903-ospill32465-2024-Final.
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AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ATUL
GANESH ORDINARY ORIGINAL CIVIL JURISDICTION
KULKARNI
Digitally signed by
ATUL GANESH
KULKARNI
Date: 2024.12.20
17:16:48 +0530
PUBLIC INTEREST LITIGATION (L) NO.32465 OF 2024
The Chamber of Tax Consultants
through it’s President Vijay Bhatt … Petitioner
V/s.
Director General of Income Tax
(Systems) & Ors. … Respondents
Mr. Percy Pardiwala, Senior Advocate with Mr.
Dharan V. Gandhi for the petitioner.
Mr. Akhileshwar Sharma and Mr. Abhishek R. Mishra
for the respondents.
CORAM : DEVENDRA KUMAR UPADHYAYA, CJ &
AMIT BORKAR, J.
DATED : DECEMBER 20, 2024
P.C.:
1. The Chamber of Tax Consultants has filed the present
PIL petition seeking a direction to the respondents to modify
the system developed and put in place by the Tax Department
for filing income-tax returns for Assessment Year 2024-2025
so as to allow the assessees at large to take complete benefit
of the rebate available under Section 87A of the Income Tax
Act, 1961. According to the petitioner, the respondents have
unilaterally disabled assessees from claiming rebate under
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Section 87A after 5 July 2024 by modifying the utility software
for filing income-tax returns. As a result, if the returns are
filed by the assessees using the software of the respondents
after 5 July 2024, they are unable to claim the rebate. The
petitioner contends that this unilateral modification is
arbitrary, lacks justification, and deprives eligible taxpayers of
statutory benefits. The petitioner further asserts that the
respondents’ actions violate the principles of fairness and
transparency expected from public authorities and seek
judicial intervention to ensure compliance with statutory
provisions.
2. Section 115BAC of the Act was introduced by the
Finance Act, 2020, providing an alternate tax mechanism for
computing tax liability for individuals and Hindu Undivided
Families (HUFs). The alternate tax regime offered lower tax
rates on the condition that the assessee forgoes certain
exemptions and deductions available under the erstwhile
regime. The Finance Minister, in her speech while introducing
the Finance Bill, 2020, clarified that the new tax regime
proposed in Section 115BAC would be the default tax regime
unless an assessee specifically opts for the erstwhile regime.
The Government encouraged taxpayers to adopt the new
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regime by simplifying compliance and reducing the tax burden
on middle-income groups. However, the petitioners argue that
the implementation of Section 115BAC in conjunction with
Section 87A has led to unintended complications, particularly
with the changes in the utility software.
3. The re-introduction of Section 87A vide the Finance Act,
2013, provided a rebate of up to Rs. 2,000 from the tax
payable for individual assessees falling in the lower-income
bracket, whose income did not exceed Rs. 5 lakh. This
provision aimed to provide relief to small taxpayers and
promote equitable taxation. Vide the Finance Act, 2019, the
threshold for claiming the rebate was retained at Rs. 5 lakh,
but the maximum amount of rebate was enhanced to Rs.
12,500. This increase was intended to extend greater relief to
the same income group, aligning with the Government’s policy
of providing fiscal support to economically weaker sections of
society. The petitioner contends that the principle behind
Section 87A has always been to ensure that taxpayers in
lower-income brackets are not burdened unduly, and the
arbitrary disabling of the rebate through the modification of
utility software undermines this legislative intent.
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4. From Assessment Year 2024-2025 onwards, an assessee
being an individual resident in India whose income is
chargeable to tax under the proposed sub-section (1A) of
Section 115BAC shall now be entitled to a rebate of 100% of
the amount of income tax payable on a total income not
exceeding Rs. 7 lakh. This significant enhancement in the
rebate threshold is in line with the Government’s commitment
to support middle-income groups and reduce the tax burden
on small taxpayers. The petitioner highlights that while this
amendment was a progressive step, the arbitrary disabling of
the rebate functionality in the utility software post-5 July 2024
negates the intended benefit. This creates confusion among
taxpayers and professionals and undermines the confidence of
the public in the tax administration system. The petitioner,
therefore, seeks directions to restore the functionality and
ensure that all eligible taxpayers can avail of the rebate as per
the legislative mandate.
5. Section 139(1) of the Act mandates that every assessee,
subject to a few exceptions, is required to furnish the income-
tax return in the prescribed form, on or prior to the due date
provided in the Act. The due dates in this regard are set out in
Explanation 2 to Section 139 of the Act, which provides that
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an assessee who is not required to furnish a transfer pricing
report referred to in Section 92E of the Act needs to file their
return before 31 October 2024; an assessee who is required
to furnish a transfer pricing report referred to in Section 92E
of the Act is required to file their return before 30 November
2024; and any other assessee is required to file their return
by 31 July 2024. These statutory deadlines are crucial for
maintaining uniformity and ensuring timely compliance, but
the petitioner argues that they should not preclude eligible
taxpayers from availing statutory benefits, such as the rebate
under Section 87A.
6. The returns of income are mandatorily required to be
filed online. Respondent No.1 annually releases utilities for
filing income tax returns online. These utilities are generally
released before the end of the financial year to ensure
taxpayers have sufficient time to comply with their
obligations. However, the petitioner points out that the
modification of the utility for Assessment Year 2024-2025
midway through the assessment year has caused undue
hardship to taxpayers, particularly those relying on the rebate
under Section 87A.
