Case Law Details
Venkedapathy Venugopal Vs ITO (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT), Chennai allowed the assessee’s appeal against the order dated 29.05.2025 passed by the Commissioner of Income Tax (Appeals), Addl./JCIT(A)-2, Delhi, arising from the intimation issued under Section 143(1) by the Centralized Processing Centre (CPC), Bengaluru, for Assessment Year (AY) 2024-25. The dispute concerned the denial of rebate of ₹25,000 under Section 87A of the Income-tax Act, 1961.
The assessee challenged the order on the ground that the CIT(A) had wrongly confirmed the denial of rebate under Section 87A, incorrectly interpreted the proviso to Section 87A, relied upon the Memorandum to the Finance Bill, 2025 for AY 2024-25, violated the principles of natural justice by not granting an effective opportunity of hearing, and passed an erroneous order.
The assessee had filed the return of income on 26.07.2024, declaring total income of ₹6,75,940 and claiming a rebate of ₹25,000 under Section 87A. The returned income included taxable long-term capital gains of ₹4,72,175, and the rebate claimed related to the tax payable on such capital gains. The CPC processed the return under Section 143(1) on 15.04.2025 and denied the rebate without specifying the precise reasons. The CIT(A) upheld the denial, holding that rebate under Section 87A is not available in respect of income chargeable at special rates, since Section 115BAC(1A) is subject to the provisions of Chapter XII, which governs taxation in special cases.
Before the Tribunal, the assessee submitted that the sole issue was the denial of rebate under Section 87A. It was argued that since the total income did not exceed ₹7,00,000, the assessee was entitled to the rebate even though the income included amounts taxable at special rates. Reliance was placed on the decision of the Coordinate Bench in Venkatachalam Venkatraman v. ITO, where, on similar facts, the Tribunal had allowed the rebate under Section 87A. The Department supported the CIT(A)’s order, contending that Section 115BAC(1A) does not extend the rebate to income taxable at the special rates prescribed under Chapter XII.
The Tribunal observed that an identical issue had already been decided in Venkatachalam Venkatraman v. ITO, where it was held that Section 87A grants rebate on the entire tax liability computed on the “total income” without distinguishing between income taxed at normal rates and income taxed at special rates. That decision also held that Section 87A contains no exclusion denying rebate on such income and that the amendment introduced by the Finance Act, 2024, effective 01.04.2025, would not apply to AY 2024-25. The Tribunal further noted the observation of the Bombay High Court in Rajiv G. Shah, stating that the plain language of Section 87A does not indicate that any category of income or tax should be excluded if the total income is within the prescribed threshold.
The Tribunal also relied upon the decision in Jayshreeben Jayantibhai Palsana Shingala Sheri v. ITO, which held that the first proviso to Section 87A, inserted by the Finance Act, 2023, applies to any resident individual assessed under Section 115BAC(1A) whose total income does not exceed ₹7,00,000. The Tribunal noted that the statute does not distinguish between normal income and income chargeable at special rates, and that while Section 112A(6) expressly restricts the rebate in certain cases, there is no corresponding exclusion in Section 111A or Section 87A. It further observed that Section 115BAC(1A) governs computation of tax and does not modify or override Section 87A, which is an independent rebate provision under Chapter VIII.
The Tribunal also noted that the Finance Bill, 2025 proposed restrictions on rebate only from AY 2026-27, indicating that no such restriction existed for AY 2024-25. It further referred to the Bombay High Court’s decision in The Chamber of Tax Consultants v. Director General of Income Tax (Systems), which held that the CPC utility or system configuration cannot override statutory rights, and that the claim for rebate must be adjudicated by the quasi-judicial authority on its merits. The Tribunal observed that the denial of rebate by the CPC appeared to be based on system-driven logic rather than any statutory mandate.
Respectfully following the ratio laid down in the earlier decisions, the Tribunal held that the assessee was entitled to the rebate under Section 87A for AY 2024-25, notwithstanding that the total income included taxable long-term capital gains chargeable at special rates. The Assessing Officer was directed to allow the rebate of ₹25,000 and recompute the tax liability, and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is directed against the order dated 29.05.2025, passed by the Learned Commissioner of Income Tax (Appeals), Addl/JCIT(A)-2, Delhi [hereinafter referred to as “the ld. CIT(A)”], arising out of the intimation dated 15.04.2025 passed u/s.143(1) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] by the Centralized Processing Centre, Bengaluru [hereinafter referred to as “the CPC”], for the Assessment Year 202425.
2. The assessee has raised the following grounds of appeal: –
1. The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts by confirming the disallowance of the rebate under Section 87A of the Act, amounting to Rs.25,000.
2. The Learned CIT(A) has incorrectly interpreted the proviso to Section 87A. The provision entities an assessee to a rebate if their “total income” does not exceed Rs.7,00,000. The law does not provide for excluding any part of the total income, such as capital gains, for determining this eligibility threshold.
