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Income Tax Appellate Tribunal, BENGALURU “A” BENCH, BENGALURU
Ms. Anju Agast Srivats vs The Income Tax Officer No.
Sobha Orchid NFAC, Delhi Jakkur, Bengaluru 560064 PAN – AFSPS6930E (Appellant) (Respondent) Assessee by: Shri Mukesh Kumar Jain J. CA Revenue by: Shri Sankarganesh K., Addl CIT-DR Date of hearing: 21.02.2023 Date of pronouncement: 23.02.2023 O R D E R Per: George George K., J.M. This appeal at the instance of the assessee is directed against the CIT(A)/ NFAC, Delhi’s order dated 23.10.2022 passed under Section 250 of the Income Tax Act, 1961 (the Act). The relevant assessment year is 2018-19.
The solitary issue raised is whether the CIT(A) is justified in confirming the order of the Assessing Officer (AO) wherein he had denied the Foreign Tax Credit (FTC).
The brief fact of the case are as follows: - The assessee is an individual who is employed with HP India. For AY 2018-19 return of income was filed on 27.08.2018, declaring income under the head ‘Salary’, ‘House Property’ and ‘other sources’. The assessment was selected for limited scrutiny regarding “foreign financial interest”. During the Ms. Anju Agast Srivats course of scrutiny assessment it was noticed that foreign dividend income of USD 2720 received by the assessee was not declared in the return of income nor she had filed revised return. The assessee claimed that she had paid taxes on dividend income (foreign tax) and claimed credit for foreign tax credit by filing Form 67 on 23.01.2021 during the course of assessment proceedings. The AO did not allow the credit for FTC on the ground that the assessee did not furnish form 67 on or before filing return of income within the prescribed due date under Section 139(1) of the Act, as required under Rule 128 of I.T. Rules.
4. Aggrieved, assessee filed appeal before the first appellate authority. The CIT(A) confirmed the view taken by the AO and held that failure to comply with the mandatory requirements under Rule 128 of I.T. Rules and non filing of Form 67 within the due date prescribed under Section 139(1) of the Act cannot be condoned. The relevant findings of the CIT(A) reads as under: - “4.11. Since the Appellant has not complied with the mandatory condition as mentioned in the subrules (8) & (9) of Rule 128 of the IT Rules and the delay in submission of form 67 does NOT stand condoned, the appellant cannot be granted credit of the FTC as claimed. The claim itself was not made in the return of income filed. Therefore, the AO, after a detailed discussion of the issue and contention raised by the appellant, held that FTC cannot be granted to the appellant for failure to comply with mandatory requirement under Rule 128. 4.12. For the detailed reasons as stated above, non-granting of FTC by CPC is found to be strictly in accordance with law as applicable to the undisputed facts of the case. The claim for benefit of tax relief was made by the appellant and therefore the primary onus was on the appellant to comply with the statutory requirements, as held by the Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Shivanand Electronics 209 ITR 63 as under: "When the Legislature casts a duty on the assesses claiming certain benefit, to comply with requirements which are associated with such benefit, the assessee cannot get the benefit without doing his part of the duty. He cannot be Ms. Anju Agast Srivats allowed to say that it was for the ITO to ask him to do so. If the assessee does not do his part of the statutory duty, the ITO may proceed to decide the allowably or otherwise of the relief on the basis of the facts and material available before him." 4.13. In view of the above facts and provisions of law, the tax relief claimed under section 90 as per Form 67 by the appellant is clearly not allowable and the order of the AO does not warrant any interference on the issue. Appellant's Ground No.1 to 10 are dismissed accordingly.”
5. Aggrieved, assessee filed the present appeal before the Tribunal. The learned A.R. submitted that the issue in question is squarely covered in favour of the assessee by the order of Bangalore Bench of the Tribunal in the case of Shashidhar Seetharam Sharma vs. ITO in (order dated 19.09.2022).
The learned D.R., on the other hand, supported the orders of the AO and the CIT(A).
