The Delhi High Court has directed the Income Tax Department not to process the income tax returns of judges of the High Court and the Supreme Court amid a dispute over the exemption of certain allowances under the new tax regime.
A bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta has asked the private secretaries of judges who have filed their returns under the new income tax regime to share details of such returns with the authorities, including their PAN numbers.
The directions came in two orders passed on July 22 and August 10 in a petition filed by the Delhi Tax Bar Association.
Case background
The matter is Delhi Tax Bar Association v. Union of India & Anr., concerning the CBDT’s Office Memorandum dated September 12, 2025. The Delhi Tax Bar Association challenged the CBDT’s position that the tax benefit in respect of specified judicial allowances is available only under the old tax regime. Senior Advocate is appearing in the case.
The provisions at the centre of the dispute are:
- Section 22D of the High Court Judges (Salaries and Conditions of Service) Act, 1954
- Section 23D of the Supreme Court Judges (Salaries and Conditions of Service) Act, 1958
- Section 115BAC of the Income-tax Act, 1961, which deals with the new tax regime.
The disputed benefits include allowances and facilities such as rent-free official residence, conveyance, sumptuary allowance and leave travel concession (LTC).
The interesting point is the distinction between “income which is exempt from tax” and “a receipt which is not included in the computation of income in the first place.”
The petitioner’s argument is that Sections 22D and 23D do not merely grant an exemption or deduction under the Income-tax Act. They contain specific statutory provisions governing the salary and allowances of judges and, therefore, the relevant amounts should not form part of taxable salary in the first place.
This becomes particularly important under the new tax regime, where Section 115BAC restricts various exemptions and deductions. The question is whether those restrictions can override a specific statutory provision contained in the Judges’ Acts. The Delhi High Court is examining precisely this interaction.
The CBDT, in its September 12, 2025 memorandum, had taken the view that these allowances would not be exempt for judges opting for the new tax regime, as the regime does not permit several exemptions and deductions available under the old regime. The Tax Bar Association, however, has argued that the disputed amounts are not exemptions or deductions but are specifically excluded from the computation of salary under the Judges’ Acts.
Interim position
At the interim stage, the Court has allowed the affected judges to file or revise their returns by treating the disputed amounts as receipts that are not in the nature of income, while directing that such returns should not be processed pending further orders.
The issue subsequently became practical because ITR processing is automated. The Court therefore sought to identify details of the returns so that the Department could ensure that the relevant returns remained unprocessed.
During the August 10 hearing, the Income Tax Department’s counsel informed the Court that ITRs are processed electronically and that the system cannot automatically identify whether a return belongs to a sitting judge. The counsel also told the Court that there was a possibility that around 98 percent of returns could be processed without human intervention by the end of August. This prompted the Court to seek the PAN numbers and other identifying details of judges who had filed their returns under the new regime.
The Court’s interim directions are aimed at ensuring that such returns are not inadvertently processed while the legal issue remains pending. The latest order also provides practical protection in cases where a return may already have been processed, with the tax consequences kept subject to the final outcome of the proceedings.
Importantly, this is an interim and procedural protection and not a final declaration that the allowances are tax-free. The substantive issue remains to be adjudicated.
An tax expert said: “The distinction between an ‘exemption or deduction’ and a statutory exclusion of income assumes significance because Section 115BAC restricts several exemptions and deductions under the new regime. The key question before the Court is whether those restrictions can override a specific statutory provision contained in the Judges’ Acts.
“The interim protection granted by the Delhi High Court should therefore not be viewed as a final ruling on taxability. Rather, it preserves the position of the affected taxpayers while the Court examines the interaction between the special statutory provisions governing judicial allowances and the new tax regime. The eventual ruling could provide useful guidance on the broader principle of how specific statutory exclusions interact with the provisions of the Income-tax law.”
