To promote growth and investment, the Legislature by way of the  Taxation Laws (Amendment) Act, 2019, inter alia, inserted Section 115BAA in the Income-tax Act, 1961 (‘ITA’) with effect from April 1, 2020 to allow an existing domestic company to opt to pay tax at the effective rate of 25.17 %, if it does not claim any incentive/ deduction. Section 115BAA forms part of Chapter XII of ITA, namely ‘Determination of tax in certain special cases’, which contains provisions such as tax on short-term and long-term capital gains.

The text of Section 115BAA of the ITA starts with ‘notwithstanding anything contained in this Act but subject to the provisions of this Chapter’, thereby meaning that while Section 115BAA of the ITA overrides conflicting provisions of the ITA, it cannot override the provisions contained in Chapter XII of the ITA.

However, recently, the Income Tax Appellate Tribunal (‘ITAT’), in Maharishi Education Corporation P. Ltd. v. ITO^[1], held that once the option to be taxed under the concessional tax regime of Section 115BAA of the ITA has been validly exercised, the relevant domestic company would be liable to pay tax on long-term capital gain (‘LTCG’) as per Section 115BAA of the ITA instead of the lower rate of 20%, as provided for such a gain under Section 112 of the ITA. This precedent, therefore, overlooks the long-standing interpretive canon that a specific provision shall prevail over a general one (lex specialis derogat legi generali), affirmed by the Supreme Court in several instances.^[2] Further, the legislative drafting of Section 115BAA in the form of ‘subject to the provisions of this Chapter’ (i.e., Chapter XII) seems to support the reading that LTCG would continue to be taxed under Sections 112/ 112A of the ITA, with the 22% rate under Section 115BAA applying to the remainder of the total income.^[3]

At the same time, the chronology of insertion of the two sections into the ITA assumes significance. Section 115BAA was recently introduced^[4] with effect from April 1, 2020, while Section 112 has been in effect from April 1, 1993.^[5] Here, the special provision pre-dates the general provision. The honourable Telangana High Court weighed such a situation in Ayodhya Rami Reddy Alla v. PCIT^[6] wherein it rejected the assessee’s argument of specific over general in light of the fact that General Anti-Avoidance Rules (GAAR) was introduced in a situation where the special provision of law already existed in the ITA.

While administrative uniformity supports a single concessional rate, questions of policy coherence arise if a concessional framework yields a higher rate on a specific income category. Further, appellate scrutiny may help clarify the interaction between these provisions.

[1]   ITA No. 2639/Del/2025.

[2]   The landmark judgment being that in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P., (1961) 3 SCR 185 (SC).

[3]   CBDT tutorial titled “Special Regimes for Taxation of Individuals, HUF, AOP, BOI, AJP, Companies, and Co-operative Societies” clarifies, while laying out the scheme under Section 115BAA, that: “Section 115BAA allows a domestic company to pay income tax at the rate of 22%. The special income shall be taxable at the special rates specified in respective provisions of the Act.” [Refer to page no. 3 of the tutorial https://incometaxindia.gov.in/tutorials/74.special-regimes-for-taxation.pdf].

[4]   § 4, Taxation Laws (Amendment) Act, 2019, Act no. 46 of 2019, Acts of Parliament (India).

[5]   § 53, The Finance Act, 1992, Act no. 18 of 1992, Acts of Parliament (India).

[6]   (2024) 466 ITR 497 (Telangana).