CHAPTER XIX

REFUNDS

237. Refunds1[J1] :-

If any person satisfies the 2[J2] [Assessing] Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess.

 

DEPARTMENTAL VIEW

 

1.         Concerned Commissioner of Income-tax can authorise refund of surcharge in cases of non-resident taxpayers who made such payment of surcharge or out of whose income surcharge has been deducted at source under the provisions of Finance (Amendment) Ordinance, 1987. Any demand outstanding against the concerned assessee may however be adjusted before allowing the refund. [Circular No. 513, dated 27th May, 1988]

2.         No court fee is required to be affixed while returning refund vouchers to the Commissioners of Income-tax for their cancellation and issue of fresh vouchers. [Letter No. 91/31/64, dated 9th June, 1964]

 

238. Person entitled to claim refund in certain special cases1[J3] :-

(1)        Where the income of one person is included under any provision of this Act in the total income of any other person, the latter alone shall be entitled to a refund under this Chapter in respect of such income.

2[J4] [(1A) Where the value of fringe benefits provided or deemed to have been provided by one employer is included under any provisions of Chapter XII-H in the value of fringe benefits provided or deemed to have been provided by any other employer, the latter alone shall be entitled to a refund under this Chapter in respect of such fringe benefits.]

(2)        Where through death, incapacity, insolvency, liquidation or other cause, a person is unable to claim or receive any refund due to him, his legal representative or the trustee or guardian or receiver, as the case may be, shall be entitled to claim or receive such refund for the benefit of such person or his estate.

 

239. Form of claim for refund and limitation1[J5] :-

2[J6] (1) every claim for refund under this Chapter shall be made in the prescribed form and verified in the prescribed manner.

3[J7] [(2)            No such claim shall be allowed, unless it is made within the period specified hereunder, namely:—

(a)     Where the claim is in respect of income which is assessable for any assessment year commencing on or before the 1st day of April, 1967, four years from the last day of such assessment year;

(b)     Where the claim is in respect of income which is assessable for the assessment year commencing on the first day of April, 1968, three years from the last day of the assessment year;

(c)     Where the claim is in respect of income which is assessable for any other assessment year, 4[J8] [one year] from the last day of such assessment year;]

5[J9] [(d)            Where the claim is in respect of fringe benefits which are assessable for any assessment year commencing on or after the first day of April, 2006, one year from the last day of such assessment year.]

 

DEPARTMENTAL VIEW

 

1.         In cases where non-resident employees are deputed to work in India and the taxes are borne by the employers, but the employee has left India, in so far as the payment of refund which has already become due is concerned, there may be no objection to giving the refund to the employer if the non-resident assessee duly gives an authorisation in this regard. In other cases, any person from or through whom the non-resident is in receipt of any income, whether directly or indirectly, can be regarded as an agent in relation to the non-resident. Accordingly, the company itself can file the return and can be assessed in its own name in respect of that income under section 161(1) and claim the refund. [Circular No. 707, dated 11-7-1995]

2.         In all cases where an otherwise valid refund claim under section 237 is filed by an assessee after the expiry of the statutory time limit prescribed under section 239, the Assessing Officer, having jurisdiction over the case, may admit the said refund claim and dispose of the same on merits and in accordance with law provided the following conditions are satisfied:—

(i)      The refund arises as a result of excess tax deducted at source, collected at source and payments of advance tax under the provisions of Chapters XVIIB, XVIIBB and XVIIC respectively and the amount of refund does not exceed Rs. 1 lakh for any assessment year;

(ii)     The returned income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii)    The refund claimed is not supplementary in nature i.e., claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv)    The income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act.

This order is effective from 1-11-1993, and will apply to all claims of refund pending as on that date and also in respect of all refund claims filed on or after that date. [Order F. No. 225/208/93-IT (A-II), dated 12th October, 1993]

The Board have also decided that in such cases:—

(i)      where the refund does not exceed Rs. 10,000 for any assessment year, the Assessing Officer shall obtain the prior approval of the Commissioner before entertaining a belated refund claim; and

(ii)     where the refund exceeds Rs. 10,000 but does not exceed Rs. 1,00,000 for any assessment year, the Assessing Officer shall obtain the prior approval of the Chief Commissioner or Director-General before entertaining a belated refund claim.