We have heard the rival contentions and perused the material on record. The assessment was selected for limited scrutiny of details regarding “foreign financial interest”. The assessee submits that she had inadvertently omitted to disclose the dividend received from securities (held outside India) under the scheme of ESOP in the return filed. It is stated that this was a bona fide mistake and the said dividend income has already been taxed outside India. It is claimed that since the due date for filing the revised return of income was lapsed the assessee could not file the revised return of income. However, she recomputed the total income and filed Form 67. The assessee had also duly remitted the tax on the said income and requested the AO to allow the due FTC. The same has been denied solely for the reason that Form 67 has not been filed within the due date prescribed for filing return under Section 139(1) of the Act. This issue is no longer res-integra and the same is covered in favour of the assessee by the coordinate bench order of the Tribunal in the case of Shashidhar Seetharam Sharma (supra). The coordinate bench order of Ms. Anju Agast Srivats the Bangalore Tribunal had considered other coordinate benches orders and had held 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 for Form No. 67 is not mandatory but a directory requirement and (iii) DTAA overrides the provision of the Act and the rules cannot be contrary to the Act. It was concluded by the Tribunal that non-furnishing of Form No. 67 before the due date under Section 139(1) of the Act is not fatal to the claim for FTC. The relevant findings of the Bangalore Benches of the Tribunal in the case of Shashidhar Seetharam Shamra (supra) reads as follows: - “3. Aggrieved by the order of NFAC (Appeals), the Assessee is in appeal before this Tribunal. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The only issue under consideration in the present appeal is that the NFAC denied of FTC available to the Assessee merely because there was a delay in filling Form 67 i.e. it was filed after the due date for filling original return of income prescribed under section 139(1) of the income tax Act. The said issue under consideration is no longer res integra. We note that on identical issue, the Co-ordinate Bench of ITAT, Bangalore in the case of Brinda Rama Krishna (in for AY.2018-19), order dated 17.11.2021 held 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. Therefore, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. The findings of the Coordinate Bench is reproduced below: “2. The Assessee is an individual and during the previous year relevant to AY 2018-19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20.11.2017 till 16.05.2019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit (“FTC”) for taxes paid in Australia.
3. There is no dispute that the Assessee is entitled to claim FTC. Rule 128 of the Income Tax Rules, 1962 (Rules) provides for giving FTC and reads thus:
Ms. Anju Agast Srivats “Foreign Tax Credit. 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule: Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.” One of the requirements of Rule 128 for claiming FTC is provided by Rule 128 (8) & (9) of the Rules and the same reads thus: “(8) Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely:— (i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein; (ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,— (a) from the tax authority of the country or the specified territory outside India; or (b ) from the person responsible for deduction of such tax; or (c) signed by the assessee: Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,— (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee; (B) proof of deduction where the tax has been deducted. (9) The statement in Form No.67 referred to in clause (i) of subrule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under subsection (1) of section 139, in the manner specified for furnishing such return of income.”
4. The Assessee claimed FTC of Rs. 4,73,779/- u/s. 90 of the Act read with Article 24 of India Australia tax treaty (“DTAA”) in a revised return of income filed on 31.8.2018. The Assessee had not filed the Form 67 before filing the return of income. On realising the same, the Assessee filed Form 67 in support of claim of foreign tax credit on 18.04.2020. The revised return of income was processed by Centralized Processing Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28.05.2020 was passed disallowing the claim of FTC.
The Assessee filed a rectification application before the AO on 15.06.2020 & 25.02.2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10.03.2021, the AO upheld the action on the ground that the Assessee has 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.
6. On appeal by the Assessee, the CIT(A) vide Order dated 03.09.2021 confirmed the Order of 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 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.
Ms. Anju Agast Srivats 7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that 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 country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below: “4. In the case of India, double taxation shall be avoided as follows: (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;” It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non- compliance with any procedural requirements. FTC is Assessee’s vested right as per Article 24(4)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules.
It was further submitted by him that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: “(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:— (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”
9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision.
It was further submitted that Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, 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. It was submitted that that 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. Reference was made to section 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9).
Ms. Anju Agast Srivats 11. It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that: “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.” Further reliance was placed on the decision of 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 procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted 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.
It was further submitted that even in the context of 80IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases: CIT vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi) PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 com 16 (Allahabad) CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 com 379 (Karnataka) CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi) CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
It was submitted that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer. Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the following cases and circulars: Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505 (SC) GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC) Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 taxmann.com 42 (SC) (Pg 106-109 of PB 2-Para 25 & 26) CBDT Circular No 333 dated 2/4/82 137 ITR (St.) 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.
The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and Ms. Anju Agast Srivats cannot be subject matter of decision in Sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record.
In his rejoinder, the learned counsel for the Assessee submitted that Form No.67 was available before the AO when the intimation u/s.143(1) of the Act dated 28.5.2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s.154 of the Act on the ground that the issue was debatable but rather the decision was given that the relevant rule was mandatory and hence non-furnishing of Form No.67 before the due date u/s.139(1) of the Act was fatal to the claim for FTC.
I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the learned counsel for the 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.
In the result, the appeal is allowed.”
The aforesaid decision has also been followed by a Division Bench of ITAT Surat Bench in the case of Sanjay Patil Vs Assessing Officer (ITAT Surat) Order dated 18/05/2022. Following the view expressed in the aforesaid decision, we hold that the Assessee is entitled to FTC and the AO is directed to allow the claim.”
8. In view of the above order of the Tribunal, which has followed the other coordinate bench orders of the Tribunal, we direct the AO to allow the claim of FTC. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 23rd February, 2023.