TaxTMI 
TaxTMI 
2025 (9) TMI 291
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome under Section 139(1) of the Act for assessment year 2024-25 on 10-7-24 showing its total income at Rs. 6,27,260/- comprising of - Income from salary - Rs. 3,10,000 Income from long-term capital gains - Rs. 99,677 Income from short-term capital gains - Rs.169,324 Income from other sources - Rs. 48,263 4. The assessee opted for new regime of taxation. As the total income of the assessee for the year under consideration did not exceed Rs. 7 lakhs, the assessee was eligible for tax rebate under Section 87A of the Act. The tax rebate under Section 87A of the Act is allowable on total income earned by the assessee except the income under the head long-term capital gain on equity shares where the rebate under Section 87A of the Act is not allowed as per Section 112A(6) of the Act. The assessee in the instant case claimed a rebate of Rs. 25,000 under Section 87A of the Act on tax on income other than capital gains of Rs. 2,913 and tax on short-term capital gains of Rs. 22,087. The assessee paid self-assessment tax of Rs. 3,312 as per return of income filed for assessment year 2024-25. 5. While processing the return, the CPC denied to give claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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, whereby the assessee's claim of rebate under section 87A was disallowed. The tax liability of Rs. 13,319/- was upheld, and together with interest under sections 234B and 234C amounting to Rs. 1,969/-, and health and education cess of Rs. 533/-, a total demand of Rs. 15,820/- was raised. Notably, the said intimation did not specify any reason or adjustment under section 143(1)(a), nor did it issue any prior notice for proposed adjustment under clause (vi) thereof. 2.5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty 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. 4. The learned Authorised Representative (AR) for the assessee has filed detailed written submissions. The AR submitted that the provisions of the first proviso to section 87A, as inserted by the Finance Act, 2023 with effect from A.Y. 2024-25, grant a rebate to a resident individual who has opted for taxation under the new regime u/s 115BAC(1A) and whose total income does not exceed Rs. 7 lakhs. The text of the proviso doe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 is not supported by any statutory amendment or binding judicial precedent. The rejection of the assessee's claim under section 87A on technical grounds without affording a prior opportunity is also violative of the proviso to section 143(1), which mandates the issue of an intimation or notice prior to making such adjustments. 4.6 In support of the assessee's contention, the AR plac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ress 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 Representative (AR), we find merit in the claim of the assessee. 5.8 The amended first proviso to section 87A [inserted by the Finance Act, 2023 w.e.f. A.Y. 2024-25] provides: "Where the total income of the assessee is chargeable to tax under subsection (1A) of section 115BAC and the to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce 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 24.01.2025 in the case of Chamber of Tax Consultants(supra), the Hon'ble Bombay High Court considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessee's who had opted for 115BAC(1A). While the Hon'b....