Where the Chief Commissioner/Director-General/Commissioner of Income-tax finds that the four conditions laid down in the order above are satisfied but still it is not a case of 'genuine hardship', he should refer the belated refund application to the Board for final decision. [Circular No. 670, dated 26th October, 1993]

The delay in making refund claim as well as claim of carry forward of losses, both, can be condoned in cases where returned income is a loss, provided other conditions are satisfied. The monetary limits prescribed for condonation of delay in making refund claims, by different income-tax authorities, will apply to condonation of delay in cases of claim of carry forward of losses as well. [Circular No. 8/2001, dated 16-5-2001]

It is also clarified that paras 2, 3 and 4 of Instruction No. 1867, dated 30-11-1990 shall continue to be applicable. The Chief Commissioner/Director General/ Commissioner of Income-tax/Director of Income-tax should not only see that the conditions laid down by the various circulars of the Board are satisfied, but should also look further into the facts of the case and examine other aspects such as the source of income, whether the income returned is reasonable, considering the extent of profits disclosed, whether books of account had been maintained and whether there was any manipulation of accounts in the course of the delayed filing of the claim of refund, etc. for deciding the genuineness of the claims. [Instruction No. 1867, dated 30th November, 1990]

 

240. Refund on appeal, etc.:-

Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the 1[J10] [Assessing] Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf:

2[J11] [Provided that where, by the order aforesaid,—

(a)     An assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment;

(b)     The assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.]

 

SUPREME COURT RULINGS

 

1.         Failure or inability to frame another assessment after the earlier assessment is set aside or nullified in appropriate proceedings does not entitle the assessee to claim refund of advance tax and tax paid on self-assessment, because to that extent the assessee has admitted his liability to pay tax in accordance with the law. If the assessing authority, on an earlier assessment made being set aside or nullified in appropriate proceedings, cannot make a fresh assessment, it amounts to deemed acceptance of the return of income furnished by the assessee. The assessing authority is denuded of its authority to verify the correctness and completeness of the return, which authority it has while framing a regular assessment. Accepting the income as disclosed in the return furnished by the assessee, it must refund to the assessee any tax paid by the assessee in excess of the liability incurred by him on the basis of the income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance since the fresh assessment is barred. However, in a case where the assessee chooses to deposit, by way of abundant caution, advance tax or tax on self assessment which is in excess of his liability on the basis of the return furnished or, if there is an arithmetical error or inaccuracy, it is open to the assessee to claim refund of the excess tax paid in the course of the assessment proceedings. [CIT v Shelly Products (2003) 261 ITR 367 (SC)]

 

1[J12] [241. Power to withhold refund in certain cases:-

Omitted by the Finance Act, 2001, w.e.f. 1-6-2001.]

 

242. Correctness of assessment not to be questioned:-

In a claim under this Chapter, it shall not be open to the assessee to question the correctness of any assessment or other matter decided which has become final and conclusive or ask for a review of the same, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess.

 

1[J13] 243. Interest on delayed refunds:-

2[J14] [(1)          If the 3[J15] [Assessing] Officer does not grant the refund,—

(a) In any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and

(b) In any other case, within three months from the end of the month in which the claim for refund is made under this Chapter, the Central Government shall pay the assessee simple interest at 4[J16] [fifteen] per cent per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund.

ExplanationIf the delay in granting the refund within the period of three months aforesaid is attributable to the assessee, whether wholly or in part, the period of the delay attributable to him shall be excluded from the period for which interest is payable.]

(2)        Where any question arises as to the period to be excluded for the purposes of calculation of interest under the provisions of this section, such question shall be determined by the 5[J17] [Chief Commissioner or Commissioner] whose decision shall be final.

6[J18] [(3)          The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989 or any subsequent assessment years.]

