HC Directs CBDT to Allow Sec. 87A Rebate Claim Even if Assessee Opts for New Tax Regime While Filing ITR

Case Details: Chamber of Tax Consultants vs Director General of Income Tax (systems) - [2025] 170 taxmann.com 707 (Bombay)

Judiciary and Counsel Details

• M.S Sonak & Jitendra Jain, JJ.
• Percy J. Pardiwala, Sr. Adv. & Dharan V. Gandhi for the Petitioner.
• N. Venkatraman, ASG, Akhileshwar Sharma & Abhishek Mishra for the Respondent.

Facts of the Case

In a recent ruling, the Bombay High Court ruled that the Income-tax department’s modification of the e-filing utility, which restricted taxpayers from claiming a rebate under Section 87A for taxes computed under provisions other than Section 115BAC, was unconstitutional and arbitrary. The Court directed the Revenue to allow taxpayers to claim such rebates while leaving the validity of such claims to the assessment process.

The Revenue modified the e-filing utility effective from 5-7-2024, disabling taxpayers from claiming a rebate under Section 87A unless the taxes were computed under the optional new tax regime of Section 115BAC.

The Chamber of Tax Consultants filed a Public Interest Litigation (PIL) challenging this change, arguing that Section 87A rebates were not limited to Section 115BAC but extended to all taxes computed under Chapter XII unless specifically restricted.

The petitioners contended that preventing taxpayers from making claims at the threshold stage of filing returns violated their statutory rights and constitutional protections under Articles 265 and 300A of the Constitution.

The Revenue argued that Section 115BAC, which provides for a concessional tax regime, overrides other provisions, and the rebate under Section 87A was intended only for taxes computed under Section 115BAC.

High Court Held

The Bombay High Court held that Section 139D, read with Rule 12, provides the framework for filing income tax returns electronically but does not authorise the Revenue to redesign the e-filing utility in a manner that prevents taxpayers from making legitimate claims, even if debatable.

The court noted that the issue of allowing a rebate under Section 87A for taxes computed under provisions other than Section 115BAC was highly debatable and required an adjudicatory process. Restricting taxpayers from raising such claims was beyond the scope of administrative powers.

The Revenue’s unilateral action of modifying the utility was deemed unconstitutional, as it denied taxpayers the right to make claims, effectively bypassing statutory safeguards like assessment and appeals under the Income-tax Act.

It emphasised that the tax collected must comply with Articles 265 and 300A of the Constitution, which prohibit the collection of taxes without the authority of law.

The court directed the Revenue to modify the utility to enable taxpayers to claim the rebate under Section 87A for AY 2024-25 and subsequent years, including revised returns under Section 139(5).