Section 87A Rebate Restriction on Special-Rate Income Is Prospective | ITAT

Case Details: Basty Keshava Shenoy vs. Income-tax Officer [2026] 187 taxmann.com 24 (Bangalore - Trib.) 

Judiciary and Counsel Details

• Soundararajan K., Judicial Member & Waseem Ahmed, Accountant Member
• Ganesh R. Ghale, Standing Counsel for the Respondent.

Facts of the Case

The assessee, having opted for the new tax regime under section 115BAC(1A), filed her return declaring a total income of Rs. 6.25 lakh, including short-term capital gains of Rs. 1.13 lakh, taxable under section 111A. She claimed a rebate under section 87A amounting to Rs. 25,000. However, while processing the return under section 143(1), CPC restricted the rebate to tax payable on income chargeable at normal rates and denied the rebate attributable to tax on short-term capital gains taxable under section 111A.

The rectification application filed under section 154 was rejected, and the CIT(A) upheld the action of CPC by relying, inter alia, on the Finance Act, 2025 amendment and CBDT Circular No. 13/2025. The matter reached the Tribunal.

ITAT Held

The Tribunal held that section 87A, as applicable to the year under consideration, granted a rebate with reference to the ‘total income’ of the assessee, which included capital gains. Neither section 87A nor section 111A contained any express restriction denying a rebate in respect of tax payable on short-term capital gains taxable under section 111A.

The Tribunal further noted that Parliament had specifically enacted such a restriction under section 112A(6), but no corresponding restriction existed under section 111A. It held that where the Legislature has consciously provided a restriction in one provision and omitted to provide a similar restriction in another provision, such omission cannot be supplied through interpretation.

The Tribunal held that the amendment brought by the Finance Act, 2025, restricting rebate against special-rate income was prospective in nature and could not be regarded as clarificatory. Had the statute already contained such a prohibition, there would have been no necessity for Parliament to introduce a specific amendment subsequently. Accordingly, the Tribunal held that the assessee was entitled to a rebate under section 87A as claimed in the return and directed the AO/CPC to grant the rebate and delete the consequential demand.

List of Cases Reviewed

• Jayshreeben Jayantibhai Palsana v. ITO [2025] 177 taxmann.com 411 (Ahmedabad – Trib.) (para 10.4) followed

List of Cases Referred to

• Jayshreeben Jayantibhai Palsana v. ITO [2025] 177 taxmann.com 411 (Ahmedabad – Trib.) (para 6)
• Distributors (Baroda) (P.) Ltd. v. UOI [1985] 22 Taxman 49/155 ITR 120 (SC) (para 9.2)