 

DEPARTMENTAL VIEW

 

1.         The view taken by some Income-tax Officers that the date of the assessment order is to be taken as the date of the order granting the refund is not correct. In cases where interest is payable by the Government to assessees under section 243 such interest is to be calculated up to the date of issue of the refund voucher. [Circular No. 20D, dated 20th August, 1968]

 

1[J19] 244. Interest on refund where no claim is needed:-

(1)        Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the 2[J20] [Assessing] Officer does not grant the refund within a period of 3[J21] [three months from the end of the month in which such order is passed], the Central Government shall pay to the assessee simple interest at 4[J22] [fifteen] per cent per annum on the amount of refund due from the date immediately following the expiry of the period of 5[J23] [three] months aforesaid to the date on which the refund is granted.

6[J24] [(1A) 7[J25] Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:

Provided that, where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:

Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess.]

(2)        Where a refund is withheld under the provisions of section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of 8[J26] [three months from the end of the month in which the order referred to in section 241 is passed] to the date the refund is granted.

9[J27] [(3)          The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment years.]

 

DEPARTMENTAL VIEW/SUPREME COURT RULING

 

1.         Where the refund is granted within one month of the date of the order giving rise to the refund, interest will be payable from the date of payment to the date of such order and where the refund is delayed for more than a month from the date of the order giving rise to the refund, interest will be payable for the period from the date of the payment to the date of granting the refund.

Where the amount of penalty or tax has been paid in instalments interest will be calculated on the amount of each such instalment or any part thereof which is found to be in excess in appeal or other proceedings from the date on which such instalment was paid to the date on which the refund is granted. [Circular No. 209, dated 11th January, 1977]

2.         An assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which are withheld wrongly and contrary to law. The Government is also liable to pay interest at the rate applicable to the excess amount refunded to the assessee on the interest amount which becomes due under section 214(1). [Sandvik Asia Ltd v CIT (2006) 280 ITR 643 (SC)]

3.         The basic requirements for receiving interest on refund without making a claim are: (a) there is a refund due; (b) the whole or part of the refund is due as a result of any amount having been paid after March 31, 1975; (c) the payment must be made pursuant to any order of assessment or penalty; and (d) such amount or any part thereof as paid is found in appeal or other proceedings under the Act to be in excess of the amount which the assessee is liable to pay as tax or penalty. The assessee has to establish that he fulfils all these conditions. [R R Holding (P) Ltd v CIT (2006) 284 ITR 674 (SC)]

 

1[J28] [244A. Interest on refunds2[J29] :-

(1)        3[J30] [Where refund of any amount becomes due to the assessee under this Act], he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:—

(a) where the refund is out of any tax 4[J31] [paid under section 115WJ or] 5[J32] [collected at source under section 206C or] paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of 6[J33] [one-half] per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted:

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined 7[J34] [under sub-section 8[J35] [(1) of section 115WE or sub-section] (1) of section 143 or] on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of 9[J36] [one-half] per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

ExplanationFor the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

(2)        If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.

(3)        Where, as a result of an order under 10[J37] [sub-section (3) of section 115WE or section 115WF or section 115WG or] 11[J38] [sub-section (3) of section 143 or section 144 or] section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.

(4)        The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years:]

12[J39] [Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures "1989", the figures "2006" had been substituted.]

 

DEPARTMENTAL VIEW

 

1.         In case of a regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, as the case may be. [Circular No. 9/2001, dated 9-7-2001, withdrawing Circular No. 730, dated 14-12-1995]

 

245. Set off of refunds against tax remaining payable1[J40] :-

Where under any of the provisions of this Act, a refund is found to be due to any person, the 2[J41] [Assessing] Officer, 3[J42] [Deputy Commissioner (Appeals)], 4[J43] [Commissioner (Appeals)] or 5[J44] [Chief Commissioner or Commissioner], as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.