3. The Learned. CIT(A) was not justified in relying on the Memorandum to Finance Bill 2025 to deny a benefit available for the Assessment Year 2024-25. It is a settled principle that a subsequent clarification cannot be used to interpret the law for a prior assessment year to the detriment of the assessee. “Section 87A as amended by Finance Act 2023 makes no such exclusion for LTCG.
4. The learned CIT(A) dismissed the appeal without granting an effective opportunity of being heard, violating the principles of natural justice.
5. The order passed is erroneous, unjust, and liable to be quashed.
6. Any other grounds that may be urged at the time of hearing.
3. The assessee, an individual, filed his return of income for the A.Y.2024-25 on 26.07.2024 declaring a total income of Rs.6,75,940/- and claimed a rebate of income tax of Rs.25,000/- u/s.87A of the Act. The returned income inter alia included taxable long-term capital gains of Rs.4,72,175/-, and the rebate so claimed was attributable to the tax payable on such capital gains. The return of income was processed by the CPC u/s.143(1) of the Act on 15.04.2025, wherein the claim of rebate of Rs.25,000/- u/s.87A of the Act was denied. The intimation so issued does not spell out the precise reasons for such denial.
4. Aggrieved, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) vide order dated 29.05.2025, confirmed the action of the CPC in denying the assessee’s claim of rebate u/s.87A of the Act. The ld.CIT(A) held that the benefit of rebate u/s.87A of the Act is not available in respect of incomes chargeable at special rates of tax which form part of the total income. According to the ld.CIT(A), rebate u/s.87A of the Act is available only to incomes specified under sub-section (1A) of section 115BAC of the Act. The provisions of section 115BAC(1A) are subject to the other provisions of Chapter XII of the Act, dealing with determination of tax in special cases. Consequently, in view of the proviso to section 87A, income chargeable to tax at special rates under the provisions of Chapter XII is to be excluded while allowing rebate under section 87A. In view of the foregoing reasoning, the ld.CIT(A) held that the assessee is not entitled to the rebate of Rs.25,000/- claimed u/s.87A of the Act. Being aggrieved by the aforesaid order of the ld.CIT(A), the assessee has preferred the present appeal before this Tribunal.
5. The ld.AR, appearing on behalf of the assessee, submitted that the sole issue arising for adjudication pertains to the denial of rebate u/s.87A of the Act. It was contended that the assessee’s total income for the relevant assessment year does not exceed Rs.7,00,000/-, and therefore, the assessee is squarely entitled to the benefit of rebate under the said provision, notwithstanding the fact that such income comprises elements chargeable to tax at special rates. In support of this contention, reliance was placed upon the decision of the Coordinate Bench of this Tribunal in the case of Venkatachalam Venkatraman v. ITO [ITA No.1431/Chny/2025 dated 20.08.2025], wherein, under similar facts and circumstances, the Tribunal had allowed the claim of rebate under section 87A of the Act. The ld. AR, therefore, prayed that the order of the ld.CIT(A) be set aside and the assessee’s claim for rebate of Rs.25,000/- u/s.87A of the Act be allowed.
6. The ld.DR vehemently supported the order of the ld.CIT(A) and contended that the provisions of Section 115BAC(1A) of the Act do not extend to income which is liable to be taxed at the special rates prescribed under Chapter XII of the Act. It was thus submitted by the ld.DR that the assessee is not eligible to claim the rebate of Rs.25,000/- under Section 87A of the Act.
7. We have heard the rival submissions and carefully perused the orders of the lower authorities as well as the material placed on record. The sole issue arising for our adjudication is whether the assessee is entitled to rebate of tax u/s.87A of the Act where the total income consists, inter alia, of income chargeable to tax at special rates.
8. We note that an identical issue came up for consideration before this Tribunal in the case of Venkatachalam Venkatraman v. ITO [ITA No.1431/Chny/2025, order dated 20.08.2025]. The Tribunal therein held that the provisions of section 87A of the Act provide rebate on the entire tax liability computed on the “total income” without drawing any distinction between income taxable at normal rates and income taxable at special rates. It was accordingly concluded that rebate u/s.87A of the Act is available even in respect of such incomes taxed under special provisions. The relevant findings are extracted below for ease of reference:-
“5.0 been concluded that to claim the rebate total income is to be computed after excluding any special rate income so as to determine the final tax liability. We have noted that the view taken by the Ld.CIT(A) of assessee filing return u/s 115BAC and consequently ineligible for rebate is not in order. The only controversy in this case is whether rebate u/s 87A is available on all the incomes or there is any exclusion. We have noted that the provisions of section 87A do not provide for such an exclusion. The first proviso to section 87A includes an exemption qua total income falling u/s 115BAC (1A) however the impugned amendment has been brought by Finance Act 2024 w.e.f 01.04.2025. The present AY-2024 25 would not be hit by the same. We have noted that Hon’ble Bombay High Court in the case of Rajiv G Shah supra has held that “…there is no indication in the plain language of Section 87A that any category of income or tax should be excluded from the computation. If the total income is within the threshold prescribed, rebate cannot be denied. …”. It is trite law that when provisions of the statute granting any benefit to the tax payer are unambiguously clear, no different interpretation thereof can be adopted. Accordingly, we are of the view that the assessee is entitled for claim of rebate u/s 87A. The orders of lower authorities are therefore set aside and the Ld.AO is directed to allow the assessee its claim of rebate u/s 87A. All the grounds of appeal raised by the assessee are therefore allowed.”
