The Gujarat High Court has dismissed a petition filed by an income tax informant seeking a substantially higher reward after his information helped the Income Tax Department detect tax evasion worth over ₹8 crore. The court ruled that rewards paid to informants under the Central Board of Direct Taxes (CBDT) policy are ex gratia (voluntary) payments and remain entirely discretionary, meaning courts will not ordinarily interfere with the amount awarded unless there is clear illegality or arbitrary action.
Informant Sought Over ₹44 Lakh Reward
The case was filed by an anonymous Ahmedabad-based real estate consultant who had tipped off the Income Tax Department in 2010 about a land transaction involving the Sheladiya Group.
Based on the information provided, the department carried out a search operation that uncovered:
Undisclosed income worth ₹60.48 crore
Cash seizure of ₹1.50 crore
Total tax recovery of ₹8.12 crore
Following the recovery, the informant was awarded a total reward of ₹17.51 lakh.
However, he argued that considering the scale of tax recovery, he should have received ₹44.51 lakh, claiming that the CBDT should have approved payment equivalent to 5.48% of the realised tax amount in recognition of the value of the information he had supplied.
Initial Reward and Legal Challenge
Initially, the Income Tax Department sanctioned ₹15 lakh as reward, stating that it was the applicable limit despite the reward policy allowing payment of up to 20% of the realised tax amount in eligible cases.
The informant challenged this decision before the Gujarat High Court in 2018, relying on the 2007 Ministry of Finance guidelines, which permit relaxation of the reward cap in cases where tax recovery exceeds ₹5 crore.
Acting on an earlier direction of the High Court, the department reconsidered the claim and recalculated the reward. In December 2018, it paid an additional ₹2.51 lakh, increasing the total reward to ₹17.51 lakh.
Despite the revised payment, the informant once again approached the court, insisting that the recovery justified a significantly higher reward.
Income Tax Department’s Stand
Opposing the plea, the Income Tax Department argued that rewards under the 2007 CBDT policy are purely ex gratia and entirely discretionary, with no statutory right for an informant to claim a particular amount.
The department informed the court that the CBDT’s Full Board had undertaken a detailed reassessment of the case. During the review, it found that only six out of the 14 written information points submitted by the informant were accurate.
As a result, the Board assigned lower weightage to the information, leading to the revised reward amount of ₹17.51 lakh instead of the ₹44.51 lakh claimed by the petitioner.
The department also produced an undertaking signed by the informant before the search operation. In the document, the informant had acknowledged that any reward would be an ex gratia payment subject to the absolute discretion of the competent authority.
High Court Refuses to Interfere
Dismissing the petition, the division bench of Justices A. S. Supehia and V. D. Nanavati held that since informant rewards are not governed by any statutory provisions but are granted under an ex gratia policy, judicial intervention is limited.
The court observed that it could not substitute its own assessment for that of the CBDT, an expert body entrusted with evaluating the usefulness and accuracy of information provided by informants.
The bench noted that interference would only be justified if there was manifest illegality, patent arbitrariness, or a clear violation of the governing policy.
Since the CBDT had systematically reassessed the claim, considered the accuracy of the information provided, and recalculated the reward accordingly, the court found no grounds to alter the amount awarded.
Key Takeaway
The ruling reinforces that rewards paid to income tax informants under the CBDT’s reward policy are voluntary incentives rather than enforceable legal entitlements. Even in cases involving substantial tax recoveries, informants cannot claim a fixed percentage of the recovered amount as a matter of right. The High Court has clarified that the competent authority retains full discretion in determining the quantum of reward, and courts will intervene only in exceptional cases involving illegality or arbitrary decision-making.
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