Section 239A — Refund for Denying Liability to Deduct Tax in Certain Cases
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live (new). Inserted by the Finance Act, 2022 with effect from 1 April 2022. It gives a payer who has borne and paid tax under a 'net-of-tax' arrangement (on income other than interest, under section 195) a route to claim a refund by denying the liability to deduct, with a defined timeline and an order from the Assessing Officer.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 239A addresses a specific gap. Under a 'net-of-tax' (grossing-up) arrangement, the tax deductible under section 195 on income (other than interest) payable to a non-resident is borne by the payer. If, having paid that tax to the Government, the payer takes the view that no tax was in fact required to be deducted, he previously had no clear mechanism to recover it. The section now permits such a payer to file an application before the Assessing Officer, within thirty days from the date of payment of the tax, for a refund, in the prescribed form and manner.
The procedure is structured. The Assessing Officer must, by an order in writing, allow or reject the application; he may make such inquiry as he considers necessary before doing so; the application cannot be rejected without an opportunity of being heard; and the order must be passed within six months from the end of the month in which the application is received. An order under section 239A is appealable to the Commissioner (Appeals) — the appeal channel having been provided in section 246A.
Section 239A complements, and should be read alongside, section 248 (which allows an appeal where, under such an agreement, tax has been paid and the payer denies liability to deduct) and the deductor-refund principle recognised by the Supreme Court in Union of India v. Tata Chemicals Ltd. The new section provides a faster, self-standing refund application route, with a strict thirty-day window for the applicant and a six-month outer limit for the Assessing Officer.
Being a provision introduced only with effect from 1 April 2022, section 239A has not yet been the subject of a direct reported decision. The nearest governing authority is Tata Chemicals (the deductor's right to refund of, and interest on, excess tax deducted and deposited under section 195), and the line of cases under section 248 on a payer's right to deny liability to deduct. These are flagged candidly as cognate, not as decisions on section 239A itself.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
239A. (1) Where under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government claims that no tax was required to be deducted on such income, may, within a period of thirty days from the date of payment of such tax, file an application before the Assessing Officer for refund of such tax in such form and such manner as may be prescribed.
(2) The Assessing Officer shall, by an order in writing, allow or reject the application:
Provided that no application under sub-section
(1) shall be rejected unless an opportunity of being heard has been given to the applicant.
(3) The Assessing Officer may, before passing an order under sub-section (2), make such inquiry as he considers necessary.
(4) The order under sub-section
(2) shall be passed within six months from the end of the month in which application under sub-section
(1) is received.
C. AUTHORITIES
Section 239A is new (Finance Act, 2022, with effect from 1 April 2022) and has no direct reported decision yet; the candour rule is applied. The cognate authority is Tata Chemicals (deductor's refund of excess section 195 tax with interest), and the framework should be read with the section 248 line on denial of liability to deduct.
Cognate authority — deductor's right to refund of excess section 195 tax
Pending direct authority on section 239A, the controlling principle is that of Tata Chemicals.
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.
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 239A — Refund for Denying Liability to Deduct Tax in Certain Cases
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live (new). Inserted by the Finance Act, 2022 with effect from 1 April 2022. It gives a payer who has borne and paid tax under a 'net-of-tax' arrangement (on income other than interest, under section 195) a route to claim a refund by denying the liability to deduct, with a defined timeline and an order from the Assessing Officer.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 239A addresses a specific gap. Under a 'net-of-tax' (grossing-up) arrangement, the tax deductible under section 195 on income (other than interest) payable to a non-resident is borne by the payer. If, having paid that tax to the Government, the payer takes the view that no tax was in fact required to be deducted, he previously had no clear mechanism to recover it. The section now permits such a payer to file an application before the Assessing Officer, within thirty days from the date of payment of the tax, for a refund, in the prescribed form and manner.
The procedure is structured. The Assessing Officer must, by an order in writing, allow or reject the application; he may make such inquiry as he considers necessary before doing so; the application cannot be rejected without an opportunity of being heard; and the order must be passed within six months from the end of the month in which the application is received. An order under section 239A is appealable to the Commissioner (Appeals) — the appeal channel having been provided in section 246A.
Section 239A complements, and should be read alongside, section 248 (which allows an appeal where, under such an agreement, tax has been paid and the payer denies liability to deduct) and the deductor-refund principle recognised by the Supreme Court in Union of India v. Tata Chemicals Ltd. The new section provides a faster, self-standing refund application route, with a strict thirty-day window for the applicant and a six-month outer limit for the Assessing Officer.
Being a provision introduced only with effect from 1 April 2022, section 239A has not yet been the subject of a direct reported decision. The nearest governing authority is Tata Chemicals (the deductor's right to refund of, and interest on, excess tax deducted and deposited under section 195), and the line of cases under section 248 on a payer's right to deny liability to deduct. These are flagged candidly as cognate, not as decisions on section 239A itself.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
239A. (1) Where under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government claims that no tax was required to be deducted on such income, may, within a period of thirty days from the date of payment of such tax, file an application before the Assessing Officer for refund of such tax in such form and such manner as may be prescribed.
(2) The Assessing Officer shall, by an order in writing, allow or reject the application:
Provided that no application under sub-section
(1) shall be rejected unless an opportunity of being heard has been given to the applicant.
(3) The Assessing Officer may, before passing an order under sub-section (2), make such inquiry as he considers necessary.
(4) The order under sub-section
(2) shall be passed within six months from the end of the month in which application under sub-section
(1) is received.
C. AUTHORITIES
Section 239A is new (Finance Act, 2022, with effect from 1 April 2022) and has no direct reported decision yet; the candour rule is applied. The cognate authority is Tata Chemicals (deductor's refund of excess section 195 tax with interest), and the framework should be read with the section 248 line on denial of liability to deduct.
Cognate authority — deductor's right to refund of excess section 195 tax
Pending direct authority on section 239A, the controlling principle is that of Tata Chemicals.
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.
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.