2025 (7) TMI 294 - AT - Income Tax

Denial of claim of the assessee regarding option u/s 115BAC - Assessee opted to avail of the lower regime of tax as per section 115BAC and did not claim deduction under chapter VIA - said claim was rejected on the ground that the assessee himself had withdrawn the option referred in subsection (5) of section 115BAC for the previous assessment year i.e 2022-23 and subsequent years - HELD THAT - Each assessment year is separate and the intention to opt for the lower new tax regime as per section 115BAC of the assessee is from day one as even during the previous assessment year the assessee had opted for lower new text regime however the said claim of the assessee was rejected on technical consideration holding that the return was not filed within time which was also challenged by filing rectification application. Now so far as the facts of the present assessment year is concerned the assessee was always ready and willing to opt for the lower new tax regime and is still ready and willing to opt for lower new tax regime as per section 115BAC since the assessee has not challenged the decision of the previous assessment year that alone should not deprive the assessee of the benefit of the scheme as at the time of filing return for the assessment year 2023-24 no option for any scheme had attained any finality. Even from the computation to the return of income filed by the appellant for the year under appeal it is clear that the appellant did not claim any deduction under chapter VIA and has opted for the option by saying YES in view of the fact that the appellant had not been given the benefit of the option in the previous assessment year and this was the first assessment year for the purpose of S. 115BAC. Lower new tax regime u/s 115BAC of the Act is a beneficial legislation and generally such provisions aims to benefit all members of the society and are designed to provide assistance and protect individuals from heavy burden of taxes. Therefore principle of beneficial construction suggest that courts should interpret these provisions liberally giving them the widest possible meaning to ensure their objectives are met. In this way if the claim of the assessee for the previous assessment year was rejected on account of delay then in that eventuality the same should not affect the claim for the current assessment year when the assessee has not only made the claim and also filed return of income in time. Hence allow the grounds raised by the assessee by quashing the order of CIT(A). AO is therefore directed to pass afresh orders considering the return filed by the assessee u/s 115BAC of the Act and act accordingly. Assessee appeal allowed.

Summary

The core legal questions considered in the appeal revolve around the applicability and exercise of the option under section 115BAC of the Income Tax Act, 1961 ('the Act') by the assessee, specifically:

1. Whether the assessee was entitled to claim the benefit of the lower new tax regime under section 115BAC for the assessment year 2023-24 despite the rejection of the option for the previous assessment year 2022-23 on technical grounds.

2. Whether the rejection of the option for the previous assessment year due to late filing of the return under section 139(1) of the Act should affect the assessee's right to opt for the lower tax regime in the subsequent assessment year.

3. The interpretation of the procedural and substantive provisions of section 115BAC, including the timing and validity of filing the option in form 101E, and the consequences of withdrawal or rejection of such option.

4. The application of the principle of beneficial construction in interpreting tax provisions designed to provide relief to taxpayers, particularly senior citizens.

Issue-wise Detailed Analysis

Issue 1: Entitlement to opt for lower tax regime under section 115BAC for AY 2023-24 despite prior rejection

The relevant legal framework includes section 115BAC of the Act, which provides an option for taxpayers to be taxed under a concessional regime with lower tax rates but without certain deductions and exemptions. The option is to be exercised by filing form 101E on or before the due date for filing the return under section 139(1).

Precedents and principles related to the exercise and withdrawal of options under tax statutes were considered. The Court noted that the option for each assessment year is to be treated independently, and the rejection or withdrawal of an option in one year does not ipso facto affect the option for subsequent years.

The Court examined the facts that the assessee, a senior citizen, had indeed filed form 101E for AY 2022-23 but beyond the due date prescribed under section 139(1), leading to rejection of the option by the Central Processing Centre (CPC). The assessee's rectification application was also rejected, leaving no remedy but to file an updated return opting out of section 115BAC and claiming deductions under chapter VIA.

For AY 2023-24, the assessee timely filed the return opting for the lower tax regime under section 115BAC, claiming no deductions under chapter VIA. The revenue rejected this claim on the ground that the assessee had withdrawn the option in the previous year, thereby disallowing the benefit for the current year.

The Court reasoned that since the option for each assessment year is a separate and distinct act, the prior rejection on technical grounds should not preclude the assessee from exercising the option afresh in the subsequent year. The intention of the assessee to opt for the lower regime was consistent from the beginning, and the technical rejection due to late filing should not be allowed to defeat the substantive right to choose the beneficial regime.

Issue 2: Effect of late filing under section 139(1) on the validity of option under section 115BAC

The legal provisions mandate that the option under section 115BAC is to be exercised by filing form 101E on or before the due date prescribed under section 139(1). The CPC's rejection of the option for AY 2022-23 was based on the late filing of the return and consequently the late submission of form 101E.

The Court acknowledged the procedural correctness of this rejection but emphasized that such technical non-compliance should not be allowed to cause permanent prejudice to the assessee's substantive rights, especially when the assessee had made efforts to rectify the position through rectification applications.

It was held that the procedural lapse in the prior year could not be used as a ground to deny the benefit of the lower tax regime in the subsequent year, where the option was exercised timely and in accordance with the statute.

Issue 3: Interpretation of section 115BAC and related procedural provisions

The Court interpreted the provisions of section 115BAC in light of the legislative intent to provide a beneficial taxation regime to taxpayers, including senior citizens. The Court emphasized that each assessment year stands on its own, and the option exercised must be considered independently for each year.

The Court also noted that the assessee's return for AY 2023-24 clearly indicated the choice of the lower tax regime by not claiming deductions under chapter VIA and affirmatively opting for the scheme.

The Court rejected the revenue's argument that the prior year's withdrawal or rejection of the option should bind the assessee's choice in the current year, holding that no finality had been attained in the prior year's proceedings at the time of filing the current year's return.

Issue 4: Application of the principle of beneficial construction

The Court invoked the principle of beneficial construction, which requires that tax provisions designed to provide relief or benefit to taxpayers be interpreted liberally and purposively to fulfill their objectives.

It was held that section 115BAC is a beneficial legislation aimed at reducing the tax burden and simplifying compliance, and therefore, the assessee's claim should be construed in a manner that advances these objectives.

The Court observed that denying the benefit on technical grounds would be contrary to the spirit of the provision and the legislative intent, especially given the assessee's status as a senior citizen.

Significant Holdings

The Court succinctly stated: "The lower new tax regime u/s 115BAC of the Act is a beneficial legislation and generally such provisions aims to benefit all members of the society and are designed to provide assistance and protect individuals from heavy burden of taxes. Therefore principle of 'beneficial construction' suggest that courts should interpret these provisions liberally, giving them the widest possible meaning to ensure their objectives are met."

It was also held that "if the claim of the assessee for the previous assessment year was rejected on account of delay, then in that eventuality the same should not affect the claim for the current assessment year, when the assessee has not only made the claim and also filed return of income in time."

The final determination was that the assessee's appeal is allowed, the order of the CIT(A) disallowing the option under section 115BAC for AY 2023-24 is quashed, and the Assessing Officer is directed to pass fresh orders considering the return filed by the assessee under section 115BAC.

The Court clarified that this decision was rendered in the peculiar facts and circumstances of the case, including the age of the assessee, and should not be treated as precedent in other cases.