and section 132, sub-section (9B), in the following words:[18]

The word “necessary” must be construed in the connection in which it is used. The formation of the opinion by the authority should reflect intense application of mind with reference to the material available on record that it had become necessary to order provisional attachment[.]

For the purpose of interpretation of statutes, in the case of Barium Chemicals Ltd. v. Company Law Board,[19] the Supreme Court has observed that terms “is satisfied” and “is of the opinion” provide for discretion on subjective satisfaction of the relevant authority. The Supreme Court held that such discretion has to be responsibly exercised, and the sections have to be read with other sections in that statute. Further, the expression “is satisfied” should be interpreted to indicate a stricter standard than the expression “is of the opinion” by literal interpretation.

In the case of Gopal Das Khandelwal v. Union of India,[20] the Division Bench of Allahabad High Court observed that “[t]he golden rule of interpretation of statutes is that the statute has to be construed according to its plain, literal and grammatical meaning unless it leads to absurdity.” We must also consider the observation of the Supreme Court of India in Harshad Shantilal Mehta v. Custodian,[21] that “tax liability” and “liability to be assessed for tax” are different. The former only accrues on the assessee after the tax payable is ascertained by the assessing authority.  It follows that the latter cannot be treated on the same footing as the former, until “ascertained liability for payment of taxes [is] quantified in accordance with law.” Accordingly, section 132(9B) of the Act provides for a stricter standard in comparison to section 281B for provisionally attaching any property of the assessee.

Other Requirements

The order issued under section 132, sub-section (9B) of the Act must confirm to certain requirements. The reasons for non-fulfillment of these requirements can be broadly categorized into two (2) (not mutually exclusive): First, failure to exercise to exercise discretion; Second, excess or abuse of discretionary power.[22]

In Tata Cellular v. Union of India,[23] the Supreme Court held that it can determine the legality of an order by deciding on whether the authority exceeded its powers, committed an error of law, breached the principles of natural justice, reached a perverse decision, or abused its powers on the grounds available to check administrative action, listed as under:

[T]he grounds upon which an administrative action is subject to control by judicial review can be classified as under:

  • Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
  • Irrationality, namely, Wednesbury unreasonableness.
  • Procedural impropriety.

The above are only the broad grounds but it does not rule out addition of further grounds in course of time.

Derived and traced from various court rulings, these indicative, non-exhaustive requirements can be listed down and summarized as follows:

  1. It must be exercised by the law enforcers within defined four corners of law.[24]
  2. It must be used in limited circumstances, and the case must be an exceptional one.[25]
  3. Factors like approximate tax liability must be considered before issuing such order.[26]
  4. It must be exercised only to the extent required for achieving the object, and its exercise must not have irreversible, detrimental effect on the business of the assessee.[27]
  5. There must be reasonable apprehension that the assessee may prevent collection of tax.[28] There must be sufficient material on record to justify the reasonable apprehension.[29]
  6. It must be exercised in appropriate cases where it is necessary to protect the interest of revenue, which must be justified by proper reasons.[30]
  7. The attachment (fixed deposits) must be sourced from income derived from India.[31]
  8. It is exercised in good faith, after accounting for all the relevant considerations (and it must not be influenced by any irrelevant ones that may exist).[32]
  9. It must not be exercised to effect to a forbidden action, or has not been authorized.[33]
  10. It should stand the test of reasonableness and avoid arbitrariness.[34]

The reason for provisional attachment being a drastic measure and exercised in exceptional cases. The Allahabad High Court’s observation in Raghuram Grah P. Ltd. v. Income-Tax Officer, as provided below, must be taken into consideration:[35]

An honest taxpayer should not be subjected to unnecessary harassment and an action not warranted in law, which can be of very serious consequence to the taxpayer if is allowed to remain without correction, such harassment and browbeating of an honest taxpayer will otherwise drive even such honest taxpayers, to become cynical and lead to a situation where taxpayers will get a feeling that paying taxes honestly is not a worthwhile exercise; that the tax authorities are a menace to the society rather than simply being representatives of the State for enforcing the tax provisions.


The power to attach deposits is a drastic measure that is only to be undertaken in exceptional circumstances, only for the purpose of protecting the interests of the revenue authorities. Any indiscriminate exercise, or arbitrary or unreasonable exercise of this power may have a negative impact on the tax payer’s ability to do business. Considering the wide scope for misuse of such powers, the provisions of the Act must be strictly followed, and any procedural impropriety must be absent. The scope is restricted by virtue of the fact that section 132(9B) of the Act mandates prior approval of the Principal Director General or Director General, i.e., high level authorities that are second to only the apex authority – CBDT.

It is also important to note that there is no provision in the Act that allows the income-tax authorities to freeze the assets located outside India, which are owned by a foreign parent company. The tax authorities are not permitted to take actions or use such provisions in a manner that is impermissible, or not expressly provided under the provisions of the Act. Any use of this provision in such a manner would be an action not warranted by law, and will certainly not serve the revenue’s purpose by making the taxpayers (including various foreign investors) cynical.

