Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The opening and foundational provision of Chapter XIX. It confers the substantive right to a refund of tax paid in excess of the amount with which the person is properly chargeable.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 237 is the fountainhead of the refund Chapter. It creates a substantive right: any person who satisfies the Assessing Officer that the tax paid by him, or on his behalf, or treated as paid on his behalf, for any assessment year exceeds the amount with which he is "properly chargeable" for that year is entitled to a refund of the excess. The section is the statutory expression of Article 265 of the Constitution — that no tax may be levied or collected except by authority of law — and of the correlative principle that the State cannot retain money to which it has no lawful title.
The phrase "tax paid by him or on his behalf or treated as paid" is wide. It embraces tax paid directly, advance tax, self-assessment tax, tax deducted or collected at source and credited under section 199 or section 206C, and amounts otherwise treated as paid on the assessee's behalf. The measure of the refund is the excess over the tax "properly chargeable", which ties the refund to the correct assessment of liability and not merely to the figure demanded.
Section 237 governs the initial stage. As the Chapter unfolds, it is supplemented by other provisions: section 238 (who may claim), section 239 (the claim is now to be made by furnishing a return under section 139), section 240 (refund flowing from an appellate or other order, payable without a claim), sections 241A and 245 (withholding and set-off), and sections 243, 244 and 244A (interest). It is settled that the Chapter, though a self-contained code on refunds, is not exhaustive — provisions such as section 143(1) (processing and intimation), section 199 (credit for TDS) and the assessment machinery must be read with it.
A recurring theme in the case law is the requirement that the refund must be "due". At the initial stage a refund arises only when tax has in fact been paid in excess of the tax properly chargeable; while the quantum of liability remains to be determined (for instance, where a fresh assessment has been directed), no refund can yet be said to be due. Once, however, the State holds money without lawful authority, the duty to refund — and, under section 244A, to pay interest — follows as a matter of course.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
237 . If any person satisfies the 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.
C. AUTHORITIES
The authorities below establish the substantive right to refund of unauthorisedly retained tax, and the requirement that the refund be "due" before it (or interest on it) can arise.
1. Duty to refund tax retained without authority of law
Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC)
Facts: The assessee-deductor, on a reference under section 195(2), was directed to deduct tax on remittances to a non-resident. In appeal the CIT(A) held that reimbursement of expenses was not chargeable in the non-resident's hands; the tax deducted and deposited on that component thus became refundable to the deductor, which claimed interest on it.
Held: A tax refund due to a resident/deductor on excess tax deducted and deposited under section 195 must be refunded with interest under section 244A from the date of payment. The obligation to refund money received and retained without right carries with it the right to interest; "refund becomes due" the moment the State has no lawful authority to retain the sum. The Department's reliance on the absence of an express provision was rejected — section 244A is wide enough to cover the deductor's refund (the matter being governed by section 244A(1)(b) read with section 240).
Significance: The leading modern authority on the State's duty to pay interest on unauthorisedly retained tax. It anchors both the refund right (section 237/240) and the interest right (section 244A) and has been followed repeatedly, including by the Supreme Court in Universal Cables Ltd. v. CIT.
Universal Cables Ltd. v. CIT (Supreme Court) — following Tata Chemicals
Court: Supreme Court of India, following Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC).
Held: Applying Tata Chemicals, the Court reiterated that where tax has been collected/retained without authority, the assessee is entitled to a refund together with interest under section 244A; the State's obligation to refund carries with it the obligation to pay interest for the period of retention.
Significance: Confirms and follows the Tata Chemicals principle at the level of the Supreme Court, reinforcing that interest on unauthorisedly retained tax is a matter of course.
2. Liability arises from the charge, not the assessment; what is refundable on annulment
Held: (i) Provisos (a) and (b) to section 240 are declaratory and clarificatory, and therefore operate retrospectively; the CBDT Circular dated 23 January 1990 is likewise only clarificatory. (ii) The liability to pay income-tax arises by force of the charging provisions read with the Finance Act, not from the making of an assessment; Article 265 is not breached merely because no fresh assessment is framed after an annulment. (iii) Where an assessment is annulled and the Revenue does not (or cannot) make a fresh assessment, the assessee is entitled to a refund only of the amount paid in excess of the tax chargeable on, and paid in respect of, the income returned — i.e. tax paid pursuant to the annulled order over and above the tax on the returned income. (iv) Taxes paid voluntarily and on the assessee's own admission of liability, such as advance tax and self-assessment tax referable to the returned income, are not refundable merely because the assessment is annulled; conversely, if the assessee has wrongly paid excess tax (e.g. by misreading an exemption), it may bring the fact to the AO's notice for refund.
