Case Law Details
Lisha Gajendra Marlecha Vs Income Tax Department (ITAT Mumbai)
The appeal arose from the order of the Additional/Joint Commissioner of Income-tax (Appeals), Raipur dated 27.11.2025 for Assessment Year 2024-25, affirming the Central Processing Centre (CPC), Bengaluru’s denial of rebate under Section 87A of the Income-tax Act, 1961 against tax payable on short-term capital gains (STCG) chargeable under Section 111A. The assessee, a resident individual, had filed a return declaring total income of Rs. 5,28,210, including STCG of Rs. 1,42,120 from transfer of equity shares. CPC, while processing the return under Section 143(1), denied the rebate under Section 87A.
Before the CIT(A), the assessee submitted that she was governed by Section 115BAC(1A), her total income was below Rs. 7,00,000, and while Section 112A expressly restricts rebate under Section 87A in respect of long-term capital gains, no such restriction existed under Section 111A. The CIT(A) rejected the contention, holding that rebate under Section 87A is available only against tax computed at normal slab rates and not against income taxable at special rates under Chapter XII, including STCG under Section 111A. The CIT(A) relied on the scheme of Sections 87A, 111A and 112A, the Finance Bill, 2025, the Memorandum explaining its provisions, and the Finance Minister’s Budget Speech for 2025-26 to conclude that rebate under Section 87A was not allowable against tax on STCG under Section 111A.
Before the Tribunal, the assessee relied on the decision of the Co-ordinate Bench in Jayshreeben Jayantibhai Palsana v. ITO, contending that neither Section 87A nor Section 111A contained any statutory prohibition against granting rebate on tax payable on STCG for Assessment Year 2024-25. It was also submitted that the amendment introduced by the Finance Act, 2025, effective from 01.04.2026, itself showed that no such restriction existed for the year under consideration. The Departmental Representative supported the reasoning adopted by the CIT(A).
The Tribunal identified the sole issue as whether a resident individual assessed under Section 115BAC(1A), whose total income did not exceed the prescribed threshold under Section 87A, was entitled to rebate under Section 87A against tax payable on STCG chargeable under Section 111A for Assessment Year 2024-25. Examining the statutory provisions, the Tribunal observed that Section 87A, as applicable for the relevant assessment year, did not contain any express exclusion in respect of tax payable on STCG under Section 111A. It noted that while Section 112A(6) expressly restricts rebate under Section 87A in relation to long-term capital gains, no corresponding restriction had been enacted in Section 111A. According to the Tribunal, this distinction in the statutory provisions was significant.
The Tribunal referred extensively to the decision in Jayshreeben Jayantibhai Palsana v. ITO, wherein the Co-ordinate Bench had held that, for Assessment Year 2024-25, there was no legislative embargo against granting rebate under Section 87A in respect of tax payable on STCG under Section 111A. It also referred to the reasoning in that decision that the amendment introduced by the Finance Act, 2025 with effect from 01.04.2026 was prospective and could not be applied to deny a benefit under the unamended provisions applicable to Assessment Year 2024-25. The Tribunal reproduced portions of that decision, including its discussion on the absence of any express restriction in Sections 87A and 111A, the express restriction contained in Section 112A(6), the interaction between Section 115BAC(1A) and Chapter XII, the prospective amendment made by the Finance Act, 2025, and the observations made by the Bombay High Court in The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) regarding CPC utility and adjudication of claims by quasi-judicial authorities. The Tribunal also noted the reference in the earlier decision to an appellate order in Avni Milanbhai Maniya allowing similar relief.
Agreeing with the reasoning of the Co-ordinate Bench, the Tribunal held that the amendment applicable from Assessment Year 2026-27 could not be treated as retrospective merely because the Memorandum described it as clarificatory. It observed that the statutory language applicable to Assessment Year 2024-25 did not contain an express prohibition against rebate under Section 87A where part of the income consisted of STCG taxable under Section 111A. The Tribunal noted that the assessee was a resident individual, was governed by Section 115BAC(1A), her total income did not exceed the threshold prescribed under Section 87A, and her income included STCG chargeable under Section 111A.
Following the decision in Jayshreeben Jayantibhai Palsana v. ITO, the Tribunal held that the assessee was entitled to rebate under Section 87A in respect of tax liability for Assessment Year 2024-25 notwithstanding that part of the income comprised STCG chargeable under Section 111A. It set aside the order of the CIT(A), directed the Assessing Officer/CPC to grant the admissible rebate under Section 87A and recompute the tax liability in accordance with law, and allowed the appeal.
Cases Discussed
- The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) (Bombay High Court), [TS-5026-HC-2025(Bombay)-O]
- Jayshreeben Jayantibhai Palsana v. ITO, ITA No. 1014/Ahd/2025
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