Final Verdict of Bombay High Court on Income Tax Rebate Issue

The High Court of Bombay (Bombay HC) has ruled out his final verdict in the matter of Income Tax Rebate issue.

The section 87A tax rebate issue is of particular interest and dispute among taxpayers. The issue grew so heated that several court cases were filed challenging the tax department’s decision to refuse individuals eligible for the 87A tax rebate. The tax department appears to have taken the position that if the ITR includes special rate profits such as short-term capital gains income, the ITR cannot claim the 87A tax rebate on Special Income. This stance, however, was not properly communicated to taxpayers, and changes were introduced to the ITR processing software unexpectedly on July 5, 2024, resulting in the 87A tax rebate mess.

Later, CBDT also extended the revised and belated ITR filing deadline to 15th January 2025 from earlier deadline of 31st December 2024, with updated ITR utility so that taxpayers can claim this rebate.

This matter of rebate went and addressed before Bombay High Court for a decision and now High Court of Bombay declare his final decision.

The Judgment Stated as:

In our view and after hearing the learned senior counsel for the petitioner and the learned ASG, whether rebate under Section 87A is to be allowed only on the tax calculated in accordance with the provisions of Section 115BAC or also on taxes calculated under other provisions of Chapter XII would require interpretation of the interplay of Section 87A and Section 115BAC. To what extent the overriding provisions contained in Section 115BAC(1A) would result in allowability or denial of rebate under Section 87A will have to be examined by interpretative process. Similarly, the impact of the phrase ‘subject to the provisions of this Chapter’ would also have to be examined along with other provisions for adjudicating the claim under Section 87A of the Act.

What is the purport of the proviso to Section 87A on the claim proposed to be made will have to be interpreted in conjunction with the provisions of Section 115BAC(1A) and other connected sections. How the phrase ‘total income’ should be construed for Section 87A and Section 115BAC along with the definition sections, charging sections and scope of total income and the scheme of the Act, will have to be examined. Whether the provisions of Section 115BAC restrict itself only to tax rates or computation of total income will also have to be examined.

In our view, if the above exercise is required to be undertaken before coming to a definite conclusion as to whether the rebate under Section 87A is to be granted or denied on the tax computed under the provisions of Chapter XII other than Section 115BAC, then this is something which has to be deduced by interpretative and adjudicating process. We cannot accept the submission of the learned ASG that the provisions of Section 87A and Section 115BAC are so crystal clear that there is no conclusion other than what is canvassed by the respondents. Based upon such a conclusion, the revenue was not justified in modifying the utility from 5 July 2024, by which an assessee is debarred at the threshold from making the claim, which claim, according to us, is, at best, a contentious or debatable claim.

We may observe that the law of taxation is an ever-evolving jurisprudence which has led to controversies on every section and sub-section of the Act to such an extent that it is considered to be one of the most complex Acts. Therefore, some professionals acquire domain expertise that specialises only in taxation laws. It is not that in every case the interpretation canvassed by an assessee or the department is bound to be correct except by undergoing the process of adjudication, appeals, etc. If the respondents’ stand is to be accepted, then in our view and more so on the facts of the present case and provisions with which we are concerned, the statutory remedies available under the Act would be rendered redundant and infructuous. We once again make it clear that we have not examined whether the stand of the revenue or the petitioners is correct, but certainly at least for the purpose of whether to permit an assessee to make a claim or not is an issue, which cannot be thrown away at the threshold by the respondents by simply tweaking the utility.

Section 87 which provides for rebate under Section 87A from the amount of income-tax uses the phrase ‘there shall be allowed from the amount of income tax….’. The proviso to Section 87A uses the phrase ‘…. assessee shall be entitled to a deduction….’. In our view, a combined reading of Section 87 and Section 87A would mean an assessee has to make a claim, the entitlement of which is to be examined by processing the return under Section 143(1)/143(3) etc. and the same should be allowed as a deduction from the amount of income-tax. If a claim is not made, then it may well be argued by the revenue that the same cannot be allowed

The extent of issue being arguable is apparent and obvious from reading of the written submissions of the petitioners and respondents, which we have reproduced earlier. After going through the same, we have no iota of doubt that this is not a case where, at the threshold, an assessee should be shown the door. Still, it is a case where the assessee and revenue should enter the arena, fight with equal might, and leave it to the Umpire to decide who is right and the winner of the game.

Section 139D of the Act provides for filing of return in electronic form and authorises the Board to make rules for class of persons who are required to file return in electronic form, the form and manner in which such returns are to be furnished, documents which are not required to be furnished along with return and computer resource to which such return may be transmitted. Pursuant to this, under Rule 12 of the Income-tax Rules various forms are prescribed. In our view, Section 139D, read with Rule 12, does not empower the authorities to design the form on the basis of their reading of law or provisions which debar an assessee from making a claim at the threshold itself.

The importance of making a claim in the return of income is enunciated by the ratio of the decision of the Supreme Court in the case of Goetze (I) Ltd. Vs CIT1 wherein the argument of an assessee to permit him to make a claim by way of a letter without making a claim in the return or by filing revised return was rejected. This highlights the importance of making a claim in the return of income itself. Any attempt to deny an assessee to make a claim in the return of income which he believes to be bona fide would deny him to pursue his claim under any provisions of the Act because the starting point is the return of income.

By drawing support based on the observations made by various Courts, the Bombay High Court clarify that if any such claim is made, the revenue would certainly be free to examine the same as per the provisions of the Act. Both the revenue and the assessee have remedies under the Act for testing the validity of such a claim. We, however, refrain from expressing any views on whether the submissions made by the learned senior counsel for the petitioners or the learned ASG are correct since that would be something which has to be examined by the quasi-judicial authorities under the Act in the first instance and not by a writ court in its exercise of extraordinary jurisdiction.

Insofar as the prayer clause (c) of the petition is concerned, we are afraid that such an omnibus and vague prayer in the absence of any concrete case before us cannot be granted. We agree with the learned ASG that unless there is a demand for justice which has been rejected or a failure on the part of the revenue to exercise its duty under the Act, such a writ as prayed for in prayer clause (c) cannot be granted. We also agree with the learned ASG that unless there is some concrete instance, the Court should grant no relief in such broad and general terms. Such reliefs, in general terms, are typically not to be granted because the ramifications would be unclear. For the present, we do not propose to consider relief in terms of the prayer clause (c) of the petition by leaving the question open

Following the above, the high court the pass the order as follows:

(i) Rule is made absolute in terms of prayer clause (a) which reads as under: –

(a) that this Hon’ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, direction or order directing the Respondents to modify the utilities for filing of the return of income under section 139 of the Act immediately, thereby allowing assessees to make a claim of rebate under section 87A of the Act read with the proviso to section 87A, in their return of income for the AY 2024-25 and subsequent years including revised returns to be filed under section 139(5) of the Act.

(ii) Since we have allowed prayer clause (a), prayer clause (b) does not survive, which deals with filing a manual return of income for claiming a rebate under Section 87A.

(iii) Prayer clause (c) is not adjudicated upon and would be considered in an appropriate case as and when the need arises.

(iv) The issue of adjudication of eligibility of a claim under Section 87A is left to the authorities under the Act while processing the returns filed by the assessees.
(v) Prayer clause (e) is rejected, with liberty to the assessee to avail of the remedies available under the Act.

(vi) Prayer clauses (f) and (g) deal with interim and ad-interim reliefs, and since we have finally disposed of the petition, the same would not survive. The interim orders are now made absolute.

The rule is made absolute in the above terms with no order regarding costs.

For Official Judgment Download PDF Given Below: