I deducted tax under s.195 because the officer told me to, and the CIT(A) has now held it was not deductible. Do I get interest on the refund, or only the tax back?
Yes, interest as well. The resident deductor is entitled not only to the refund of the tax deposited under s.195(2) but to have it refunded with interest from the date of payment of the tax. The Revenue was the appellant and its appeals were dismissed. The CBDT has since accepted the position by circular.
Decided by the Supreme Court (Supreme Court of India - H.L. Dattu and S.A. Bobde, JJ., Civil Appeal No. 6301 of 2011 and others) on 2014-02-26, reported as [2014] 43 taxmann.com 240 (SC) / [2014] 363 ITR 658 (SC) / [2014] 222 Taxman 225 (SC) (Mag.) / (2014) 6 SCC 335 - Civil Appeal No. 6301 of 2011 with connected appeals. It bears on section 244A, section 244A(1)(b), section 195, section 195(2), section 240, section 156 of the Income Tax Act 1961, in Refunds, Interest & Condonation and TDS Defaults matters.
The department's answer to a deductor claiming refund interest used to be that s.244A speaks of the assessee and that the Board's older circulars on s.195 refunds allowed no interest — which is exactly the ground on which the CIT(A) refused interest in this very case. This decision closes that answer, and the point about the start date is the part worth arguing over: the interest runs from the date the tax was paid, not from the date of the refund claim or the return, because the case falls under the residual limb of s.244A rather than under clauses (a) or (b). The Board issued a circular directing that no appeals be filed on the ground, so the department has no room to reopen it.
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In assessment year 1997-98 Tata Chemicals commissioned a naptha desulphurization plant and engaged two technicians from M/s. Haldor Topsoe of Denmark, who invoiced US$ 43,290.06 in all - US$ 38,500 as service charges and US$ 4,790 as reimbursement of expenses. The company applied under s.195(2) for a determination of what proportion of the remittance was chargeable. The Income-tax Officer passed a special order directing deduction at 20 per cent, and the company deducted Rs. 1,98,878 on the whole amount and paid it over. It then appealed against that order, and by order of 12 July 2002 the Commissioner (Appeals) held that the reimbursement of expenses was not part of income for the purposes of s.195 and directed refund of the tax on the US$ 4,790, Rs. 22,005. The company claimed that refund with interest under s.244A(1). By order of 29 July 2003 the Assessing Officer granted the refund but refused interest, on the footing that s.244A gives interest only to an assessee and not to a deductor, and that this refund flowed from CBDT Circulars Nos. 769 and 790 rather than from the Act. A second appeal to the Commissioner (Appeals) failed on 28 March 2005. The Tribunal reversed on 28 June 2008, holding that the tax had been paid under an order made under s.195(2), that the refund was ordered under s.240, and that s.244A(1)(b) was attracted. The High Court dismissed the Revenue's appeal on 18 June 2009, and the Revenue came to the Supreme Court.
The Revenue's appeals were dismissed, with no order as to costs. A resident deductor who has deposited tax under an order made on his own application under s.195(2), and who succeeds in an appeal against that order, is entitled not only to refund of the tax but to have it refunded with interest from the date of payment of the tax. On the start date the Court reasoned that the case falls outside clause (a) of s.244A(1), so interest cannot run from 1 April of the assessment year, and that the Explanation to clause (b) has no application because the payment was not made pursuant to a notice of demand under s.156; but the opening words of clause (b), 'in any other case', catch it, and under that clause interest runs from the date of payment of tax.
Section 244A grants a substantive right to interest and is not procedural; interest payment is a statutory obligation and not discretionary (para 30). Section 240 requires refund of any amount that becomes due as a result of an order in appeal or other proceedings, and the phrase 'other proceedings under the Act' is of wide amplitude (para 36). A tax refund is a refund of taxes where the liability is less than the tax paid; here the deductor paid under a special order, succeeded in appeal, and the Government retained the money until the appellate authority directed refund - when that amount is refunded it should carry interest as a matter of course, interest being a kind of compensation for the use and retention of money collected unauthorisedly. The Department itself understood s.244A as giving interest for money remaining with the Government, and there is no reason to confine that to an assessee and withhold it from a deductor who has deducted and deposited before remitting abroad (para 37). Refund due and payable is a debt owed by the Revenue; the State having received money without right and having retained and used it is bound to make the party good, and the obligation to refund implies and carries with it the right to interest (para 38). One step is easily missed: the Court accepted that CBDT Circular No. 790, which said no interest under s.244A is admissible on such refunds, is binding on the Department on the authority of UCO Bank v. CIT, so it did not fault the officers who followed it - it upheld the Tribunal and High Court on the statutory footing instead (para 35).
The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.
