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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI LAXMI PRASAD SAHU
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 19/12/2022 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2020-21 on following grounds of appeal: “1. On the facts and circumstances of the case, the order of The Learned CIT (Appeals) is erroneous and against the provisions of the Income Tax Act and Prejudicial to the Appellant.
2. The Learned CIT (Appeals) has erred by passing order U/s. 250 without giving reasonable opportunity of being Page 2 of Appellant which results in tax demand and is unlawful.
The Learned CIT (Appeals) has erred in understanding Section 90 of the Act read with Article 25(2)(a) of the DTAA which provides that withhold tax paid in USA shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax.
4. The Learned CIT (Appeals) failed to analyse the provisions of law that neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements.
5. The Learned CIT (Appeals) failed to appreciate the fact that claim of FTC is assessee's vested right as per Article 25(2)(a) of the DTAA read with Section 90 and same cannot be disallowed for noncompliance of procedural requirement.
6. Though the appellant had specifically mentioned the judgement of Brinda Rama Krishna Vs ITO ITAT Bangalore Bang 2021 as a part of facts and grounds, the Learned CIT (Appeal) had failed to neither comment on the judgement nor specifically rejected.
7. The Learned CIT (Appeal) when passing the order has ignored the law laid down by the Hon'ble Supreme court in the case of Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, wherein it has been held that- "filing of Form 67 as per the provisions of section 90 read with Rule 128(9) is a procedural law and should not control the claim of FTC with respect to the wordings ".
8. The Learned CIT(A) ignored the provisions of the Act and Rule 128(9) that it is direction to file Form 67 on or before the due date of filing the return of income and the Rule or the act nowhere provides that in case Form 67 is not filed within stated time frame, the relief u/s 90 of the Act would be denied.
The Learned CIT(A) was incorrect in interpretation of law by ignoring that, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act like there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time namely in section 80AC, 80-
Page 3 of IA(7), 10A(5) and 10B(5) and such language is not used in Rule 128(9), therefore, such condition cannot be read into Rule 128(9) and exemption cannot be denied due to non- filing or delay in filing Form 67.
The Learned CIT (Appeals) has ignored the Judgement of the SMC Bench of ITAT, Bangalore in the case of Brinda Rama Krishna Vs ITO ITAT Bangalore Bang 2021 it was held that. a. Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67. b. filing of Form No.67 is not mandatory but a directory requirement and c. DTAA overrides the provisions of the Act, and the Rules cannot be contrary to the Act. The Appellant prays to consider his submissions before passing the order in this appeal to meet ends of justice and erase the tax demand assessed by the Learned Assessing Officer. Among and other grounds that would be urged at the time of hearing the appellant craves leave to amend, alter, delete such grounds, and add such additional grounds, adduce, and explain such additional evidence as facts and circumstances of the appellant's case. The appellant humbly submits that the appeal be admitted, and the matter be adjudicated in fair and judicious manner and opportunity of being heard be afforded to meet the ends of justice. PRAYER The Appellant prays that the addition of tax liability on account of delay in filing form 67 is Rs. 40,286 /- including interest to be deleted.” 2. Brief facts of the case are as under: 2.1 The Ld.AO noted that Assessee claimed Foreign Tax Credit (FTC) of Rs.40,286/- u/s. 90 in respect of tax withheld by a US company as per India-USA DTAA. The assessee filed the return of income without Form 67.
2.2 The CPC disallowed the claim u/s. 143(1) on the ground that the Assessee failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to Rule 128(9) of the Rules. The assessee filed rectification application u/s. 154 with a request to consider Form 67 which was rejected. Aggrieved by the 154 order, the assessee preferred appeal before the Ld.CIT(A).
3. The CIT(A) confirmed the Order of the Ld.AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is non-est in law. The CIT(A) also held that provisions of Rule 128(8) &(9) are mandatory in nature. The CIT(A)rejected the contention of the assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC. Aggrieved by the order of Ld.CIT(A), assessee preferred appeal before this Tribunal.
It was submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision.
On the contrary, the Ld.DR submitted that fulfillment of requirement under rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to FTC. We have perused he submissions advanced by both sides in light of records placed before us.
There is no dispute that the Assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) & (9), it is clear that, one of the requirements of Rule 128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns. In our view, this requirement cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67. This view is fortified by the decision of coordinate bench of this Tribunal in case of Ms.Brinda Kumar Krishna vs.ITO in by order dated 17/11/2021.
It’s a trite law that DTAA overrides the provisions of the Act and the Rules, as held by various High Courts, which has also been approved by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. reported in (2021) 432 ITR 471.
7.1 Reliance is placed on the decision of Coordinate Bench of this Tribunal in case of Ms.Brinda Kumar Krishna vs. ITO reported in (2022) 135 taxmann.com 358 wherein this Tribunal observed as under: “16. I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the Page 6 of Assessee and hold that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above. I am also of the view that the issue in the proceedings u/s.154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee's application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard.”
We accordingly, hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee. Accordingly the grounds raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 20th November, 2023.