SUMEDHA ARORA,DELHI vs. ITO, WARD-67(1), NEW DELHI

As per the grounds of appeal, the assessee has challenged the denial of Foreign Tax Credit (FTC) of Rs.1,52,602/- under Section 90 of the Act due to late filing of Form 67 prescribed for eligibility of such credit under Rule 128 of the Income Tax Rules, 1962.

3. The assessee an individual, an ordinary resident of India, worked with Bending Spoons in Milano, Italy for a brief period between 05.12.2018 till 31.03.2019 during the Assessment Year 2019-20. The assessee included the salary derived from services rendered in Italy in its return of income and simultaneously claimed FTC of Rs.1,52,602/- through Income Tax Return filed on 23.07.2019. However, the assessee did not furnish Form 67 before filing the return of income as required under Rule 128 of the Income Tax Rules. The prescribed Form 67 was however filed subsequently on 15.07.2021. Meanwhile, an intimation dated 08.03.2021 was issued by the Income Tax Department wherein the benefit of FTC claimed against salary earned in Italy was denied. The assessee sought rectification under Section 154 of the Act vide application dated 02.04.2021. A rectification order dated 22.05.2021 was issued maintaining the original position and thus the foreign tax credit was continued to be denied. The assessee thereafter complied with Rule 128 of the Income Tax Rules and filed Form 67 on 15.07.2021. The assessee pursued the matter with the CIT(A) seeking relief. However, the CIT(A) vide order dated 18.05.2022 refused to entertainment the relief asked by the assessee on the ground that requirement of filing of Form 67 online before the due date of filing of return for the purposes of seeking foreign tax credit is a mandatory requirement laid down by Rule 128 of the Income Tax Rules 1962 and as the assessee has admittedly not complied with the mandatory requirement, she is not entitled to the credit of foreign tax claimed.

We have heard the rival submissions. The short controversy in the present case is whether the assessee is entitled to foreign tax credit against the salary earned in foreign country despite meeting the requirement of Rule 128 of the Income Tax Rules albeit belatedly.

It is the case of the assessee that she is entitled to FTC and has vested right to make such claim under Section 90 of the Act read with Article 24 of India-Italy Tax Treaty.

As stated, section 90 of the Act provides that Government of India can enter into agreement with other countries for granting relief in respect of income on which taxes are paid in the country outside India and such income is also taxable in India. Article 24 of India-Italy DTAA provides for credit towards foreign taxes paid for earning income arising from foreign soil. Section 90(2) of the Act provides that provisions of this Act shall apply to the extent they are more beneficial to the assessee. Article 24(3)(a) seeks to provide for method of elimination of Double Tax and the amount of Italian tax payable under the laws of Italy in respect of income from sources within Italy which has been subjected to tax both in India and Italy, shall be allowed as credit against the Indian tax payable in respect of such income. The assessee thus contends that a combined reading of Section 90 of the Act read with Article 24(3)(a) of DTAA provides in no uncertain terms that Italian tax paid shall be allowed as credit against Indian Tax. Neither Section 90 nor DTAA provides that FTC shall be disallowed for mere non compliance with any procedural requirement of enabling nature. The assessee thus contended that FTC is assessee’s vested right as per Article 24(3)(a) of the DTAA r.w. Section 90 of the Act and such FTC approved to the assessee cannot be denied on the grounds of non compliance of procedural requirements prescribed in the Rules which are subservient to the Act as well as DTAA. The assessee further contended that provisions of DTAA override the provisions of the Income Tax Act and thus denial of vested right to claim the FTC is in direct infringement of the tax treaty.

Rule 128 (8) and (9) provides that the credit for any foreign tax shall be allowed on furnishing of Form 67 on or before due date of filing the return of income as prescribed under Section 139(1) of the Act. The question thus arises as to whether where a substantial compliance has been made and Form 67 has been eventually filed albeit after the due date of filing of return of income under Section 139(1) of the Act, the denial of FTC would be justified. In this regard, the assessee contends that Rule 128 provides machinery for seeking relief and compliance thereof are the procedural formality which has been duly complied with, albeit with some delay. The provisions of Sections 90, Section 91 and DTAA does not provide for denial of exemption merely on account of delay in filing of certain forms / reports in contrast to other provisions of the Act such as 80AC, 80IA(7), 10A(5) and 10B(5) where attendant conditions of compliance are mandatory.

In the factual backdrop, we notice that the Co-ordinate Bench of Tribunal in the case of Ms. Brinda Ramakrishna vs. ITO in order dated 17.11.2021 clearly held that filing of Form 67 is a directory requirement and having regard to the position that DTAA overrides the provisions of the Act and Rule cannot be contrary to the Act, the assessee is fully entitled to the FTC. The Tribunal also observed that issue of allowability of FTC is not a debatable issue and only one view is possible and thus seeking rectification under Section 154 could be resorted by the assessee. Similar view has been taken in ‘42 Hertz Software India Pvt. Ltd. vs. ACIT,’ ITA No.29/Bang/2021 order dated 7th March, 2022. A reference is made to another Co-ordinate Bench decision in the case of Vinodkumar Lakshmipathi vs. CIT(A) NFAC, ITA No.680/Bang/2022 order dated 06.09.2022; Sonakshi Sinha vs. CIT(A) NFAC Delhi, ITA no.1704/Mum/2022 order dated 28th September, 2022 and host of other judgments referred to and relied upon.

Having regard to the delineation made and in consonance with the view expressed by the Co-ordinate Benches, we hold that claim of FTC does not get controlled solely by the delay in filing of Form 67 prescribed under Rule 128(9) of the Income Tax Rules. Hence, we set aside the action of the CIT(A) and direct the Assessing Officer to take cognizance of Form 67 so filed and grant FTC as may be entitled to the assessee in accordance with law.

In the result, the appeal of the assessee is allowed.