Mumbai: The Bombay High Court has paved the way for eligible taxpayers to claim the rebate under Section 87A of the Income Tax Act, 1961, for the assessment year 2024-25 and beyond. A bench of Justices MS Sonak and Jitendra Jain passed the order while deciding a PIL challenging software changes that restricted such claims on the Income Tax Department’s online filing platform.
On July 5, 2024, updates to the online utility for filing income tax returns blocked eligible individuals from claiming the Section 87A rebate. This provision allows individuals earning up to Rs 7 lakh annually to avail of tax relief of up to Rs12,500.
However, the software prohibited claims as soon as a taxpayer’s income touched the Rs 7 lakh threshold. This prompted the Chamber of Tax Consultants and several taxpayers to file a PIL, arguing that the restriction violated their rights.
The bench upheld the petitioners’ contention, ruling that the software changes were unconstitutional and infringed upon taxpayers’ rights. The Court observed that such modifications not only contradicted the legislative intent of the rebate but also restricted access to justice.
“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 stated. It added that these restrictions prevented taxpayers from testing their claims through the assessment and appeal processes provided under the Act.
The Chamber of Tax Consultants argued that blocking rebate claims at the outset undermined taxpayers’ rights to avail of statutory benefits. The Court agreed, emphasising that the Income Tax Act’s provisions on the rebate were not clear-cut enough to justify such restrictions.
“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 said. It added that such questions should be resolved during the assessment process, not by preventing claims outright.
The Court directed the IT Department to modify the software to allow claims for the Section 87A rebate. However, it refused to permit manual filing of returns for the rebate or address related issues, leaving those for future litigation.
The judgment underscored the importance of technology in streamlining tax processes while cautioning against its misuse. “Technology is meant to eliminate the interface between the tax authority and the assessee… However, 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 Court observed.
Reinforcing taxpayer rights, the Court concluded, “In any event, considering the mandates of Articles 265 and 300A, ends, howsoever laudable, cannot justify means.” It reaffirmed that modifications denying taxpayers their legal claims were unconstitutional and must be rectified.