Significance: The cornerstone decision on proviso (b) to section 240. It draws the crucial line between (a) tax wrongly collected under an annulled order, which is refundable, and (b) tax voluntarily paid on returned income, which is not. Applied by the Supreme Court in CIT v. Micro Nova Pharmaceuticals (P) Ltd. to block-period self-assessment tax.
CIT v. Micro Nova Pharmaceuticals (P) Ltd. (SC) — applying Shelly Products
Court: Supreme Court of India, following CIT v. Shelly Products (2003) 261 ITR 367 (SC).
Held: Tax paid by the assessee mandatorily along with the return of income filed for the block period under Chapter XIV-B is not liable to be refunded merely on annulment, the decision in Shelly Products being squarely applicable; only the excess over the tax chargeable on, and paid in respect of, the returned (block) income can be refunded.
Significance: Confirms the reach of the Shelly Products principle to taxes voluntarily paid with a return, in the search-assessment setting; cited for the proposition that section 240 (and section 237) refund the wrongly-collected excess, not the assessee's own admitted tax.
Deep Chand Jain v. ITO (1984) 145 ITR 676 (Punjab & Haryana) — refund where no assessment made
Court: High Court of Punjab & Haryana (1984) 145 ITR 676.
Held: The retention of advance tax becomes without authority of law where no final assessment is made within the period of limitation; in such a case the amount collected is liable to be refunded to the assessee, the State having no lawful authority to retain it.
Significance: An early High Court statement of the refund principle later affirmed in Shelly Products — that tax cannot be retained where the assessment that would justify it is not (or cannot be) made.
3. A refund must first be "due" — pendency of assessment
CIT v. Chittoor Electric Supply Corporation (SC)
Court: Supreme Court of India (as reported).
Facts: On appeal the matter was restored to the Assessing Officer to frame a fresh assessment; thereafter a refund was determined. The assessee claimed interest from the date of the first appellate order to the date of refund.
Held: No refund can be said to have become "due" while assessment proceedings are still pending; "when the assessment proceedings are still pending, it is idle to talk of any amount or any refund becoming due to the assessee in respect of that assessment year, particularly in the light of section 237." Where a fresh assessment has been directed (proviso (a) to section 240), the refund — and hence interest on it — becomes due only on the making of the fresh assessment, not from the date of the appellate order.
Significance: Establishes that the refund must first be "due" before any refund or interest can arise; it is the textual companion to proviso (a) of section 240 and to the "amount becomes due" language of sections 243, 244 and 244A.
4. Interest follows the refund — "amount due" includes interest
CIT v. HEG Ltd. (2010) 324 ITR 331 (SC)
Court: Supreme Court of India; judgment dated 3 December 2009 (2010) 324 ITR 331 / 189 Taxman 335.
Held: The expression "refund of any amount becomes due to the assessee" in section 244A, and the words "any amount", are wide enough to take in the interest element. Where the Department had wrongly retained both the principal refund and the interest accrued on it, the assessee was entitled to interest computed on the aggregate so withheld; the interest component partakes of the character of the "amount due". The Court also held that a part-payment of refund is to be appropriated first towards the interest due and the balance towards the principal.
Significance: Clarifies the breadth of "amount due" under section 244A and the order of appropriation of a part-refund (interest first). It is to be read with Gujarat Fluoro Chemicals: HEG concerns the correct quantification of the statutory refund withheld, not a freestanding claim to interest-on-interest.
5. A refund is a debt owed by the State
PCIT v. Punjab & Sind Bank (2022) 145 taxmann.com 31 (Delhi)
Court: High Court of Delhi (2022) 145 taxmann.com 31.
Held: A sum directed to be refunded to the assessee is a debt owed by the Department, and interest is liable to be paid on it under section 244A(1)(b); where excess tax (there, on re-computation) is refundable, interest runs from the date of payment to the date of grant of refund. The clause (b) residuary limb applies to refunds not falling within clauses (a)/(aa).
Significance: Confirms that a refund is a debt carrying interest and that section 244A(1)(b) is the residuary charging limb for interest on refunds, including refunds arising on re-computation.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.
