The Bombay High Court on Friday cleared the path for eligible taxpayers to claim the rebate under Section 87A of the Income Tax Act, 1961 for the assessment year 2024-25 and beyond, months after a software update restricted such claims on the online platform for filing tax returns [The Chamber of Tax Consultants v. Director General of Income Tax (systems].
Certain changes implemented on July 5, 2024 on the online utility for filing income tax returns had prevented eligible taxpayers from claiming the Section 87A rebate. This provision offers tax relief of up to ₹12,500 to individuals with an annual income of ₹7 lakh or less.
The software update in question restricted taxpayers from claiming the rebate as soon as their income reached the ₹7 lakh threshold. This was challenged in PIL filed by the Chamber of Tax Consultants and certain tax payers.
A Bench of Justices MS Sonak and Jitendra Jain agreed with the petitioners’ argument that such rebate claims cannot be blocked by merely making changes to the online tax filing platform.
It found merit in the petitioners’ contention that such a modification of the utility software violated taxpayers’ rights and was against the legislative intent of providing tax relief to lower and middle-income groups.
“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 since by the said prohibition or restriction an assessee is prohibited not only from making a claim, but would also be denied his right to access justice by not permitting him to test such claim by the process provided under the Act i.e., assessment, appeal, etc. Any such restriction or prohibition is not permissible and would be unconstitutional,” the Court held.
The Chamber of Tax Consultants had argued that the changes to the software, which blocked claims for the rebate at the outset, undermined taxpayer rights and made it difficult for eligible individuals to access the relief they were entitled to.
The Court concurred, highlighting that the provisions of the Income Tax Act were not so clear-cut as to justify such restrictions.
“In our opinion, 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.
The Court added that the ambiguity surrounding the interpretation of these provisions cannot be resolved by preventing taxpayers from raising such claims at the threshold.
Such debatable or arguable issues of whether the taxpayer is entitled to the rebate can be assessed at a later stage, such as during the assessment process under Sections 143(1) and 143(3) of the Income Tax Act.
“In such a case, in our view, certainly, 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. Certainly, such a claim whether eligible or not can be examined in the proceedings under Section 143(1), Section 143(3), etc,” the Court remarked.
It also emphasized that technology should not hinder a taxpayer’s right to claim benefits granted by law.
“Technology is meant to eliminate the interface between the tax authority and the assesses. Technology quite admirably reduces the scope of arbitrariness and abuse of discretion in choosing cases to be scrutinized. The shift to a system where face value or other extraneous considerations are attempted to be eschewed is undoubtedly welcome. 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,” it said.
While the court ruled in favor of the petitioners by ordering the Income Tax Department to modify the software to allow claims for the Section 87A rebate, it rejected the request to permit manual filing of returns for the rebate. The Court also chose not to address other related issues, leaving them for future cases.
The order reinforced the position that any modification to the utility that prevents a taxpayer from making a claim they believe they are legally entitled to, would be unconstitutional.
“In any event, considering the mandates of Articles 265 and 300A, ends, howsoever laudable, cannot justify means,” the Court added.
Source #Bar and Bench