9. Further, we find support from the decision of the Coordinate Bench in Jayshreeben Jayantibhai Palsana Shingala Sheri v. ITO [ITA No.1014/Ahd/2025, order dated 12.08.2025], where it was held as under:-
“5.8 The amended first proviso to section 87A [inserted by the Finance Act, 2023 w.e.f. A.Y. 2024–25] provides:
“Where the total income of the assessee is chargeable to tax under sub section (1A) of section 115BAC and the total income —
(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction…”
5.9 This provision applies to any resident individual whose total income does not exceed Rs.7,00,000 and who is assessed under section 115BAC(1A). The statute does not draw any distinction between normal income and income chargeable at special rates, nor does it contain any express exclusion for tax arising under section 111A.
5.10 By contrast, the legislature has inserted an express bar on availability of section 87A rebate in section 112A(6), which states:
(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.
5.11 The absence of a corresponding clause in section 111A is legally significant and supports the principle that – when the legislature intended to deny rebate in respect of special income (as in section 112A), it has done so expressly. In contrast, the absence of any exclusion in section 111A or in section 87A must be construed in favour of the assessee.
5.12 At this point we discuss the interplay of Section 115BAC(1A) with Chapter XII where the scope is Confined to Computation of Tax Rates. Section 115BAC(1A) opens with the phrase:
“Notwithstanding anything contained in this Act but subject to the provisions of this Chapter…”
5.13 The purpose of this clause is to enable the computation of income tax under the concessional rate regime, subject to existing special rate provisions under Chapter XII, such as sections 111A, 112, 112A, etc. This clause governs the computation of tax and does not ipso facto affect eligibility to rebates or deductions unless specifically restricted. Section 87A is not part of Chapter XII; it is an independent rebate provision under Chapter VIII of the Act. Therefore, the overriding clause in section 115BAC(1A) does not derogate or modify section 87A, unless section 87A itself provides for exclusion, which, in the present case, it does not. Thus, section 87A operates on the total tax computed, whether it includes tax at slab rates or special rates, and applies so long as the total income threshold is met.
5.14 The CIT(A) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, we find this reliance to be misplaced for two reasons:
– Firstly, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under section 87A w.e.f. A.Y. 2026–27, which implies that the existing law (i.e., as applicable to A.Y. 2024–25) does not contain such a restriction.
-Secondly, the Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.
Therefore, the prospective amendment in the Finance Act 2025 supports the view that under the unamended provision applicable for A.Y. 2024–25, rebate under section 87A cannot be denied merely because tax arises under section 111A.
5.15 In the recent judgment dated 24.01.2025 in the case of The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) [TS 5026-HC-2025(Bombay)-O], the Hon’ble Bombay High Court considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessees who had opted for 115BAC(1A). While the Hon’ble Court refrained from interpreting the substantive provisions, it held that the assessee must be allowed to claim rebate under section 87A, and it is for the quasi-judicial authority to decide on merits.
Thus, the Hon’ble High Court clearly held that the CPC utility or system configuration cannot override statutory rights, and that each case must be adjudicated on its own merits. We at the Tribunal, being such a quasi-judicial authority, are therefore duty-bound to examine the claim in light of the statutory framework and not be influenced by automated denial or procedural logic adopted by the CPC.
5.16 The assessee has also relied on an appellate order dated 27.05.2025 passed by CIT(A)-1, Nagpur in the case of Avni Milanbhai Maniya, wherein on identical facts the CIT(A) allowed the claim of rebate under section 87A in respect of STCG taxable under section 111A. We also note that such decision was taken by the JCIT/Addl.CIT(A) relying on the decision of Beena Manishbhai Fofaria for the A.Y. 2024-25. While not binding, the said appellate order affirms that divergent views exist and such benefit has been allowed in similar factual circumstances.
5.17 In view of the above discussion, we find that the assessee is a resident individual and the total income declared for the assessment year 2024–25 does not exceed Rs.7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A) of the Act. On a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains arising from transfer of listed equity shares taxable at special rates under section 111A. The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025, which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year. The denial of rebate under section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A.Y. 2024–25.”
10. Respectfully following the ratio laid down in the above cases, we hold that the assessee in the instant case is entitled to rebate u/s.87A of the Act for the impugned assessment year, notwithstanding that the total income includes taxable long term capital gains chargeable at special rates. The AO is accordingly directed to allow the rebate of Rs.25,000/- claimed by the assessee u/s.87A of the Act and recompute the tax liability. Thus, the grounds of appeal raised by the assessee are allowed.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 09th October, 2025 at Chennai.
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