In a landmark decision, the Bombay High Court has cleared the way for taxpayers to claim the Section 87A rebate under the Income Tax Act, 1961, which offers relief of up to ₹12,500 for individuals earning ₹7 lakh or less annually. The decision comes in response to a Public Interest Litigation (PIL) challenging a software update by the Income Tax Department that restricted eligible taxpayers from claiming the rebate.
The PIL, filed by the Chamber of Tax Consultants and others, highlighted how changes implemented on July 5, 2024, to the tax filing utility blocked rebate claims once taxpayers’ income reached the ₹7 lakh threshold. This, they argued, was contrary to the legislative intent of providing relief to lower and middle-income groups.
A Bench of Justices MS Sonak and Jitendra Jain ruled in favor of the petitioners, deeming the restrictions unconstitutional and reaffirming taxpayers’ rights.
“Restriction Violates the Scheme of the Act”
The Court strongly criticized the Income Tax Department’s move to block claims at the software level, stating that such restrictions undermined taxpayers’ rights and violated the Constitution.
“In our view, any such attempt which restricts or prohibits an assessee from making a particular claim concerning the determination of income and/or tax payable thereon would be contrary to the scheme of the Act and would also be unconstitutional,” the Court held.
Ambiguity in Provisions Can’t Justify Restrictions
The Court also emphasized that the provisions related to the Section 87A rebate are open to interpretation, and any ambiguity must be addressed through due process, not by denying taxpayers the right to claim the rebate.
“Whether a rebate under Section 87A can be granted only from the tax arrived at under Section 115BAC or also from the tax computed under other provisions of Chapter XII is a highly debatable and arguable issue,” the Court observed.
It further noted, “Such debatable or arguable issues… can be examined in the proceedings under Section 143(1), Section 143(3), etc. The respondents cannot restrain or prohibit an assessee from claiming Section 87A by modifying their utility by which an assessee is forbidden at the threshold itself from making such a claim.”
“Technology Must Not Hinder Rights”
The Court highlighted the role of technology in simplifying tax processes but cautioned against its misuse to restrict taxpayer rights.
“Technology is meant to eliminate the interface between the tax authority and the assesses. Still, this cannot eliminate an assessee’s right to raise a claim for some benefit that she bona fide believes the law has granted her or about which a debate is possible,” the judgment stated.
Manual Filing Denied, Software to Be Updated
While the Court directed the Income Tax Department to modify its software to allow claims under Section 87A, it rejected the request for manual filing of returns for the rebate. Other related issues raised in the PIL were left open for future adjudication.
This ruling reaffirms that technological advancements in tax administration cannot come at the cost of denying taxpayers their rightful claims under the law. As the Court aptly concluded, “Ends, howsoever laudable, cannot justify means.”
Case: The Chamber of Tax Consultants vs Director General of Income Tax (systems) – Available on LAWFYI.IO
