Belated subsequent-year tax return after choosing s.115BAB regime: assessee still gets 15% rate, not 22%

The dominant issue was whether a belated return for a subsequent year disentitles an assessee from the concessional 15% rate under s.115BAB, warranting taxation at 22% under s.115BAA, due to non-compliance with the due date under s.139(1). The Tribunal held that s.115BAB(7) mandates timely filing of Form 10-ID in the prescribed manner only for the first assessment year in which the option is initially exercised; there is no statutory requirement that the return itself be filed within s.139(1) to claim the concessional rate. As a valid Form 10-ID option had been exercised and accepted in the first year, the assessee remained entitled to 15% under s.115BAB for the subsequent year; the appellate order was reversed and the appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, after a valid and timely first-time exercise of option under section 115BAB by filing Form 10-ID within the due date under section 139(1), the concessional tax rate under section 115BAB must continue to apply in subsequent assessment years even if the subsequent year's return is filed belatedly.

(ii) Whether the processing authority was justified, while processing the return under section 143(1), in computing tax at 22% under section 115BAA instead of 15% under section 115BAB, despite the assessee's continuing option under section 115BAB.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Continuity of section 115BAB option in subsequent years despite belated return

Legal framework: The Court examined section 115BAB(7), which makes section 115BAB applicable only if the option is exercised in the prescribed manner on or before the due date under section 139(1) for furnishing the first return of income for the relevant assessment year commencing on or after 01.04.2020, and further provides that once exercised, the option applies to subsequent assessment years.

Interpretation and reasoning: The Court held that section 115BAB(7) requires timely filing of Form 10-ID with reference to the first year in which the concessional regime is opted. Once that condition is met, the statute itself provides continuity of the option for later years. The Court expressly concluded that there is no statutory requirement that, for a subsequent year, the return of income must necessarily be filed within section 139(1) for claiming the concessional rate under section 115BAB, when the option had already been validly exercised in the first year within time.

Conclusion: Since a valid option under section 115BAB had been exercised for the first time in the earlier year by filing Form 10-ID within the due date under section 139(1) and was accepted by the tax authorities, the assessee was entitled to continue to be taxed at 15% under section 115BAB in the year under consideration, notwithstanding that the return for that year was filed beyond the due date under section 139(1).

Issue (ii): Legality of applying section 115BAA rate under section 143(1) processing instead of section 115BAB rate

Legal framework: The Court considered the interaction of section 115BAB (concessional tax for eligible manufacturing domestic companies upon valid option) with section 143(1) processing, in the context of the assessee's continuing section 115BAB option.

Interpretation and reasoning: The Court found the computation of tax at 22% under section 115BAA to be erroneous because the assessee's section 115BAB option, once validly exercised in the first year, statutorily continued to apply in subsequent years. On the facts, the year under consideration was the second year of claim under section 115BAB, and the earlier year's valid exercise of option governed the subsequent year as well. The Court therefore held that the processing authority could not deny the continuing application of section 115BAB and mechanically substitute the section 115BAA rate.

Conclusion: The order upholding tax computation at 22% under section 115BAA was reversed. The Court directed that the assessee be granted the concessional tax rate of 15% under section 115BAB for the year under consideration, and the assessee's grounds were allowed.

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