Income tax law comes with its own rhythm — assessments, demands, appeals, reassessments, and clarifications. But tucked among these processes is a provision that creates a firm boundary: even if you challenge your assessment, you may still need to pay the tax first.
That rule comes from Section 265 of the Income Tax Act, 1961, a provision many taxpayers don’t know about until the moment they face an unexpected tax demand.
In simple words, Section 265 mandates that the assessed tax must be paid notwithstanding any pending legal appeals or references to the High Court or Supreme Court. It ensures that tax administration continues smoothly while appeals make their way through the legal system.
What Exactly Is Section 265?
Section 265 states that:
- Tax must be paid according to the assessment made,
- Even when an appeal or reference is pending in a higher court,
- And even if the taxpayer strongly believes the order is incorrect.
This is why the provision is often summarised as:
“Tax to be paid notwithstanding reference.”
The law ensures that tax collection does not stop merely because a dispute has been raised.
Also Read: Rules on Cash Transactions, Loans & Deposits
Why Does This Rule Exist?
At first glance, Section 265 may feel harsh.
But once you understand its purpose, the reasoning becomes clearer:
- To prevent delays in revenue collection
- If taxpayers could avoid paying tax simply by filing an appeal, the system would be stuck.
- To maintain the principle of “Taxes not to be imposed save by authority of law”
- Once an assessment is passed, it has legal authority until overturned.
- To ensure that appeals do not become a tool for postponing tax payment
- The appeal process can take months — sometimes years — and revenue cannot wait indefinitely.
- To maintain discipline in tax administration
- It reinforces that assessment orders carry weight.
Section 265 may sound tough, but it brings necessary structure to a complex system.
An Everyday Example
A small business owner once told me:
“I filed an appeal because I was sure the officer misinterpreted my records. I thought I could avoid payment until the appeal was cleared.”
But the tax portal still showed the demand as payable.
And that’s when he discovered Section 265 — the law that ensures tax is payable according to the assessment, not according to personal belief.
This is a situation thousands of people go through every year.
Section 265 Does Not Mean You Always Have to Pay the Full Amount Immediately
While Section 265 says tax must be paid despite appeals, taxpayers still have protections:
- Stay of demand: You can request the assessing officer or Commissioner to stay (pause) the tax demand."
- Partial payment relief: In many cases, authorities allow payment of only a portion (commonly 20%) until the appeal is resolved.
- CBDT instructions: CBDT has issued guidelines to ensure that taxpayers are not forced into unreasonable hardship.
So while Section 265 sets the general rule, the system still offers flexibility.
Also Read: Section 260: The High Court Route for Income Tax Appeals
How Section 265 Interacts With Other Provisions
The Income Tax Act is like a puzzle — each section connects to several others.
1. Section 143, 144, 147 – Assessment sections
Once an assessment order is passed, the demand raised becomes payable under Section 265.
2. Appeals under Sections 246A, 250, 253
Appealing does not automatically suspend payment.
3. Section 220 – Demand notice
The amount must be paid within 30 days unless extended.
4. Section-265 seeks to provide for verification of returns of income
In a broad sense, it supports the verification & enforcement process by ensuring revenue is not blocked during verification disputes.
Why Section 265 Matters So Much
Section 265 is one of the pillars of tax recovery.
It ensures:
- Stability in government revenue
- Smooth functioning of the tax machinery
- Prevention of abuse through frivolous appeals
- Legal clarity on when taxes become enforceable
For taxpayers, it is a reminder that:
✔ Filing an appeal does not postpone tax liability
✔ Assessment orders must be taken seriously
✔ Seeking stay is necessary if immediate payment is difficult
Learning this early can save both stress & penalties.
Common Misconceptions About Section 265
Myth 1: An appeal means I don’t have to pay till the case is decided.
False. The tax demand stands unless stayed.
Myth 2: Section 265 applies only to large taxpayers.
It applies to every assessee, regardless of income or status.
Myth 3: The department cannot recover tax if an appeal is pending.
It can — and often does — unless a stay is in place.
Myth 4: Section 265 is unfair.
It actually protects the system from misuse, while still giving taxpayers relief options.
Also Read: Cash Limit for Loans, Deposits & Specified Sums
Key Takeaways About Section 265
- Section 265 mandates that tax must be paid according to the assessment, even if appeals or references are pending.
- It ensures tax to be paid notwithstanding the ongoing legal proceedings.
- It upholds the principle that taxes are imposed only by authority of law."
- You can still apply for a stay of demand in genuine cases.
- It prevents taxpayers from delaying payment through repeated appeals.
In short, Section 265 ensures discipline, fairness, & continuity in India’s tax system.
Conclusion
Section 265 may not be a section most people talk about, but it’s one of those provisions that shape the practical reality of tax administration. It reminds taxpayers that assessments carry weight & must be acted upon, even when challenged.
If you’re ever stuck in the confusing space between an assessment order and an appeal — unsure whether you should pay, wait, or seek a stay — the team at CallMyCA.com is always ready to guide you through the process with clarity and genuine human support.
