LALIT KUMAR AMBALAL JAIN,CHICKMAGALUR vs. INCOME TAX OFFICER, WARD-1 ,CHICKMAGALUR, CHICKMAGALUR

The brief facts of the case are that the assessee is an individual and filed his return of income on 20/06/2024 declaring a total income of Rs. 4,81,470/- comprising short term capital gains of Rs. 1,58,085/- and income from other sources of Rs. 4,03,338/- and declared a Nil tax payable. The said return was processed by the Ld.CPC which accepted the said return but denied the rebate claimed u/s. 87A of Rs. 23,713/- in respect of the tax on short term capital gains on sale of shares. The Ld.CPC had raised a demand of Rs. 29,340/- which includes the interest components. The assessee had claimed the rebate u/s. 87A of the Act since his total income for the year did not exceed Rs. 7 Lakhs.

As against the said intimation, the assessee filed an appeal before the Ld.CIT(A). The assessee contended that the tax on the special rate income governed by Chapter XII is also eligible for the rebate u/s. 87A of the Act. The Ld.CIT(A) had not granted the rebate u/s. 87A of the Act since the tax on the capital gains chargeable at special rates could not be utilized by relying on section 87A of the Act.

As against the said order, the assessee is in appeal before this Tribunal.

At the time of hearing, the Ld.AR submitted that the Ld.CPC cannot make the adjustment u/s. 143(1) of the Act in respect of the rebate of tax which is a debatable one. The Ld.AR also submitted that there is no prohibition under the Act for allowing the rebate u/s. 87A of the Act on the tax computed on the short term capital gain on sale of equity shares. The Ld.AR also relied on the order of the Coordinate Bench of this Tribunal as well as the judgment of the Hon’ble Bombay High Court and prayed to follow the said principles and allow the appeal filed by the assessee.

The Ld.DR relied on the order of the Ld.CIT(A) and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

In the present case, the assessee is having a total income of Rs. 4,81,470/- which comprises the short term capital gains as well as the income from other sources. The assessee by relying on the provision 87A of the Act, had claimed the rebate on the entire tax amount calculated by him. The Ld.CPC as well as the Ld.CIT(A) was of the view that the tax on the special rates is governed by a specific statutory regime contained in Chapter XII which prescribed special rates for such income and therefore, the rebate provision could not be utilized to neutralize a tax which is levied at a special rate otherwise it would defeat the legislative intent of a differentiated rate framework for special categories of income.

We have gone through section 87A which deals with the rebate of income tax in case of certain individuals. The section does not prohibit the benefit to the special rates prescribed under the Act. The main condition for availing the rebate is that the income should not exceed Rs. 7 Lakhs per year. In the present case, the assessee’s total income is only Rs. 4,81,470/- and therefore, the assessee is entitled for a rebate u/s. 87A of the Act. We have also perused the order of the Coordinate Bench of this Tribunal in ITA No. 3134/Bang/2025 dated 26/05/2026 in the case of Basty Keshava Shenoy vs. ITO wherein a similar issue came up for consideration and the Tribunal had not accepted the case of the Revenue and concluded that the assessee is entitled for rebate u/s. 87A of the Act on the tax payable u/s. 111A of the Act i.e. the short term capital gains earned by the assessee. The relevant finding of the Tribunal is extracted below for easy understanding of the issue. “10.1 In the present case, the assessee declared total income of Rs. 6,25,580/-, which included short-term capital gains taxable u/s 111A of the Act amounting to Rs. 1,13,067/-. The CPC while processing the return of income restricted rebate u/s 87A of the Act only to tax payable on income taxable at normal slab rates and denied rebate attributable to tax payable on STCG u/s 111A of the Act. 10.2 We are unable to approve the action of CPC as sustained by the learned CIT(A). Section 87A of the Act, as applicable for the year under consideration, provides rebate with reference to the “total income” of the assessee. The expression “total income” has been defined u/s 2(45) of the Act and includes income chargeable under various heads including capital gains. Neither section 87A nor section 111A of the Act, as applicable for the year under consideration, contains any express restriction denying rebate u/s 87A of the Act in respect of tax payable on STCG taxable u/s 111A of the Act. Section 2(45) & Section 5 is reproduced below for the sake of reference: 2(45)"total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act; Scope of total income. 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—-- 10.3 We further notice that wherever the Legislature intended to restrict rebate u/s 87A of the Act, it has specifically provided so. Section 112A(6) of the Act expressly provides that rebate u/s 87A shall be allowed from the income-tax on total income as reduced by tax payable on capital gains covered u/s 112A of the Act. Thus, Parliament consciously enacted a specific restriction in respect of gains taxable u/s 112A of the Act. However, no such restriction existed u/s 111A of the Act during the year under consideration. In our considered opinion, where the Legislature has consciously provided a restriction in one provision and omitted to provide similar restriction in another provision, the same cannot be supplied by way of interpretation. 10.4 We further find that the issue is no longer res integra in view of the decision of the Ahmedabad Bench of the Tribunal in the case of Jayshreeben Jayantibhai Palsana vs. Income-tax Officer reported in [2025] 177 taxmann.com 411 (Ahmedabad - Trib.) dated 12-08-2025, wherein the Tribunal held that rebate u/s 87A of the Act cannot be denied in respect of income taxable u/s 111A of the Act in the absence of an express statutory prohibition. We respectfully concur with the aforesaid view. The relevant part is reproduced below:

In the result, the appeal filed by the assessee is allowed.