CHAPTER XIX — REFUNDS
Section 237 — Refunds
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The opening and foundational provision of Chapter XIX. It confers the substantive right to a refund of tax paid in excess of the amount with which the person is properly chargeable.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 237 is the fountainhead of the refund Chapter. It creates a substantive right: any person who satisfies the Assessing Officer that the tax paid by him, or on his behalf, or treated as paid on his behalf, for any assessment year exceeds the amount with which he is "properly chargeable" for that year is entitled to a refund of the excess. The section is the statutory expression of Article 265 of the Constitution — that no tax may be levied or collected except by authority of law — and of the correlative principle that the State cannot retain money to which it has no lawful title.
The phrase "tax paid by him or on his behalf or treated as paid" is wide. It embraces tax paid directly, advance tax, self-assessment tax, tax deducted or collected at source and credited under section 199 or section 206C, and amounts otherwise treated as paid on the assessee's behalf. The measure of the refund is the excess over the tax "properly chargeable", which ties the refund to the correct assessment of liability and not merely to the figure demanded.
Section 237 governs the initial stage. As the Chapter unfolds, it is supplemented by other provisions: section 238 (who may claim), section 239 (the claim is now to be made by furnishing a return under section 139), section 240 (refund flowing from an appellate or other order, payable without a claim), sections 241A and 245 (withholding and set-off), and sections 243, 244 and 244A (interest). It is settled that the Chapter, though a self-contained code on refunds, is not exhaustive — provisions such as section 143(1) (processing and intimation), section 199 (credit for TDS) and the assessment machinery must be read with it.
A recurring theme in the case law is the requirement that the refund must be "due". At the initial stage a refund arises only when tax has in fact been paid in excess of the tax properly chargeable; while the quantum of liability remains to be determined (for instance, where a fresh assessment has been directed), no refund can yet be said to be due. Once, however, the State holds money without lawful authority, the duty to refund — and, under section 244A, to pay interest — follows as a matter of course.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
237 . If any person satisfies the 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.
C. AUTHORITIES
The authorities below establish the substantive right to refund of unauthorisedly retained tax, and the requirement that the refund be "due" before it (or interest on it) can arise.
1. Duty to refund tax retained without authority of law
Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC)
Court: Supreme Court of India; judgment dated 26 February 2014 (2014) 363 ITR 658 / 363 ITR 658 (SC) (also 222 Taxman 225 / 267 CTR 89).
Facts: The assessee-deductor, on a reference under section 195(2), was directed to deduct tax on remittances to a non-resident. In appeal the CIT(A) held that reimbursement of expenses was not chargeable in the non-resident's hands; the tax deducted and deposited on that component thus became refundable to the deductor, which claimed interest on it.
Held: A tax refund due to a resident/deductor on excess tax deducted and deposited under section 195 must be refunded with interest under section 244A from the date of payment. The obligation to refund money received and retained without right carries with it the right to interest; "refund becomes due" the moment the State has no lawful authority to retain the sum. The Department's reliance on the absence of an express provision was rejected — section 244A is wide enough to cover the deductor's refund (the matter being governed by section 244A(1)(b) read with section 240).
Significance: The leading modern authority on the State's duty to pay interest on unauthorisedly retained tax. It anchors both the refund right (section 237/240) and the interest right (section 244A) and has been followed repeatedly, including by the Supreme Court in Universal Cables Ltd. v. CIT.
Universal Cables Ltd. v. CIT (Supreme Court) — following Tata Chemicals
Court: Supreme Court of India, following Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC).
Held: Applying Tata Chemicals, the Court reiterated that where tax has been collected/retained without authority, the assessee is entitled to a refund together with interest under section 244A; the State's obligation to refund carries with it the obligation to pay interest for the period of retention.
Significance: Confirms and follows the Tata Chemicals principle at the level of the Supreme Court, reinforcing that interest on unauthorisedly retained tax is a matter of course.
2. Liability arises from the charge, not the assessment; what is refundable on annulment
CIT v. Shelly Products (2003) 261 ITR 367 (SC)
Court: Supreme Court of India; (2003) 261 ITR 367 / 129 Taxman 271.
Held: (i) Provisos (a) and (b) to section 240 are declaratory and clarificatory, and therefore operate retrospectively; the CBDT Circular dated 23 January 1990 is likewise only clarificatory. (ii) The liability to pay income-tax arises by force of the charging provisions read with the Finance Act, not from the making of an assessment; Article 265 is not breached merely because no fresh assessment is framed after an annulment. (iii) Where an assessment is annulled and the Revenue does not (or cannot) make a fresh assessment, the assessee is entitled to a refund only of the amount paid in excess of the tax chargeable on, and paid in respect of, the income returned — i.e. tax paid pursuant to the annulled order over and above the tax on the returned income. (iv) Taxes paid voluntarily and on the assessee's own admission of liability, such as advance tax and self-assessment tax referable to the returned income, are not refundable merely because the assessment is annulled; conversely, if the assessee has wrongly paid excess tax (e.g. by misreading an exemption), it may bring the fact to the AO's notice for refund.
