Bombay High Court directed CBDT to extend due date of Filing ITR to ensure rebate under Section 87A

In the matter of

M/s The Chamber of Tax Consultants Vs Director General of Income Tax

(PIL 332426 of 2024)

The Public Interest Litigation (PIL) is filed by the petitioner against the modification in the Income Tax return utility with effect from 5th July 2024, which prevented the resident individuals from claiming the rebate under section 87A of Income Tax, 1961. As per the petitioner, such unilateral changes are arbitrary and against the legislative intent of Section 87A of the Income Tax Act.

Concerning the same, the Hon’ble High Court said that Procedural changes, such as those in utility software or instructions issued by the tax department, cannot override the substantive right to the rebate. Accordingly, as an interim relief, the Hon’ble High Court directed The CBDT to issue requisite notification under Section 119 of the Act extending the due date for e-filing of the ITR from December 31, 2024, at least to January 15, 2025. To ensure that all taxpayers eligible for the rebate under Section 87A are allowed to exercise their statutory rights without facing procedural impediments.

1. Brief facts of the case

The petition is filed with respect to modification in Income Tax return utility by CBDT with effect from 5th July, 2024.
Updated utility prevented the assessee from the claiming rebate under Section 87A by the individual assessee who has opted for new regime.
The Petitioner filed the petition seeking the directions to the CBDT to modify the Income tax return utility provided for Assessment Year 2024-25.
The petitioner alleged that the respondent has unilaterally disabled the assessees from claiming the benefit of Section 87A while filing income tax return of AY 2024-25 by modifying the utility software for filing ITR.
If the returns are filed by the Assessee by using the utility after 5th July, 2024, they are unable to claim the benefit of section 87A.

2. Contention of the Petitioner

The Petitioner made following submission:

a. New Tax regime under section 115BAC:

Section 115BAC was introduced by Finance Act, 2020 and it provided a simplified manner of computing tax liabilities for Individual and HUFs.
The new tax regime provided a lower tax rate subject to the condition that certain exemptions and deductions are forgo by the assessee.
The New tax regime is a default regime and the government has encouraged taxpayers to opt for a new regime to simplify compliances.
However, implementation of Section 115BAC in conjunction with Section 87A has led to unintended complications.

b. Section 87A

In Finance Act, 2013, section 87A was reintroduced to provide a rebate of INR 2000 from the tax payable.
Such rebate amount was increased to INR 12,500/- through Finance Act, 2019.
The principle behind Section 87A was to reduce the tax burden of persons with lower incomes. However, making arbitrary changes in utility to disable rebate has undermines the legislative intent.
From AY 2024-25 onwards, an resident Individual with income upto INR 7 Lakhs shall be entitled to 100% rebate of income tax payable.
However, arbitrary disabling rebate through utility post 5th July, 2024 onwards negates the intended benefit.
This creates confusion among taxpayers and professionals and undermines the confidence of the public in the tax administration system.
Therefore, The petitioner seeks directions to restore the functionality and ensure that all eligible taxpayers can avail of the rebate as per the legislative mandate.

c. Due date of filing of return under Section 139

As per Section 139, following are the due dates of filing of ITR for AY 2024-25:

Taxpayers, who are liable to get their accounts audited and not required to furnish return under section 92E: 31st October, 2024;
Taxpayers who are liable to furnish return under section 92E: 30th November, 2024;
All other taxpayers: 31st July, 2024

Utility to file these returns are provided online by the respondent before the end of financial year to ensure that the taxpayers have sufficient time to comply.
However, modification of the utility midway through the assessment year has caused undue hardship to taxpayers, particularly those relying on the rebate under Section 87A.

d. Effects of change in utility:

With effect from 5 July 2024, the amended utility disabled the individual assessee from claiming the rebate under the proviso to Section 87A where tax is levied at special rates such as short term capital gain on equity shares and the assessee opts for the new regime.
This has created a scenario where taxpayers, despite being statutorily eligible, are effectively deprived of their entitlements solely due to technical modifications introduced by the respondents.
Such changes have prompted the petitioner to file the present PIL petition.

3. Question before Hon’ble High Court

The question before Hon’ble High Court is whether the utility can take away the statutory right to claim rebate as per the proviso to Section 87A.

4. Analysis by the Hon’ble High Court

The Hon’ble High Court made following analysis for the purpose of Interim order:

Under The Income Tax Act, 1961, there is a concept of self-assessment wherein an assessee is to compute his own income, determine his tax liability, and pay such tax, and then file a return declaring his income.
However, due to the change in the utility with effect from 5 July 2024, the assessees at large were not able to claim the Section 87A of the Act under the new regime, in respect of income taxable at special rates.
Therefore, the assessees paid additional tax to the extent of the rebate not allowed.
The petitioner is entitled to file the revised return claiming rebate under Section 87A, which would enable such an assessee to compute a refund in the revised return.
Undisputedly, the last day to file a belated return is 31 December 2024, which allows even those assessees who have not filed their return within normal due dates.
Prima facie, the rebate under Section 87A is inherently linked to the total income and tax liability of the taxpayer.
The responsibility lies with the tax authorities to ensure proper implementation of the rebate, as long as the taxpayer fulfills the statutory criteria.
Procedural changes, such as those in utility software or instructions issued by the tax department, cannot override the substantive right to the rebate.
Any action or inaction on part of the tax authorities that limits the ability of taxpayers to avail of this statutory benefit is arbitrary and violative of the rule of law.
Taxpayers should not bear the consequences of administrative inefficiencies or unilateral executive actions that undermine the legislative intent behind Section 87A.
It is well-settled that statutory benefits must be extended in a manner that aligns with the objectives of the legislature.

5. Interim Order by Hon’ble High Court:

The Hon’ble High Court has provided following interim relief:

The CBDT is directed to issue requisite notification under Section 119 of the Act extending the due date for e-filing of the ITR from December 31, 2024, at least to January 15, 2025.
To ensure that all taxpayers eligible for the rebate under Section 87A are afforded the opportunity to exercise their statutory rights without facing procedural impediments.