TaxTMI 
TaxTMI 
2025 (8) TMI 842
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....l gains u/s 111A: Rs. 3,79,559/- - Long-term capital gains u/s 112A: Rs. 38,840/- - Income from other sources: Rs. 9,236/- 2.2 The return was subsequently revised on 31.12.2024 within the time allowed under section 139(5), to correct certain omissions in the capital gain schedule. In the revised return, the assessee exercised the option under section 115BAC(1A), i.e., to be governed by the default new tax regime applicable from A.Y. 2024-25 as amended by the Finance Act, 2023. The total tax liability computed under the revised return amounted to Rs. 13,320/-, arising solely on account of STCG under section 111A, which is chargeable at 15%. 2.3 The assessee being a resident individual with total income below Rs. 7,00,000/-, claimed rebate of Rs. 13,320/- under section 87A, as per the first proviso to section 87A inserted by the Finance Act, 2023, which allows a rebate up to Rs. 25,000/- to an individual whose income is chargeable under section 115BAC(1A), provided the total income does not exceed the threshold. 2.4 The return was processed by the Centralised Processing Centre (CPC), Bengaluru, and intimation under section 143(1) was issued on 28.02.2025, w....
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.... the rebate for STCG u/s 111A, but found this not convincing, holding that section 115BAC(1A) is clearly subject to Chapter XII and that Memo 2025 sufficiently clarified legislative intent. As such, rebate under section 87A is not allowable on tax arising under section 111A. 2.8 The CIT(A) explicitly noted the direction of Hon'ble Bombay High Court to allow filing of the claim but emphasised that the judgment did not rule on the allowability of the claim on merits, it merely ensured that the assessee is not procedurally denied a claim and left the decision on legality to quasi-judicial authorities. Thus, the CIT(A) concluded that the judgment does not support the assessee's case on merits and hence is not determinative of whether rebate under section 87A is allowable against tax on STCG u/s 111A. 3. Being aggrieved by the said order of CIT(A), the assessee has preferred the present appeal before us raising the following ground: The Learned Commissioner of Income Tax (Appeals) has erred in the interpretation of law and in the facts of the case by disallowing the claim of rebate of Rs. 13,320/- under section 87A of the Act in respect of tax on short-term capital gain. ....
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....ebate provisions in tax law. 4.3 The AR also invited attention to the legislative intent underlying the Finance Act, 2023. It was submitted that if the legislature had intended to restrict rebate under section 87A in respect of incomes taxable under section 111A, it could have easily done so by inserting a proviso or exclusion clause as has been done in section 112A(6). The absence of any such restriction shows that rebate under section 87A is available even where the total income includes short-term capital gains taxable under section 111A, provided the total income does not exceed Rs. 7 lakhs. 4.4 The AR further submitted that the Finance Bill 2025 proposes to amend section 87A to deny rebate on all incomes taxable under special rates, including those under section 111A, from A.Y. 2026-27 onwards. However, this amendment is prospective in nature and has no application to the assessment year under consideration, i.e., A.Y. 2024-25. Thus, reliance placed by the learned CIT(A) on the Finance Bill 2025 is misplaced. 4.5 It was also contended that the disallowance of rebate by the CPC appears to be a result of a programming change in the utility logic post- January 2025 and i....
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....s, the core issue for adjudication before us is - "Whether a resident individual who has exercised the option under section 115BAC(1A) and whose total income is below Rs. 7,00,000/-, is eligible to claim rebate under section 87A against tax payable on STCG under section 111A, in the absence of any express restriction in section 87A or section 111A." 5.6 The undisputed facts of the case are that the assessee, a resident individual, filed a revised return of income for A.Y. 2024-25 declaring total income of Rs. 6,76,402/-, comprising short-term capital gain on listed equity shares taxable at 15% under section 111A, and opted for taxation under the new regime under section 115BAC(1A). The CPC, Bengaluru, processed the return under section 143(1) and denied rebate under section 87A of Rs. 13,320/-, resulting in a demand of Rs. 15,820/-. The CIT(A) upheld the denial, primarily relying on - (i) the "subject to" clause in section 115BAC(1A), (ii) provisions of Chapter XII, and (iii) the Explanatory notes to the Finance Bill 2025. 5.7 Having perused the relevant statutory provisions and the arguments advanced by the assessee's Authorised Representa....
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....ion, which, in the present case, it does not. Thus, section 87A operates on the total tax computed, whether it includes tax at slab rates or special rates, and applies so long as the total income threshold is met. 5.14 The CIT(A) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, we find this reliance to be misplaced for two reasons: - Firstly, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under section 87A w.e.f. A.Y. 2026-27, which implies that the existing law (i.e., as applicable to A.Y. 2024-25) does not contain such a restriction. - Secondly, the Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law. Therefore, the prospective amendment in the Finance Act 2025 supports the view that under the unamended provision applicable for A.Y. 2024-25, rebate under section 87A cannot be denied merely because tax arises under section 111A. 5.15 In the recent judgment dated 24.....