Section 87A Rebate Allowed on STCG Because No Express Restriction Existed Under Section 111A for AY 2024-25; Rebate on Section 111A Capital Gains Allowed Because Parliament Had Not Imposed Any Bar in AY 2024-25; Section 87A Benefit Cannot Be Curtailed by Interpretation Because Statute Contained No Restriction; Finance Act 2025 Amendment Held Prospective, Leading ITAT to Allow Section 87A Rebate on STCG.
Summary: The ITAT Bangalore, in Basty Keshava Shenoy vs. Income Tax Officer (AY 2024-25), held that rebate under Section 87A cannot be denied on tax payable on short-term capital gains (STCG) taxable under Section 111A when the assessee’s total income does not exceed ₹7 lakh under the new tax regime of Section 115BAC(1A). The assessee had declared total income of ₹6.25 lakh, including STCG of ₹1.13 lakh, and claimed a rebate of ₹25,000 under Section 87A. CPC restricted the rebate only to tax on normal income and denied the portion attributable to STCG, a view upheld by the CIT(A). Reversing the authorities below, the Tribunal held that Section 87A grants rebate with reference to “total income,” which includes capital gains, and neither Section 87A nor Section 111A contained any express restriction during AY 2024-25. The Finance Act, 2025 amendment was held prospective. Accordingly, the assessee was entitled to the full rebate and the appeal was allowed.
Core Issue: Whether, for AY 2024-25 under the new tax regime under section 115BAC(1A), rebate under section 87A could be denied on tax payable on short-term capital gains taxable under section 111A when the assessee’s total income did not exceed ₹7,00,000, despite there being no express statutory restriction in section 87A or section 111A.
Facts: The assessee filed a return for AY 2024-25 declaring total income of ₹6,25,580 comprising normal income and short-term capital gains under section 111A of ₹1,13,067. Tax on normal income was ₹10,626 and tax on STCG under section 111A was ₹16,960. Since the total income was below ₹7,00,000 under the new tax regime, the assessee claimed rebate under section 87A of ₹25,000. CPC, while processing the return under section 143(1), restricted the rebate to ₹10,626 and denied rebate of ₹14,374 attributable to tax on STCG under section 111A. The rectification application under section 154 was also rejected.
AO/CIT(A) Findings: CPC and the CIT(A) held that rebate under section 87A was available only against tax computed at normal slab rates and not against tax payable on income taxable at special rates under section 111A. Accordingly, the denial of rebate on STCG tax was upheld.
ITAT Findings: The Tribunal held that section 87A grants rebate with reference to the assessee’s “total income”, which includes capital gains. Neither section 87A nor section 111A contained any express restriction denying rebate in respect of tax payable on STCG under section 111A. The Tribunal observed that Parliament had specifically inserted a restriction in section 112A(6), but no such restriction existed in section 111A during AY 2024-25. Therefore, such restriction could not be read into the statute by interpretation. The Tribunal followed the Ahmedabad Bench decision in Jayshreeben Jayantibhai Palsana and held that the amendment introduced by the Finance Act, 2025 was prospective and itself demonstrated that no such restriction existed in the relevant year. Accordingly, the AO/CPC was directed to grant the rebate under section 87A and delete the consequential demand.
Case Laws Relied Upon:
1. Jayshreeben Jayantibhai Palsana vs. ITO
2. Distributors (Baroda) Pvt. Ltd. vs. Union of India
Relevant Paras: 10.2 to 10.5.
Held: For AY 2024-25, in the absence of an express statutory bar under section 87A or section 111A, rebate under section 87A is available even against tax on short-term capital gains taxable under section 111A where the total income does not exceed ₹7,00,000 under the new tax regime. The subsequent amendment made by the Finance Act, 2025 is prospective and cannot be applied retrospectively. The appeal was allowed.
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