Tax on Exempt Disability Pension Must Be Refunded, Limitation Under CBDT Circular Can’t Defeat Statutory Right: Gujarat HC

The Gujarat High Court while reinforcing the tax exemption available to disabled armed forces personnel has quashed an order of the Income Tax Department that denied refund of tax deducted on disability pension on the ground of limitation. The bench of Justice Bhargav D. Karia and Justice Pranav Trivedi has observed that that once disability pension is recognised as exempt income, the Revenue cannot retain tax collected on such amounts by invoking technical timelines under CBDT circulars The case arose from a writ petition challenging an order passed under Section 119(2)(b) of the Income Tax Act, 1961, whereby the Principal Commissioner of Income Tax had refused to condone delay and process refund claims relating to tax paid on disability pension for multiple assessment years. The petitioner, a retired Army officer, had suffered serious spinal injuries during active service in Jammu and Kashmir and was medically downgraded during service. Though he retired in 2000, disability pension was sanctioned only in 2018 after reassessment by Army medical authorities, with retrospective effect from 1 January 2006. Despite the retrospective grant, income tax had already been paid on the pension amounts for earlier years. On seeking refund, the tax authorities rejected the claim, citing CBDT Circular No. 9/2015, which prescribes a six-year outer limit for condonation of delay in refund claims. The central issue before the High Court was whether the Income Tax Department could deny refund of tax paid on disability pension—an income expressly exempt under law—merely on the ground that the refund application was filed beyond the six-year period mentioned in an administrative circular. The court noted that disability pension granted to armed forces personnel is exempt from income tax under long-standing statutory provisions and notifications, including those carried forward from the Income Tax Act, 1922. The Court observed that once the income itself is exempt, there is no legal liability to tax, and any amount collected contrary to law must be refunded. The Bench strongly criticised the mechanical reliance placed by the tax authorities on CBDT Circular No. 9/2015, holding that such a circular cannot override statutory rights or legitimise retention of tax collected on exempt income. The Court also took note of the fact that the disability pension was granted retrospectively, and therefore the cause of action for claiming refund arose only after such grant. The High Court relied extensively on earlier rulings of the Delhi High Court, Madhya Pradesh High Court and Punjab & Haryana High Court, all of which had taken a consistent view that technical limitations cannot defeat legitimate refund claims where the underlying income is exempt. The Court also noted that the Supreme Court had dismissed the Revenue’s challenge to one such ruling, lending finality to the legal position. In particular, the Court endorsed the principle that disabled soldiers should not be made to “run from pillar to post” for recovery of tax wrongly collected, and that administrative circulars must yield to substantive justice. Allowing the writ petition, the Gujarat High Court quashed the impugned order passed under Section 119(2)(b) and directed the Income Tax Department to refund the entire amount of income tax collected on the disability pension for the relevant assessment years; pay interest at the rate of 9% per annum on the refunded amount; and complete the refund process within three months from receipt of the court’s order. The Court further clarified that if the refund is not made within the stipulated period, the petitioner would be entitled to higher interest at 18% per annum until actual payment. Case Details Case Title: Lt. Col. Nikhil Subodh Gajjar Retd Versus Principal Commissioner Of Income Tax Ahmedabad 3 & Anr. Case No.: R/Special Civil Application No. 8993 Of 2024 Date: 13/11/2025 Counsel For Petitioner: Mohit R Balani Counsel For Respondent: Maithili D Mehta Click Here To Read Order Read More: CGST Indore Decentralises GST Registration Processing; Range Offices to Handle New Applications from November 2025

Tax on Exempt Disability Pension Must Be Refunded, Limitation Under CBDT Circular Can’t Defeat Statutory Right: Gujarat HC

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