Tag: Income tax judgement

Tax Relief: ITAT Bengaluru nullifies demand of ₹21,350 under section 87A

Taxpayer Wins Section 87A Rebate Case at ITAT Bengaluru

In a significant victory for taxpayers, the Income Tax Appellate Tribunal (ITAT) in Bengaluru has ruled in favor of T. Jakkarajua, allowing the claim for the Section 87A tax rebate even though it was submitted in a revised Income Tax Return (ITR) rather than the original one.

What You Need to Know About Filing ITR

To clarify, taxpayers must file an original ITR by the deadline (typically July 31). If any corrections are needed, a revised ITR can be filed to amend the original one, with a cut-off date of December 31 for the same financial year.

Section 87A tax rebate can be claimed under both the old and new tax regimes, enabling taxpayers to potentially reduce their net tax liability to zero. For the Financial Year 2024-25 (Assessment Year 2025-26), taxpayers can claim a rebate under Section 87A for income up to Rs 7 lakh under the new tax regime. For the Financial Year 2025-26 (Assessment Year 2026-27), this limit increases to Rs 12 lakh.

Case Overview: T. Jakkarajua

The case surrounding T. Jakkarajua’s tax rebate began as follows:

  • According to the ITAT order dated June 30, 2025, he filed his original return of income on June 22, 2024, which was processed on June 30, 2024.
  • On July 11, 2024, Jakkarajua revised his return, claiming a rebate under Section 87A amounting to Rs 21,350.
  • However, this claim was denied in the intimation that followed, prompting Jakkarajua to appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].

Arguments Presented by Jakkarajua’s Lawyers

In defense of Jakkarajua, his lawyers articulated several key points before the ITAT:

  • They indicated that Jakkarajua did not initially claim the tax rebate due to an “error and omission” in his original return, thus justifying the submission of a revised ITR.
  • They argued that regardless of whether one opts for the old or new tax regime, the rebate under Section 87A remains accessible.
  • Reference was made to Section 115BAC to affirm that relief under this section is valid in both tax regimes, indicating that the rejection of Jakkarajua’s revised ITR was unwarranted.
  • The lawyers also highlighted that Section 143(1)(a) does not mention adjustments based on the relief under Section 87A, thereby contending the CIT(A)’s order was invalid.

ITAT Bengaluru’s Ruling

The Vice President of ITAT Bangalore, Prashant Maharishi, delivered the order on June 30, 2025, stating:

“We have carefully considered the rival contentions. The facts show that the assessee (T. Jakkarraju) filed the original return claiming benefit under the old regime. However, a subsequent ITR, filed on July 11, 2024, claiming rebate under Section 87A was processed and denied.

The CIT(A) relied on the Supreme Court’s ruling in the case of CIT v Wipro Ltd., stating that a revised return cannot convert the original return into a loss return without errors or mistakes. However, in this case, there was indeed an error in the original return concerning the Section 87A claim, making the revised ITR submission valid.”

The ITAT cited a precedent set by the Bombay High Court in the case of Chamber of Tax Consultant v. DGIT (System) [2025] 473 ITR 85, concluding that Jakkarajua is entitled to the rebate under Section 87A of the Income Tax Act, 1961, thus allowing his appeal.

Expert Opinion

Chartered Accountant Prakash Hegde commented on the order, noting, “The ITAT has established that if a taxpayer fails to claim the rebate under Section 87A in the original ITR, it can still be claimed through a revised return. The tribunal’s rationale rests on the fact that the omission from the original return qualifies as an ‘error or omission,’ thereby meeting the criteria for filing a revised ITR.”

This landmark case highlights the importance of understanding tax provisions and ensures that taxpayers can rectify genuine mistakes in their filings, reinforcing the need for diligence in tax compliance.

Delhi HC upholds TDS on external development charges

The Delhi High Court on Tuesday upheld Tax Deducted at Source (TDS) on External Development Charges (EDC) in a real estate project. This means that home buyers will have to bear the burden of TDS.

A division Bench of Delhi High Court Comprising Justices Yashwant Varma and Purushaindra Kumar Kaurav upheld that Section 194C is applicable to EDC paid by real estate developers to Haryana Urban Development Authority. “We negative the challenge raised in these writ petitions in so far as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered thereunder,” the bench said . Further, it also turned down the challenge to the Clarification issued by the Central Board of Direct Taxes dated December 23, 2017.

The said office memorandum clarified that EDC if paid to the government of Haryana would be exempt from TDS provisions. However, in case the developer has made the payment like EDC not to the government but to HUDA [Haryana Urban Development Authority) which is a development authority of the State government of Haryana and is a taxable entity under the income-tax Act, 1961, it would attract TDS.

Section 194C of the Income Tax Act mandates that deductions can be made under TDS if the total payment credited to a contractor or sub-contractor in a financial year exceeds ₹30,000 in a single payment or amounts to ₹1 lakh in the aggregate. The TDS rate varies between 1-2 per cent, if the contractor has PAN. In case of no PAN, the rate would be 20 per cent.

Infra levy

EDC means the charges paid by real estate builders to the municipal authorities for the creation and maintenance of civic facilities that are included in a real estate project. As per the guidelines set by the Real Estate (Regulation and Development) Act (RERA), 2016, EDC is utilised for the development of essential infrastructure such as roads, water and electricity supply, drainage and sewage systems, waste management, landscaping and other similar projects that benefit the entire project.

Although the civic authorities determine the charges, the ultimate responsibility of payment lies with the homebuyer, as the developer generally transfers the cost to them. EDC is calculated based on the size of the project and can add up to 15-20 per cent of the total project cost for the homebuyers.

Commenting on the ruling, Amit Maheshwari, Tax Partner with AKM Global said that the issue of whether EDC paid by real estate developers are subject to TDS as payment to a contractor or as rental payments has been a matter of contention and has seen various rulings by different courts. External development charges typically refer to fees levied by local authorities on real estate developers for the development of infrastructure around a project, such as roads, sewage systems, parks, etc. The moot question arises whether these charges should be treated as payments to contractors for services rendered or as rent payments.

Some tax officers have treated EDC payments as rent payments, subjecting them to TDS. However, this approach has faced challenges in various high court rulings. “Many courts have held that treating EDC payments as rental payments is ‘fundamentally flawed’ & ‘incurable’. The ruling by Delhi high court stating that 194C is applicable would clear the air around such charges paid by the real estate developers,” he said.