Rebate u/s 87A Allowed on STCG Taxed Under Section 111A

Case Details:Jayshreeben Jayantibhai Palsana vs. Income-tax Officer - [2025] 177 taxmann.com 411 (Ahmedabad - Trib.)

Judiciary and Counsel Details

• MAKARAND V. MAHADEOKAR, Accountant Member
• MS. SUCHITRA R. KAMBLE, Judicial Member
• Jagdish Kasodaria, AR for the Appellant.
•  Amit Pratap Singh, Sr.DR for the Respondent.

Facts of the Case

The assessee, an individual, filed her return of income for the relevant assessment year, declaring short-term capital gains under section 111A. While filing the return, the assessee exercised the option under section 115BAC(1A). Upon processing the return, the Centralised Processing Centre (CPC) denied the rebate claim under section 87A in respect of short-term capital gains.
Aggrieved by the order, the assessee filed an appeal to the CIT(A), wherein the order was upheld. The matter reached the Ahmedabad Tribunal.

Tribunal Held

The Tribunal held that the amended first proviso to section 87A provides a rebate to a 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.
By contrast, the legislature has inserted an express bar on the availability of the section 87A rebate in section 112A(6). 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.
Section 115BAC(1A) opens with the phrase: “Notwithstanding anything contained in this Act but subject to the provisions of this Chapter..” 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 for 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.
Further, the CIT(A) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that the rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, 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. The Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.

List of Cases Referred to

• Avni Milanbhai Maniya [Order No. ITBA/APL/S/250/2025-26/1076482829, dated 27.05.2025] (para 4.6) and
• Chamber of Tax Consultants v. DIT (System) [2024] 169 taxmann.com 506/[2025] 302 Taxman 505 (Bombay) (para 4.7).