2025 (12) TMI 861 - AT - Income Tax

Rebate u/s 87A allowed on long-term debt capital gains; s.112A(6) bar limited to equity gains only

ITAT Chandigarh-AT allowed the assessee's appeal, holding that the bar under s.112A(6) on granting rebate u/s 87A applies only to long-term capital gains ... Rebate u/s. 87A - rebate disallowed on tax computed on Long-Term Capital Gains - CIT(A) held that in terms of provisions of Sec.112A(6), rebate u/s. 87A would be allowed from Income Tax on total income as reduced by tax payable on capital gains as referred to in sub-section (1) of sec 112A - HELD THAT:- We find that sub-section (6) of sec 112A prohibit rebate u/s. 87A on capital gains as referred to in sub-section (1) of sec 112A. The clause (ii) of sec 112A(1) refer to capital gains arising from transfer of a Long-Term Capital Asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust. This clause thus refers only to Long-Term Equity Capital Gains and not to Long-Term Debt Capital Gains. The debt Long Term capital gains are governed by the provisions of s.112 and as such there is no such bar to claim rebate u/s. 87A on this income. The computation of tax payable would show that the assessee has computed tax of Rs. 23,804/- (at the rate of 20% on Debt LTCG of Rs. 1,19,020/-). The tax on other normal income (excluding equity LTCG) has been computed at Rs. 3,456/- (i.e. Rs. 337/- + Rs. 3,119/-). Both these items well exceed rebate threshold limit of Rs. 25,000/-. This being so, the assessee would be eligible to claim full rebate of Rs. 25,000/-. CPC is directed to re-compute the tax payable by the assessee. Appeal stand allowed. Assessee's sole dispute concerned the quantum of rebate under section 87A for AY 2024-25 against an intimation under section 143(1). The assessee declared total income of Rs. 5,45,315/- (including Equity LTCG, Debt LTCG with indexation, STCG and income from other sources), computed tax of Rs. 27,586/- and claimed rebate u/s 87A of Rs. 25,000/-. CPC restricted the rebate to Rs. 3,119/-, leading to higher tax demand, which was upheld by CIT(A) by applying section 112A(6), holding that rebate u/s 87A is not allowable on tax computed on Long-Term Capital Gains referred to in section 112A(1). The Tribunal held that section 112A(6) 'prohibit rebate u/s. 87A on capital gains as referred to in sub-section (1) of s. 112A'. Clause (ii) of section 112A(1) covers only Long-Term Equity Capital Gains, not Long-Term Debt Capital Gains, which are governed by section 112. As there is 'no such bar' on rebate for Debt LTCG, and tax on debt LTCG plus normal income exceeded the rebate threshold, assessee was entitled to full rebate of Rs. 25,000/-. CPC was directed to recompute tax.