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7. The respondents published a change in the utility with
effect from 5 July 2024 for ITR-2 and ITR-3. The modifications
are tabulated as follows:
JSON Root Change Change Change
Element Description Description Description
Computation of Maximum
Tax Liability Rebate 87A Modified declaration is
removed.
These changes, as highlighted by the petitioner, have led
to significant confusion and impediments in filing accurate
returns, particularly for individual assessees eligible for the
rebate.
8. As a result, with effect from 5 July 2024, the utility for
filing a return of income for Assessment Year 2024-2025 was
amended, disabling an individual assessee from claiming the
rebate under the proviso to Section 87A where tax is levied at
special rates such as those specified under Sections 111A,
112, or 112A if 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.
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9. This change in the utility with effect from 5 July 2024
disabling individual assessees from claiming the rebate under
the proviso to Section 87A prompted the petitioner to file the
present PIL petition. The petitioner seeks directions to modify
the utility for filing income tax returns for Assessment Year
2024-2025 so as to allow the assessees at large to take
complete benefit of the rebate available under Section 87A of
the Act. The petitioner contends that this is essential to
uphold the legislative intent of providing relief to taxpayers in
lower-income brackets and to ensure that procedural changes
do not defeat substantive rights.
10. Mr. Pardiwala, learned Senior Advocate representing the
petitioner, invited our attention to Section 115BAC and
Section 87A of the Act and submitted that a conjoint reading
of the relevant provisions indicates that the rebate under
Section 87A is available on tax calculated even on income
taxable at special rates. He argued that the statutory right
created by the proviso to Section 87A cannot be extinguished
or restricted through executive instructions or modifications to
the utility software. He further emphasized that such
executive action undermines the rule of law and negates the
express legislative mandate. Mr. Pardiwala submitted that the
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unilateral modification of the utility has resulted in eligible
taxpayers being deprived of their rightful claim, causing
unwarranted financial hardship and procedural hurdles.
11. Mr. Pardiwala also contended that the assessees who
have already filed their returns without claiming the rebate
under the proviso to Section 87A should be allowed to file
revised returns to rectify this situation. He highlighted that
the provision for filing revised returns under Section 139(5) of
the Act is available until 31 December 2024. Therefore,
appropriate directions should be issued to the respondents to
enable taxpayers to file revised returns and claim the rebate.
He emphasized that such directions are necessary to protect
the rights of taxpayers and ensure adherence to the principles
of tax regime.
12. Per contra, Mr. Sharma on behalf of respondent No.1
relying on the affidavit submitted that software utility is
aligned to the statutory requirements and notified rules to
avoid variance while processing the return, which largely
helps taxpayers in ease of filing returns and processing
refunds. He contended that before 5 July 2024, proper
validations were not in place due to which taxpayers could
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claim rebate under Section 87A through ITR utility. However,
from 5 July 2024, an anomaly was noticed, and the utility was
updated, restricting the claim under Section 87A. According to
him, the availability of rebate under Section 87A does not
depend on the claim made in the return of income. The same
depends on statutory criteria, i.e., quantum of income, regime
of tax paid, and nature of income forming part of total
income. It is submitted that rebate under Section 87A is not
similar to claims of deductions and exemptions which need to
be claimed in the return and, therefore, there is no
requirement that the assessee has to claim rebate for filing
the said tax benefit.
13. The issue which arises for consideration in the present
writ petition is, therefore, as to whether the utility in the form
of software can take away the statutory right to claim rebate
as per the proviso to Section 87A and is it necessary for an
assessee to make a claim for seeking rebate under Section
87A.
14. The issue involved in the present petition requires
detailed examination by giving an opportunity of hearing to
both sides to make submissions in detail. However, at this
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stage, we are considering the matter for the purpose of grant
of interim relief and as to whether the petitioner has made out
a case for grant of interim relief. Therefore, for considering a
prima facie case, it is necessary to note that 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 compute rebate under Section 87A of the Act under
the new regime, in respect of income taxable at special rates.
As a result, the assessees may have to pay additional tax to
the extent of the rebate not allowed to be claimed by the
assessee. The petitioner is entitled to file a revised return
computing 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 in terms of
Section 139(4) is 31 December 2024, which allows even those
assessees who have not filed their return within normal due
dates.
15. Prima facie we are of the view that the rebate under
Section 87A is inherently linked to the total income and tax
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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.
16. It is well-settled that statutory benefits must be
extended in a manner that aligns with the objectives of the
legislature. In this regard, procedural changes that deprive
taxpayers of such benefits warrant judicial intervention to
rectify the anomaly and ensure justice. Tax authorities must
act as facilitators to help taxpayers comply with the law rather
than creating impediments through technical or procedural
hurdles. Ensuring fairness, equity, and transparency in tax
administration is crucial for upholding public confidence in the
system.
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17. Based on the above discussion by way of interim relief,
the respondent Central Board of Direct Taxes is hereby
directed to forthwith issue requisite notification under Section
119 of the Act extending the due date for e-filing of the
income-tax returns in relation to the assessees who are
required to file a return of income by December 31, 2024, at
least to January 15, 2025. This extension is 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.
18. List the petition for final disposal on 9 January 2025
at 2.30 p.m.
(AMIT BORKAR, J.) (CHIEF JUSTICE)
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