In tax dispute over judges’ benefits, Delhi High Court orders halt to processing their ITRs

DTBA has said that it has filed the plea since members of the association “not only file returns of income” of HC and SC judges “but also advise them in relation to their investment and tax related issues”. The association has around 800 members.

A petition similar to the DTBA’s was filed by Justice Sandeep Jain of the Allahabad High Court in that court in July.

Under the Old Tax Regime, allowances paid to judges — including the value of rent-free official housing (or a monthly allowance where official housing is not provided), conveyance facilities such as car, driver, and fuel, a sumptuary allowance, and leave travel concession (LTC) — are excluded from taxable salary under the High Court Judges (Salaries and Conditions of Service) Act, 1954, and the Supreme Court Judges (Salaries and Conditions of Service) Act, 1958.

The New Tax Regime, introduced under Section 115BAC of The Income Tax Act from Assessment Year 2021-22, offers lower tax rates in exchange for far fewer deductions. It has since become the default option, although taxpayers can still choose to stay with the old regime.

In his petition in the Allahabad HC, Justice Jain has said that of his gross salary of Rs 46.78 lakh for 2025-26, Rs 2.81 lakh was sumptuary allowance and Rs 7.04 lakh was house rent allowance (HRA). If he filed his return under the new regime, he could not claim exemption on this Rs 9.85 lakh.

The DTBA has argued that the CBDT’s 2025 memorandum bringing such benefits and perquisites within the tax net under the new regime deprives serving judges of a “statutory benefit forming part of the conditions of service attached to judicial office”, and pushes up their tax liability.

The DTBA has also argued that regardless of the introduction of the new tax regime, the allowances of judges shall continue to remain out of the tax net. It has argued that the 2025 memorandum is “clearly contrary to law”, and amounts to “nothing short of interference in the independence of judiciary”.

Clause 2(iv) of Section 115BAC bars taxpayers under the new regime from claiming any exemption or deduction for allowances or perquisites granted under any other central or state law. Clause 2(i) of the same section, by contrast, lists the specific exemptions that the new regime allows.

“The use of the phrase “under any other law for the time being in force” in the Income-tax Act is in the law to ensure that tax-free allowances or perquisites created outside the Act do not undermine the new tax regime, regardless of existing or future legislation,” a person familiar with the developments said.

The DTBA has also argued that the executive cannot, through administrative instructions, “alter the legal incidents of judicial office or diminish benefits which Parliament has attached thereto”.

Judicial independence, being part of the basic structure of the Constitution,  requires that judges’ conditions of service be shielded from executive interference, direct or indirect, the association has said in its plea.

In its memorandum, the CBDT reasoned that since the new regime already offers liberal slabs, lower rates and higher rebates, extending further exemptions on perquisites “would tantamount to providing double benefits”.

In an interim order on July 22, the Delhi HC directed the Income Tax Department not to process returns filed by HC and SC judges, and allowed them to declare the allowance amount as ‘receipts not in the nature of income’ under the ‘Exempt Income’ category on the e-filing portal.

On July 28, a Division Bench of the Allahabad HC comprising Justices Saumitra Dayal Singh and Swarupama Chaturvedi, which heard Justice Jain’s plea, directed that no separate interim relief was needed since the Delhi HC’s order had already enabled the filing of returns under the new scheme.

The Income Tax Department, however, moved an application before the Delhi HC on August 5 seeking modification of the July 22 order. It said that returns are processed automatically within minutes of filing, and there was no way to separately flag judges’ returns at its processing centres. This meant full compliance would require halting the processing of all returns filed nationwide, running into crores.

Taking the Department’s difficulty into account, the court on Monday asked the private secretaries of SC and HC judges who had filed returns under the new regime to furnish their PAN details to an income tax officer by August 18.

It directed the Department not to process returns “of the judges qua whom such intimation has been received”, and ordered that any resulting demand or refund be kept in abeyance pending the outcome of the DTBA’s plea.

Queries sent by The Indian Express to the Ministry of Finance and the CBDT went unanswered.