Circular No. 773

What it does

Does away with the payee's discharge on the reverse of an account payee income-tax refund order. Until then the payee had to sign in the space for 'Claimant's signature' on the back. The relaxation applies only where the refund order is issued as a cheque after the introduction of Magnetic Ink Character Recognition technology for mechanised clearing, which at the time existed in the four metropolitan cities of Calcutta, Chennai, Delhi and Mumbai. Where refund orders are still issued in the old conventional form, the existing system of payee discharge continues.

Why it was issued

The collecting bank's responsibility for account payee instruments is already defined under the Negotiable Instruments Act, so the extra discharge served no specific purpose, and its absence was causing refund orders to be returned unpaid and adding to the banks' workload.

Who it reaches

Assessees receiving refund orders in the four MICR cities
Banks collecting income-tax refund cheques
Refund-issuing staff in income-tax offices
Assessees in stations still on the conventional refund order form

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1241. Modification of procedure regarding discharge by payee in case of income-tax refund orders
1. At present, the payee is required to put his signature in the space provided for "Claimants signature" on the reverse of the refund order. The responsibility of the collecting bank in dealing with "account payee" instruments is well-defined under the Negotiable Instruments Act. No specific purpose is served by obtaining this additional discharge on the reverse of this cheque. On the other hand, it sometimes happens that in the absence of the discharge of the payee, the refund order is returned unpaid, entailing additional workload on the part of the banks.
2. The Board has, therefore, decided to do away with the discharge of the payee on the reverse of the account payee Income-tax Refund Order as it does not serve any specific purpose. This relaxation will be applicable only where the Income-tax Refund Orders are issued in the form of a cheque after introduction of the Magnetic Ink Character Recognition (MICR) Technology for mechanised processing of cheques for clearance (which is presently prevalent in the four metropolitan cities of Calcutta, Chennai, Delhi and Mumbai). However, in case where Refund Orders are issued in the old conventional form, prevailing system of discharge of payee will continue.

Circular : No. 773, dated 15-2-1999.

What to watch

The relaxation is limited by technology and place — MICR cheques in the four named cities only, on the position as it then stood.
In non-MICR stations the old discharge requirement was expressly kept alive, so a refund order could still come back unpaid for want of it.
This is banking mechanics for paper refund orders; refunds by direct credit are a different regime altogether.
The circular does not touch entitlement to refund or interest — only how the instrument is discharged.

Where you meet it

When an old refund order is returned unpaid by the bank, or when a stale or uncashed refund is being traced and reissued.

← Circular No. 774 · Circular No. 772 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.