TaxTMI 
TaxTMI 
2026 (7) TMI 953
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.... against short term capital gains u/s 111A is bad in law and against the principles of natural justice. 2. The appellant pray for suitable costs. 3. The appellant crave liberty to add, amend, alter or modify any of the ground of appeal on or before its hearing before your honour." 2. The material facts are not in dispute. The assessee, an individual resident in India, filed the return of income declaring total income of Rs.5,28,210/-, which included short-term capital gains of Rs.1,42,120/- arising from transfer of equity shares. While processing the return under Section 143(1) of the Act, the CPC denied the rebate under Section 87A in respect of the tax payable on such short-term capital gains taxable under Section 111A. Aggrieved by the adjustment made in the intimation, the assessee preferred an appeal before the Ld. CIT(A). 2.1 Before the first appellate authority, it was contended that the assessee was governed by the provisions of Section 115BAC(1A) of the Act and the total income being below the prescribed threshold of Rs.7,00,000/-, the assessee was entitled to rebate under Section 87A. It was further argued that while the Legislature has expressly r....
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....red thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees." Following second proviso shall be inserted after the proviso to section 87A by the Finance Act, 2025, w.e.f. 1-4-2026: "Provided further that the deduction under the first proviso, shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC." 9. This section falls under Chapter VIII of the Act, titled "Rebates and Reliefs," covering sections 87 to 89A. The rebate contemplated therein is to be allowed from the amount of income-tax computed before allowing any deductions under this Chapter, meaning thereby that it operates only upon tax computed on "total income" as defined under the Act. 10. It is evident from the overall scheme of the Act that the rebate under section 87A applies only to the tax computed at the normal slab rates, and not t....
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....1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains." 15. The above provisions make it abundantly clear that short-term capital gains under section 111A are chargeable to tax at a special rate distinct from the normal slab rates applicable to other income, and that no deduction or rebate, including that under section 87A, is permissible against such short-term capital gains. 16. The Finance Bill, 2025, has further clarified the position by proposing to insert a second proviso to section 87A with effect from 1 April 2026, which reads as under: "Provided further that the deduction under the first proviso shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115ВАС." 17. The Memorandum explaining the provisions of the Finance Bill, 2025, states that this amendment is intended to clarify that, under the new tax regime, the rebate under section 87A will apply only to tax computed under section 115BAC(1A) and not to tax computed on income taxable at special rates under sections 111A and 112A. 18. In paragraph 15....
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....ny statutory prohibition disentitling an assessee from claiming rebate against tax payable on short-term capital gains. The subsequent amendment introduced by the Finance Act, 2025, effective from 01.04.2026, itself demonstrates that prior to such amendment no such restriction existed in law. 4.1 The learned Departmental Representative relied upon the reasoning adopted by the Ld. CIT(A) and supported the impugned order. 5. We have carefully considered the rival submissions, perused the material available on record and examined the statutory provisions governing the controversy. The solitary issue arising for our consideration is whether, for Assessment Year 2024-25, a resident individual whose total income does not exceed the prescribed threshold under Section 87A and who is governed by Section 115BAC(1A), is entitled to rebate under Section 87A against tax payable on short-term capital gains chargeable under Section 111A of the Act. 5.1 At the outset, it is pertinent to note that Section 87A grants a rebate from the amount of income-tax payable by a resident individual subject to fulfillment of the prescribed conditions. The provision, as applicable for the year under con....
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....igible 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 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: ....
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....ates, 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.Υ. 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 The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) [TS-5026-HC2025(Bombay)-O....
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....date. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A.Y. 2024-25. 5.18 Accordingly, we hold that the assessee is eligible for rebate under section 87A for A.Y. 2024-25 even though the income includes STCG taxable under section 111A. The AO is directed to allow rebate of Rs.13,320/- and recompute tax liability accordingly. The demand of Rs.15,820/- raised in CPC intimation stands deleted. Refund, if any, shall be granted in accordance with law." 5.3 We are in respectful agreement with the aforesaid reasoning. The amendment brought into force from Assessment Year 2026-27 cannot be treated as retrospective merely because the Memorandum explaining the provisions describes it as clarificatory. When the statutory language applicable to the assessment year under consideration is plain and unambiguous, subsequent legislative changes cannot be employed to curtail an existing benefit unless the statute expressly so provides. In the present case, it is an admitted position that:(i) the assessee is a resident individual;(ii) the assessee i....