The Delhi High Court on Thursday directed the Income Tax Department not to process the income tax returns of judges who have challenged a recent clarification issued by the Central Board of Direct Taxes (CBDT) regarding the taxability of judicial allowances. The interim order will remain in force while the court examines the legality of the CBDT's clarification.
The petitions were filed by serving and retired judges, who argued that the CBDT's clarification seeks to treat certain judicial allowances as taxable income despite long-standing practices and previous legal interpretations. They contended that the clarification could lead to additional tax liabilities and create uncertainty over allowances that have traditionally been treated differently.
During the hearing, the Delhi High Court observed that the matter raises important legal questions and directed the Income Tax Department not to process the petitioners' tax returns until further orders. The court also issued notices to the Centre and the CBDT, seeking their responses to the challenge.
The dispute centres on whether specific allowances paid to judges—granted to enable them to discharge judicial duties—should be considered taxable under the Income Tax Act. The petitioners have argued that such allowances are compensatory in nature and should not be subjected to income tax in the manner suggested by the CBDT's clarification.
The Union Government and the Income Tax Department are expected to file their replies before the next hearing. The High Court's interim protection ensures that no adverse action related to the processing of the petitioners' tax returns will be taken until the issue is examined in greater detail.
The case is significant as its outcome could have implications for the taxation of judicial allowances across the country and may clarify the scope of the CBDT's powers in issuing administrative tax clarifications. The matter will now be heard on a later date after the respondents submit their responses.