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Handle my notice → Ask a CA on WhatsAppYes, interest as well. The resident deductor is entitled not only to the refund of the tax deposited under s.195(2) but to have it refunded with interest from the date of payment of the tax. The Revenue was the appellant and its appeals were dismissed. The CBDT has since accepted the position by circular. This was decided by the Supreme Court (Supreme Court of India - H.L. Dattu and S.A. Bobde, JJ., Civil Appeal No. 6301 of 2011 and others) and bears on section 244A, section 244A(1)(b), section 195, section 195(2), section 240, section 156 of the Income Tax Act 1961. It is reported as [2014] 43 taxmann.com 240 (SC) / [2014] 363 ITR 658 (SC) / [2014] 222 Taxman 225 (SC) (Mag.) / (2014) 6 SCC 335 - Civil Appeal No. 6301 of 2011 with connected appeals. The department's answer to a deductor claiming refund interest used to be that s.244A speaks of the assessee and that the Board's older circulars on s.195 refunds allowed no interest — which is exactly the ground on which the CIT(A) refused interest in this very case. This decision closes that answer, and the point about the start date is the part worth arguing over: the interest runs from the date the tax was paid, not from the date of the refund claim or the return, because the case falls under the residual limb of s.244A rather than under clauses (a) or (b). The Board issued a circular directing that no appeals be filed on the ground, so the department has no room to reopen it. If it applies to you, the first step is this: Claim the interest expressly in the refund application; compute it from the date the tax was actually deposited, not from the date of the order that found it was not chargeable.
In assessment year 1997-98 Tata Chemicals commissioned a naptha desulphurization plant and engaged two technicians from M/s. Haldor Topsoe of Denmark, who invoiced US$ 43,290.06 in all - US$ 38,500 as service charges and US$ 4,790 as reimbursement of expenses. The company applied under s.195(2) for a determination of what proportion of the remittance was chargeable. The Income-tax Officer passed a special order directing deduction at 20 per cent, and the company deducted Rs. 1,98,878 on the whole amount and paid it over. It then appealed against that order, and by order of 12 July 2002 the Commissioner (Appeals) held that the reimbursement of expenses was not part of income for the purposes of s.195 and directed refund of the tax on the US$ 4,790, Rs. 22,005. The company claimed that refund with interest under s.244A(1). By order of 29 July 2003 the Assessing Officer granted the refund but refused interest, on the footing that s.244A gives interest only to an assessee and not to a deductor, and that this refund flowed from CBDT Circulars Nos. 769 and 790 rather than from the Act. A second appeal to the Commissioner (Appeals) failed on 28 March 2005. The Tribunal reversed on 28 June 2008, holding that the tax had been paid under an order made under s.195(2), that the refund was ordered under s.240, and that s.244A(1)(b) was attracted. The High Court dismissed the Revenue's appeal on 18 June 2009, and the Revenue came to the Supreme Court. The matter was decided on 2014-02-26 by the Supreme Court (Supreme Court of India - H.L. Dattu and S.A. Bobde, JJ., Civil Appeal No. 6301 of 2011 and others). On those facts the Supreme Court held as follows. The Revenue's appeals were dismissed, with no order as to costs. A resident deductor who has deposited tax under an order made on his own application under s.195(2), and who succeeds in an appeal against that order, is entitled not only to refund of the tax but to have it refunded with interest from the date of payment of the tax. On the start date the Court reasoned that the case falls outside clause (a) of s.244A(1), so interest cannot run from 1 April of the assessment year, and that the Explanation to clause (b) has no application because the payment was not made pursuant to a notice of demand under s.156; but the opening words of clause (b), 'in any other case', catch it, and under that clause interest runs from the date of payment of tax.
Section 244A grants a substantive right to interest and is not procedural; interest payment is a statutory obligation and not discretionary (para 30). Section 240 requires refund of any amount that becomes due as a result of an order in appeal or other proceedings, and the phrase 'other proceedings under the Act' is of wide amplitude (para 36). A tax refund is a refund of taxes where the liability is less than the tax paid; here the deductor paid under a special order, succeeded in appeal, and the Government retained the money until the appellate authority directed refund - when that amount is refunded it should carry interest as a matter of course, interest being a kind of compensation for the use and retention of money collected unauthorisedly. The Department itself understood s.244A as giving interest for money remaining with the Government, and there is no reason to confine that to an assessee and withhold it from a deductor who has deducted and deposited before remitting abroad (para 37). Refund due and payable is a debt owed by the Revenue; the State having received money without right and having retained and used it is bound to make the party good, and the obligation to refund implies and carries with it the right to interest (para 38). One step is easily missed: the Court accepted that CBDT Circular No. 790, which said no interest under s.244A is admissible on such refunds, is binding on the Department on the authority of UCO Bank v. CIT, so it did not fault the officers who followed it - it upheld the Tribunal and High Court on the statutory footing instead (para 35). In the words reproduced by the source cited on this page: "The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax." The decision followed or applied Gurudevdatta VKSSS Maryadit v. State of Maharashtra [2001] 4 SCC 534 - followed and relied on, on giving every word of a statute meaning; UCO Bank v. CIT [1999] 237 ITR 889 / 104 Taxman 547 (SC) - relied on for the binding nature of Board circulars (para 35); Shyam Sunder v. Ram Kumar [2001] 8 SCC 24 - on the limits of beneficent construction (para 24).
