ITAT Bangalore: Section 87A Rebate Cannot Be Denied on STCG Under Section 111A for AY 2024-25 in Absence of Statutory Bar
Overview of the Ruling
A significant decision has emerged from the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in the matter of Basty Keshava Shenoy vs. Income Tax Officer concerning Assessment Year 2024-25. The Tribunal has categorically ruled that the rebate under Section 87A of the Income Tax Act, 1961 cannot be withheld in respect of tax payable on short-term capital gains (STCG) chargeable under Section 111A, provided the assessee's total income remains within the threshold of ₹7,00,000 under the new tax regime prescribed by Section 115BAC(1A).
This ruling carries considerable significance for assessees who have declared capital gains as part of their total income and sought the benefit of Section 87A rebate, only to find it partially or wholly denied by the Centralised Processing Centre (CPC) or assessing authorities. The Tribunal's reasoning rests on a foundational principle of statutory interpretation — that courts and tribunals cannot read restrictions into legislation that Parliament itself chose not to incorporate.
Background and Factual Matrix
The Assessee's Position
Mr. Basty Keshava Shenoy filed his income tax return for AY 2024-25 under the new tax regime as governed by Section 115BAC(1A). His return disclosed a total income of ₹6,25,580, which comprised both regular slab-rate income and short-term capital gains of ₹1,13,067 assessable under Section 111A.
The tax liability arising from these two heads was computed separately:
- Tax on normal income (computed at applicable slab rates): ₹10,626
- Tax on STCG under
Section 111A(computed at the special flat rate): ₹16,960
Since the assessee's total income did not exceed ₹7,00,000 under the new tax regime, he claimed the full rebate of ₹25,000 under Section 87A, which would have effectively nullified his entire tax liability for the year.
CPC Processing and Denial of Rebate
When the return was processed by the CPC under Section 143(1), the authorities adopted a restrictive interpretation of Section 87A. The CPC permitted the rebate only to the extent of ₹10,626 — the amount corresponding to tax on normal income — and refused to extend the benefit of the rebate to ₹14,374, being the tax attributable to STCG chargeable under Section 111A.
The assessee subsequently filed a rectification application under Section 154 seeking correction of this apparent error, but the application was rejected. Aggrieved, the assessee carried the matter in appeal.