Gujarat HC – Relief for delay in opting concessional tax regime

 Gujarat High Court has granted relief to a taxpayer by allowing condonation of delay in opting for the new tax regime, holding that genuine and bona fide procedural delays may not result in denial of tax benefits.

Background

·       The taxpayer, a recognized start‑up, had applied to the Inter-Ministerial Board of Certification for a ‘certificate of eligible business’ to claim 100% tax exemption for any 3 consecutive years out of 10 years under Income-tax law. However, the application was rejected by the board in October 2022.

·       After the rejection, taxpayer reassessed its position and decided to opt for the concessional tax regime to reduce its tax liability. To opt for concessional tax regime, Form 10‑IC is required to be filed within due date for filing return of income. However, the form was filed with a delay of 53 days.

·       Tax authorities denied the concessional tax rate and computed tax under the old regime, leading to additional tax demand of ~ INR 50.72 lakh. The taxpayer sought condonation of delay on grounds of genuine hardship, but the request was rejected by the Revenue.

Taxpayer’s Argument

·       The delay occurred due to a bona fide belief that start-up benefits (tax holiday) would be granted. After rejection of certificate, time was required to reassess the position, seek professional advice, and arrange funds for tax payment. The delay was unintentional and not due to negligence.

Revenue’s Argument

·       Taxpayer had sufficient time to comply but failed to file the form within the due date. Waiting for certification without considering statutory timelines was not a valid reason. The taxpayer could have claimed start-up benefits in later years, and hence no hardship existed.

High Court’s Observations

·       Delay was not deliberate and arose due to a genuine and reasonable delay as the efforts made by the taxpayer were not illogical.

·       Relying on a Supreme Court ruling, explained that ‘genuine’ means real and not pretended. Genuine hardship should be assessed based on practical realities and surrounding context.

·       Taxpayer’s actions were considered reasonable. Power to grant condonation of delay should be applied liberally to ensure fairness. The Court noted that denial of condonation resulted in significant additional tax liability, amounting to ‘genuine hardship’.

Key Takeaway
Where procedural delays occur due to genuine reasons, relief or tax benefits may be granted if the taxpayer is otherwise eligible, to prevent disproportionate tax burdens.