The Delhi High Court has directed the Income Tax Department to pause the processing of income tax returns for Supreme Court and High Court judges. This interim order follows a legal dispute over whether specific judicial allowances remain tax-exempt under the new income tax regime. The move aims to prevent automated tax systems from treating these allowances as taxable income while the matter is under judicial review.
The Delhi High Court has issued an interim order directing tax authorities to stop processing the income tax returns of Supreme Court and High Court judges. This development follows a legal challenge regarding the taxability of judicial allowances under the new income tax regime.
A bench comprising Justices Dinesh Mehta and Rajneesh Kumar Gupta passed the directive following a petition filed by the Delhi Tax Bar Association. The core of the dispute involves the interpretation of the Income-tax Act, 1961, specifically Section 115BAC, which governs the new tax regime, and the High Court Judges (Salaries and Conditions of Service) Act, 1954, along with the Supreme Court Judges (Salaries and Conditions of Service) Act, 1958.
At the heart of the issue is a memorandum issued by the Central Board of Direct Taxes (CBDT) in September 2025. This memorandum suggested that tax benefits for certain judicial allowances—such as rent-free accommodation, conveyance, and sumptuary allowances—are only applicable under the old tax regime. The petitioners argue that these allowances are statutory exclusions rather than mere exemptions, meaning they should not be considered part of a judge’s taxable income, regardless of the tax regime chosen.
The High Court's decision to halt processing stems from concerns regarding automated tax systems. Without this judicial intervention, the automated systems used by the Income Tax Department would likely process the returns as filed, treating the disputed allowances as taxable income. By issuing this stay, the court aims to preserve the status quo until a final decision is reached, preventing potential tax demands or the need for extensive corrections if the court eventually rules in favor of the petitioners.
Under the interim measures, judges are permitted to file or revise their returns while treating these allowances as non-taxable receipts. To facilitate this, the court has instructed the private secretaries of the judges to provide the necessary Permanent Account Number (PAN) and filing details to the tax authorities to ensure these specific returns are flagged and withheld from automated processing.
The outcome of this case will set a significant precedent regarding whether specific judicial statutes can override the general provisions of the Income-tax Act. The next hearing is scheduled for September 3, 2026. Until the legal position is clarified, tax returns for the affected judiciary members will remain in abeyance.