It was decided by the Supreme Court on 2014-02-26 and is reported as [2014] 43 taxmann.com 240 (SC) / [2014] 363 ITR 658 (SC) / [2014] 222 Taxman 225 (SC) (Mag.) / (2014) 6 SCC 335 - Civil Appeal No. 6301 of 2011 with connected appeals. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 244A, section 244A(1)(b), section 195, section 195(2), section 240, section 156, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeals were dismissed, with no order as to costs. A resident deductor who has deposited tax under an order made on his own application under s.195(2), and who succeeds in an appeal against that order, is entitled not only to refund of the tax but to have it refunded with interest from the date of payment of the tax. On the start date the Court reasoned that the case falls outside clause (a) of s.244A(1), so interest cannot run from 1 April of the assessment year, and that the Explanation to clause (b) has no application because the payment was not made pursuant to a notice of demand under s.156; but the opening words of clause (b), 'in any other case', catch it, and under that clause interest runs from the date of payment of tax. It arises in Refunds, Interest & Condonation and TDS Defaults matters, on section 244A, section 244A(1)(b), section 195, section 195(2), section 240, section 156 of the Income Tax Act 1961, and was decided by Supreme Court of India - H.L. Dattu and S.A. Bobde, JJ., Civil Appeal No. 6301 of 2011 and others. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the s.195(2) order, the challan and the appellate order on record together, so the chain from direction to deposit to refund is documented. Where the officer resists on the strength of the older s.195 refund circulars, cite CBDT Circular No. 11/2016 dated 26 April 2016, which directs that no appeals be filed on this ground and that pending appeals not be pressed. Keep the claim inside its own frame — this is refund interest to a deductor, not interest on delayed statutory interest, which is a different and mostly lost argument.
Still good law. Followed by the Supreme Court in Universal Cables Ltd. v. CIT [2020] 113 taxmann.com 353 / 420 ITR 111 (SC), which set out para 37 of this judgment and held that there is no reason to deny payment of interest to a deductor who has deducted tax at source and deposited it with the Treasury, directing the Department to pay interest as prescribed under s.244A. Followed again by the Bombay High Court in Group M Media India (P.) Ltd. v. DCIT (International Tax) [2023] 157 taxmann.com 487 (Bombay), decided 18 December 2023 (K.R. Shriram and Dr. Neela Gokhale, JJ.), whose case review records this decision as followed at para 11; that Court carried the principle across to a refund of equalisation levy under Chapter VIII of the Finance Act, 2016, where the levy statute itself provides no interest, and awarded interest at the 6 per cent rate prescribed by s.244A. The Board has also accepted the decision: CBDT Circular No. 11/2016 dated 26 April 2016 quotes it and directs that no appeals be filed on the ground and that pending appeals not be pressed. What remains unchecked is whether any later amendment to s.244A has altered the position for a deductor, so verify the current text before computing. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read in full from the numbered paragraphs. The decision is about a deductor who applied under s.195(2), deducted at the rate the officer directed, and succeeded in an appeal against that direction. It is not authority on refund interest generally, and it decides nothing about interest on interest. Two points that are easy to lose. First, the Court did not hold CBDT Circular No. 790 bad: it accepted that a Board circular binds the Department, and so declined to fault the officers who applied it, resting the result on ss.240 and 244A instead. Second, on the start date it did not fall back on any residual power - it applied the opening words of s.244A(1)(b), 'in any other case', having held that clause (a) does not fit and that the Explanation to clause (b) does not apply because no notice of demand under s.156 was issued. The publisher's facts block for this case states that the High Court confirmed the order of the Assessing Officer; para 11 of the judgment records the opposite, that the High Court refused to accept the Revenue's appeal. The judgment does not state the end date of the interest period, and it does not deal with the position where a deductor never applied under s.195(2) but deducted on his own view of the matter. It says nothing about the Income-tax Act, 2025 equivalent of s.244A. It is not authority for interest on interest, which is governed by the Full Bench decision already in the corpus. The rate is not fixed by the judgment; later courts applying it have used the rate prescribed by s.244A at the relevant time. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals were dismissed, with no order as to costs. A resident deductor who has deposited tax under an order made on his own application under s.195(2), and who succeeds in an appeal against that order, is entitled not only to refund of the tax but to have it refunded with interest from the date of payment of the tax. On the start date the Court reasoned that the case falls outside clause (a) of s.244A(1), so interest cannot run from 1 April of the assessment year, and that the Explanation to clause (b) has no application because the payment was not made pursuant to a notice of demand under s.156; but the opening words of clause (b), 'in any other case', catch it, and under that clause interest runs from the date of payment of tax.
TaxSphere, “UOI v Tata Chemicals Ltd”, https://taxnotice.vittsphere.com/caselaw/case/uoi-v-tata-chemicals-244a-interest-to-the-195-deductor/ (validity last checked 2026-08-22)
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