The Delhi High Court has directed the Income Tax Department not to process certain income tax returns filed by Supreme Court and High Court judges until further orders.
The matter is linked to a dispute over whether certain allowances received by judges can be treated as tax-exempt under the new income tax regime.
The case was filed by the Delhi Tax Bar Association, which challenged the position taken by the Central Board of Direct Taxes (CBDT).
Which Allowances Are at the Centre of the Dispute?
The dispute involves four major allowances and benefits provided to judges:
Rent-free official accommodation
Conveyance allowance
Sumptuary allowance
Leave Travel Concession (LTC)
The Delhi Tax Bar Association has argued that these benefits are excluded from taxable income under the High Court Judges Act, 1954 and the Supreme Court Judges Act, 1958.
However, the CBDT has taken a different view under the new tax regime.
Why Is the New Tax Regime Causing a Dispute?
The CBDT had stated in September 2025 that the new tax regime does not provide many of the exemptions and deductions available under the old tax system.
Based on this position, the tax authorities said that the allowances received by judges would not qualify for exemption under the new regime.
The Delhi High Court has now said that the relevant laws governing the salaries and service conditions of judges need to be examined before deciding the issue.
Judges Can Declare the Amounts Separately
The court has allowed judges who have opted for the new tax regime to file or revise their income tax returns.
They can show the disputed allowance amounts separately under the category “receipts not in the nature of income.”
At the same time, the Income Tax Department has been directed not to process the identified returns until further orders from the court.
The directions were issued through orders passed on July 22 and August 10.
Why Did the Income Tax Department Raise a Technical Issue?
The Income Tax Department told the court that income tax returns are processed electronically.
According to the department, its software cannot automatically identify which returns belong to sitting judges.
The department also said that around 98% of returns could be processed without human intervention by the end of August, making it difficult to implement a blanket hold without knowing which returns belong to the judges covered by the case.
The court therefore directed the private secretaries of the concerned judges to provide relevant details, including their PAN numbers, to the authorities.
What Happens to Tax Demands and Refunds?
The court has also issued directions regarding tax demands and refunds.
If a tax demand is generated after processing a judge’s return, the demand will remain in abeyance while the case is pending.
Similarly, if a refund becomes payable, it will not be released during the pendency of the matter.
Any refund that has already been issued will remain subject to the final decision in the case.
Final Decision Is Still Pending
The court has not yet given a final ruling on whether the disputed allowances can be treated as exempt under the new tax regime.
For now, the identified tax returns will remain unprocessed, while judges can separately declare the disputed amounts.
The final outcome of the case will determine how these allowances are treated for income tax purposes under the new regime.