[1]     See, for e.g., Sachin Dave, Taxmen use rare law to collect dues directly from bank accounts of evaders (Apr. 04, 2019) The Economic Times, available at; Sanchita Dash, Two Indian startups say the government broke their faith by raiding their bank accounts (Feb. 08, 2019) Business Insider, available at

[2]     Sindhu Chandrasekaran, IT department deducting dues directly from bank accounts of evaders: Report (Apr. 04, 2019) Indian Express, available at

[3]     See Finance Act, 2017, § 50.

[4]     The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, §11 (“For the purposes of the Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested”).

[5]     Reserve Bank of India, Country-wise branches of Indian Banks at Overseas Centres (Sept. 30, 2019), available at

[6]     Income-tax Act, 1961, § 132(9B).

[7]     Central Board of Direct Taxes (CBDT), Clarification related to guidelines for establishing ‘Piace of Effective Management’ (PoEM) in India-reg., Circular No. 06/17 (Oct. 23, 2017) [hereinafter “CBDT Circular 25/17”]; CBDT, Guiding Principles for determination of Place of Effective Management (POEM) of a Company, Circular No. 06/17 (Jan. 24, 2017). [hereinafter “CBDT Circular 06/17”].

[8]     CBDT Circular 06/17, ¶ 5(a).

[9]     CBDT Circular 25/17, ¶ 4.

[10]    CBDT, Clarification for determination of Place of Effective Management (POEM) of a company, other than an Indian company-reg., Circular No. 08/17 (Feb. 23, 2017).

[11]    CBDT Circular 06/17, ¶¶ 5(b), 5(d).

[12]    CBDT Circular 06/17, ¶¶ 8(i), 8(ii).

[13]    CBDT Circular 06/17, ¶ 8.2.

[14]    Deputy Commissioner of Income-Tax v. Hemant Mansukhlal Pandya, 2018 SCC OnLine ITAT 631.

[15]    Id., ¶ 17.

[16]    Income-tax Act, 1961, § 132(9B).

[17]    Income-tax Act, 1961, § 281B.

[18]    Valerius Industries v. Union of India, Special Civil Application No. 13132/2019 (Aug. 28, 2019), ¶ 37.

[19]    Barium Chemicals Ltd. v. Company Law Board, AIR 1967 SC 295; See also Enprocon Enterprise Ltd. v. Assistant Commissioner of State Tax, Special Civil Application No. 14129 of 2019 (Jan. 08, 2020) ¶ 5.

[20]    Gopal Das Khandelwal v. Union of India, [2012] 340 ITR 235 (All) ¶14

[21]    Harshad Shantilal Mehta v. Custodian, (1998) 5 SCC 1 ¶¶21, 24; Associated Cement Co. Ltd. v. CTO, (1981) 4 SCC 578.

[22]    Raghuram Grah P. Ltd. v. Income-Tax Officer, 2005 SCC OnLine All 1957.

[23]    Tata Cellular v. Union of India, (1994) 6 SCC 651 ¶77.

[24]    See ICICI Bank Ltd. v. Union of India, 2015 SCC OnLine Bom 4875 ¶ 47.

[25]    See Kaish Impex Pvt. Ltd. v. Union of India, 2020 SCC OnLine Bom 125, ¶ 19; Genom Biotech (P) Ltd. v. Director of Income Tax (Investigation), 2009 SCC OnLine Bom 2417 ¶ 19; Valerius Industries v. Union of India, [2019] 70 GSTR 147 (Guj) ¶ 36.

[26]    Darius Sammotashaw v. DDIT (Inv.), W.P. No. 675/19 (Apr. 04, 2019), ¶ 7.

[27]    Id.

[28]    Gandhi Trading v. Assistant Commissioner of Income-tax, 1999 SCC OnLine Bom 967 ¶ 8.

[29]    Id.

[30]    VLS Finance Ltd. v. Commissioner of Income Tax, 2019 SCC OnLine Bom 1786 ¶ 16.

[31]    Deputy Commissioner of Income-Tax v. Hemant Mansukhlal Pandya, ITA No. 4679/Mum/2016 (Nov. 16, 2018) ¶ 17.

[32]    VLS Finance Ltd. v. Commissioner of Income Tax, 2000 SCC OnLine Del 575 ¶ 13.

[33]    Id.

[34]    See KDH Properties Private Limited v. The Assistant Commissioner of Income Tax Company Circle-II(4), 2013 SCC OnLine Mad 1159 ¶13; ITO v. Budha Pictures, (1967) 3 SCR 425 ¶ 4; Sahara Credit Co-Operative Society Ltd. v. Commissioner of Income Tax, 2014 SCC OnLine All 16475  ¶ 14.

[35]    Raghuram Grah P. Ltd. v. Income-Tax Officer, 2005 SCC OnLine All 1957.

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