2025 (1) TMI 1501 - HC - Income Tax

Online income tax system cannot prevent assessees from claiming Section 87A rebate despite utility restrictions

The Chamber of Tax Consultants through its President Mr. Vijay Bhatt, Nidhi Dipen Tann, Abhishek Nareshkumar Jain, Dimple Kumari, Versus Director General of Income Tax (systems) New Delhi, Director of Income Tax, Centralised processing Centre, Bengaluru, Principal Chief Commissioner of Income-tax, Mumbai, The Central Board of Direct Taxes New Delhi, Union Of India.

The Chamber of Tax Consultants through its President Mr. Vijay Bhatt, Nidhi Dipen Tann, Abhishek Nareshkumar Jain, Dimple Kumari, Versus Director General ... 1. ISSUES PRESENTED and CONSIDEREDThe core issues considered by the Court were:A) Whether the respondents were justified in modifying their utility, thereby preventing an assessee from making a rebate claim under Section 87A while filing an income tax return online.B) Whether the claim proposed under Section 87A by an assessee is ex facie frivolous, justifying the respondents in modifying their utility to prevent such a claim at the threshold.C) The interpretation of the interplay between Section 87A and Section 115BAC, specifically whether a rebate under Section 87A can be claimed from the tax computed under Section 115BAC and other provisions of Chapter XII.2. ISSUE-WISE DETAILED ANALYSISA) Relevant Legal Framework and PrecedentsThe legal framework revolves around Section 87A, which provides a rebate of income tax for certain individuals, and Section 115BAC, which introduces a new tax regime with specific tax rates. The Court examined the constitutional provisions, particularly Articles 265 and 300A, which mandate that taxes must be levied and collected by the authority of law. The Court also referenced precedents, such as the case of Samir Narain Bhojwani vs. DCIT, which emphasized the right of an assessee to make claims in their tax returns.B) Court's Interpretation and ReasoningThe Court reasoned that the utility's modification, which prevents assessees from making claims under Section 87A, is contrary to the scheme of the Income-tax Act and unconstitutional. The Court emphasized that the Act allows an assessee to compute their income and make claims based on their understanding, which should be adjudicated later by the authorities. The utility should not preemptively deny such claims.C) Key Evidence and FindingsThe Court found that the utility's modification was not based on any explicit prohibition in the Income-tax Act. It noted that the legislative intent, as seen in the absence of explicit prohibitions like those in Section 112A(6), suggests that assessees should be allowed to make claims under Section 87A.D) Application of Law to FactsThe Court applied the constitutional mandate and the scheme of the Income-tax Act to conclude that the utility's modification was unjustified. It held that the revenue's interpretation, which led to the modification, was debatable and should not prevent an assessee from making claims at the filing stage.E) Treatment of Competing ArgumentsThe Court considered the arguments of the petitioners, who contended that the rebate under Section 87A should apply to the total tax computed, including under other provisions of Chapter XII. The respondents argued that the rebate should only apply to tax under Section 115BAC. The Court found the issue debatable and concluded that the utility should not prevent claims based on one interpretation.F) ConclusionsThe Court concluded that the utility should allow assessees to make claims under Section 87A. It held that the revenue's interpretation was not so clear-cut as to justify preventing claims at the threshold.3. SIGNIFICANT HOLDINGSThe Court's significant holdings include:- The utility modification preventing claims under Section 87A is contrary to the Income-tax Act and unconstitutional.- Assessees should be allowed to make claims based on their interpretation, which should be adjudicated by the authorities.- The issue of whether Section 87A rebates apply to taxes computed under other provisions of Chapter XII is debatable and should not be preemptively denied by the utility.ORDER(i) The Court issued a writ of mandamus directing the respondents to modify the utility for filing returns under Section 139, allowing claims under Section 87A.(ii) The Court did not adjudicate on the broader issue of filing returns based on personal belief, leaving it open for future consideration.(iii) The Court left the adjudication of eligibility for claims under Section 87A to the authorities under the Act.(iv) The Court rejected the prayer for a writ of prohibition, allowing the assessee to pursue remedies under the Act.(v) Interim orders were made absolute, and the rule was made absolute with no order as to costs.