In a significant judgment, the Bombay High Court has ruled that taxpayers are entitled to claim the rebate under Section 87A of the Income Tax Act, 1961, for the assessment year 2024-25 and subsequent years. The decision was handed down by a bench of Justices MS Sonak and Jitendra Jain, following a Public Interest Litigation (PIL) filed against restrictive changes made to the Income Tax Department’s online filing system.
The issue stemmed from updates implemented on July 5, 2024, in the tax filing software, which automatically denied rebate claims for taxpayers whose annual income reached ₹7 lakh. Section 87A, a provision meant to offer relief to individuals earning up to ₹7 lakh annually, allows a rebate of up to ₹12,500. However, it was argued by the Chamber of Tax Consultants and other petitioners that the software update was blocking legitimate claims, effectively violating the rights of taxpayers.
The petitioners contended that the restriction imposed by the updated software went against the legislative intent of the Income Tax Act and prevented taxpayers from availing of statutory benefits. It was also argued that the denial of claims before the assessment process was arbitrary and unconstitutional. The Court agreed with these arguments, ruling that the changes to the filing system infringed on taxpayers’ rights and contradicted the provisions of the law. It was observed by the Court that the software modifications not only restricted the rights of taxpayers but also limited their access to justice. The bench stated that the changes violated the scheme of the Income Tax Act, which provides taxpayers with the ability to contest claims during the assessment and appeal processes. It was further noted that the denial of claims at the software level prevented taxpayers from raising legitimate questions regarding the applicability of the rebate.
The Court highlighted that the rebate under Section 87A had not been explicitly restricted to taxes calculated under Section 115BAC, and this ambiguity made the outright denial of claims unjustifiable. It was suggested that such debates should be resolved during the assessment process rather than being preemptively dismissed by software restrictions. In its ruling, the High Court directed the Income Tax Department to modify its software to allow taxpayers to claim the rebate. However, the Court declined to permit manual filing of returns or address other related concerns, leaving those matters for future litigation. While emphasizing the benefits of technology in streamlining tax processes, the Court cautioned against its misuse. It was stated that technology should facilitate compliance and transparency, not restrict taxpayers’ rights. The Court reiterated that constitutional principles under Articles 265 and 300A, which protect against arbitrary taxation measures, must be upheld.
The judgment reaffirmed that any system changes denying taxpayers their rightful claims were unconstitutional. Tax authorities were reminded that all procedural innovations must comply with the law and respect the rights of individuals.