Significance: The cornerstone decision on proviso (b) to section 240. It draws the crucial line between (a) tax wrongly collected under an annulled order, which is refundable, and (b) tax voluntarily paid on returned income, which is not. Applied by the Supreme Court in CIT v. Micro Nova Pharmaceuticals (P) Ltd. to block-period self-assessment tax.
CIT v. Micro Nova Pharmaceuticals (P) Ltd. (SC) — applying Shelly Products
Court: Supreme Court of India, following CIT v. Shelly Products (2003) 261 ITR 367 (SC).
Held: Tax paid by the assessee mandatorily along with the return of income filed for the block period under Chapter XIV-B is not liable to be refunded merely on annulment, the decision in Shelly Products being squarely applicable; only the excess over the tax chargeable on, and paid in respect of, the returned (block) income can be refunded.
Significance: Confirms the reach of the Shelly Products principle to taxes voluntarily paid with a return, in the search-assessment setting; cited for the proposition that section 240 (and section 237) refund the wrongly-collected excess, not the assessee's own admitted tax.
Deep Chand Jain v. ITO (1984) 145 ITR 676 (Punjab & Haryana) — refund where no assessment made
Court: High Court of Punjab & Haryana (1984) 145 ITR 676.
Held: The retention of advance tax becomes without authority of law where no final assessment is made within the period of limitation; in such a case the amount collected is liable to be refunded to the assessee, the State having no lawful authority to retain it.
Significance: An early High Court statement of the refund principle later affirmed in Shelly Products — that tax cannot be retained where the assessment that would justify it is not (or cannot be) made.
3. A refund must first be "due" — pendency of assessment
CIT v. Chittoor Electric Supply Corporation (SC)
Court: Supreme Court of India (as reported).
Facts: On appeal the matter was restored to the Assessing Officer to frame a fresh assessment; thereafter a refund was determined. The assessee claimed interest from the date of the first appellate order to the date of refund.
Held: No refund can be said to have become "due" while assessment proceedings are still pending; "when the assessment proceedings are still pending, it is idle to talk of any amount or any refund becoming due to the assessee in respect of that assessment year, particularly in the light of section 237." Where a fresh assessment has been directed (proviso (a) to section 240), the refund — and hence interest on it — becomes due only on the making of the fresh assessment, not from the date of the appellate order.
Significance: Establishes that the refund must first be "due" before any refund or interest can arise; it is the textual companion to proviso (a) of section 240 and to the "amount becomes due" language of sections 243, 244 and 244A.
4. Interest follows the refund — "amount due" includes interest
CIT v. HEG Ltd. (2010) 324 ITR 331 (SC)
Court: Supreme Court of India; judgment dated 3 December 2009 (2010) 324 ITR 331 / 189 Taxman 335.
Held: The expression "refund of any amount becomes due to the assessee" in section 244A, and the words "any amount", are wide enough to take in the interest element. Where the Department had wrongly retained both the principal refund and the interest accrued on it, the assessee was entitled to interest computed on the aggregate so withheld; the interest component partakes of the character of the "amount due". The Court also held that a part-payment of refund is to be appropriated first towards the interest due and the balance towards the principal.
Significance: Clarifies the breadth of "amount due" under section 244A and the order of appropriation of a part-refund (interest first). It is to be read with Gujarat Fluoro Chemicals: HEG concerns the correct quantification of the statutory refund withheld, not a freestanding claim to interest-on-interest.
5. A refund is a debt owed by the State
PCIT v. Punjab & Sind Bank (2022) 145 taxmann.com 31 (Delhi)
Court: High Court of Delhi (2022) 145 taxmann.com 31.
Held: A sum directed to be refunded to the assessee is a debt owed by the Department, and interest is liable to be paid on it under section 244A(1)(b); where excess tax (there, on re-computation) is refundable, interest runs from the date of payment to the date of grant of refund. The clause (b) residuary limb applies to refunds not falling within clauses (a)/(aa).
Significance: Confirms that a refund is a debt carrying interest and that section 244A(1)(b) is the residuary charging limb for interest on refunds, including refunds arising on re-computation.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.