 

DEPARTMENTAL VIEW

 

1.         If refunds unconnected in any way with the foreign income arise to the assessee in later years under section 220(7) the adjustment would result in considerable hardship to the assessee. Therefore in such cases refunds due to the assessee may not be adjusted against the taxes kept in abeyance under section 220(7). [Circular No. 3D, dated 29th January, 1968]

 

 


 [J1]See Circular Nos. 23(LXXII-18), dated 3-8-1962; 379, dated 10-4-1984; 446, dated 31-12-1985; 503, dated 5-2-1988; 513, dated 27-5-1988; Letters F. No. 91/31/64-ITJ, dated 9-6-1964; 225/103/83-IT(AII), dated 24-3-1984; 225/201/87-IT(AII), dated 5-2-1988; Ministry of Finance's note vide Para 1.80 of PAC's 150th Report (Fifth Lok Sabha), p. 25 and Instruction No. 1687, dated 5-2-1986.

 [J2]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J3]See Circular No. 22(LXXII-17), dated 8-8-1961.

 [J4]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J5]See Circular Nos. 379, dated 10-4-1984; 503, dated 5-2-1988; 670, dated 26-10-1993; 707, dated 11-7-1995 and 8/2001, dated 16-5-2001; Letters F. No. 212/98/72-IT(AII), dated 18-11-1972; 225/103/83-IT(AII), dated 24-3-1984; 225/201/87-IT(AII), dated 5-2-1988.

 [J6]See rule 41 and Form No. 30.

 [J7]Substituted by the Finance Act, 1968, w.e.f. 1-4-1968.

 [J8]Substituted for "two years" by the Finance Act, 1992, w.e.f. 1-4-1993.

 [J9]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J10]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J11]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [J12]Prior to the omission, section 241, as substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989, read as under:

"241. Power to withhold refund in certain cases1.—Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-section (1) of section 143 after a return has been made under section 139 or in response to a notice under sub-section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that—

(i) a notice has been issued, or is likely to be issued, under sub-section (2) of section 143 in respect of the said return; or

(ii) the order is the subject-matter of an appeal or further proceeding; or

(iii) any other proceeding under this Act is pending,

that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine."

1 See Instruction No. 1157, dated 21-3-1978.

Earlier, it was also amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J13]See rule 119A. This section has ceased to apply from assessment year 1989-90: see section 243(3).

 [J14]Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [J15]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J16]Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967.

 [J17]Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J18]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [J19]See rule 119A. This section has ceased to apply from assessment year 1989-90: see section 244(3).

 [J20]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J21]Substituted for "six months from the date of such order" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [J22]Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972; "nine" was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967 which was substituted for "four" by the Finance Act, 1965, w.e.f. 1-4-1965.

 [J23]Substituted for "six" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [J24]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975.

 [J25]See Circular No. 209, dated 11-1-1977.

 [J26]Substituted for "six months from the date of the order referred to in section 241" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [J27]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [J28]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [J29]Circular No. 9/2001, dated 9-7-2001 withdrawing 730, dated 14-12-1995.

 [J30]Substituted for "Where, in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [J31]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J32]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [J33]Substituted for "two-third" by the Taxation Laws (Amendment) Act, 2003, w.e.f. 8-9-2003. Earlier, "two-third" was substituted for "three-fourth" by the Finance Act, 2002, w.e.f. 1-6-2002; "three-fourth" was substituted for "one" by the Finance Act, 2001, w.e.f. 1-6-2001, which was substituted for "one and one-half" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

 [J34]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [J35]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J36]Substituted for "two-third" by the Taxation Laws (Amendment) Act, 2003, w.e.f. 8-9-2003. Earlier, "two-third" was substituted for "three-fourth" by the Finance Act, 2002, w.e.f. 1-6-2002; "three-fourth" was substituted for "one" by the Finance Act, 2001, w.e.f. 1-6-2001, which was substituted for "one and one-half" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

 [J37]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J38]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [J39]Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

 [J40]See Circular No. 3D(LXXII-21), dated 29-1-1968.

 [J41]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [J42]Substituted for "Appellate Assistant Commissioner", ibid.

 [J43]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.

 [J44]Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.