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Facts
The assessee claimed Foreign Tax Credit (FTC) for taxes paid in Finland. The Assessing Officer denied the claim solely because Form 67 was not filed within the prescribed due date. The CIT(A) allowed the relief, and the Revenue appealed.
Held
The Tribunal held that filing Form 67 is a procedural and directory requirement, not mandatory. DTAA provisions and Section 90 of the Income Tax Act grant a vested right to FTC, which cannot be disallowed for procedural non-compliance. Rules cannot override the Act.
Key Issues
Whether disallowance of Foreign Tax Credit (FTC) for non-filing of Form 67 within the prescribed due date is justified when the DTAA and the Act allow for such credit?
Sections Cited
90, 91, 139, 143, 154, 295
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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
1. This appeal by the Revenue is preferred against the order of the ld. CIT(A)-2, Nagpur dated 10.09.2024 pertaining to A.Y 2020-21.
Grounds raised by the Revenue read as under:
The Ld. ADDL/JCIT(A)-2, Nagpur, has erred in law and on facts by allowing relief of FTC u/s 90/91 though Form 67 has not been filed by the assessee as prescribed u/s 90 r.w.Rule 128. As per rule 128 (8) it is clearly mentioned that FTC shall be allowed after furnishing Form 67 by the assessee. Further, the case is covered under exception 3.1 of circular 5/2024.
2. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of hearing of the appeal
3. Briefly stated, the facts of the case are that the return of income filed by the assessee was processed by Centralized Processing Centre (CPC) electronically and intimation under section 143(1)/154 of the Income-tax Act, 1961 [the Act, for short] on 25th August, 2022 was passed disallowing the claim of FTC of Rs.25,30,435/-
4. Aggrieved by this order, the assessee went in appeal before the ld. CIT(A). After considering the facts and submissions, the ld. CIT(A) concluded as under:
4.6. In case of Brinda Rama Krishna vs ITO 135 taxmann.com 358 the Hon’ble Bangalore Bench (SMC) of ITAT has directed the revenue to allow relief of FTC u/s 90 where the form 67 was filed after the prescribed due date after holding that- (para 16 of judgment); Rule 128(9) does not provide for disallowance of FTC in case of delay in filing form 67; Filing of form 67 is not mandatory but a directory requirement, and DTAA overrides the provisions of Act and Rules cannot be contrary to the Act. The ratio of the above judgment has been followed in another case decided by Double Bench of Hon’ble Bangalore Bench in case of 42 Hertz Software India (P) Ltd vs ACIT (IT Appeal no 29 of 2021) [2022 Taxpub(DT) 1975] 4.7.The judgment of ITAT Jaipur in the case of Ritesh Kumar Garg Vs ITO, para 5.1 stated that- “There is no dispute that the assessee is entitled to claim relief u/s 90 but the disallowance was confirmed on the sole ground that the relevant form 67 prescribed under rule 128(8) was not filed within the time stipulated under sub rule 9 of rule 128. It is submitted that disallowance of FTC is bad in law. The 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 22 of India Finland DTAA provides for credit for foreign taxes. Article 22(2) is relevant in the present context. (PB 27-41) Same is extracted below:
“2. In India double taxation shall be eliminated as follows: Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Finland, India shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in Finland. Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in Finland”.
4.7. The judgement (supra) further quoted that “It is submitted that section 90 of the Act read with Article 22(2) provides that Finland income 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 22(2) of the DTAA read with section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules”.
4.8. The judgment of ITAT Jaipur in the case of Ritesh Kumar Garg Vs ITO, para 5.2 stated that Section 295 sub section (1) of the Act provides powers to the CBDT to prescribe Rules for various purposes. Section 295 sub section (2) sub clause (ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follows: - “In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters: - 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” Thus, in this way the Board has power to prescribe procedure for granting FTC. Therefore, as decided in many judgements the procedure prescribed in Rule 128 should be interpreted in this context. Therefore, Rule 128 is a procedural provision and not a mandatory provision. The said rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed under section 139(1) of the Act. However, the said 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 under section 90 of the Act would be denied. In case the intention of the Act or Rule was to deny the FTC, then in that eventuality 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. Thus, filing of Form 67, is a procedural/directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. While reaching to this conclusion, we draw strength from the decision of Hon’ble Supreme Court of India in the case of Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner, (1992) Supp (1) Supreme Court Cases 21 wherein the Hon’ble Supreme Court has held as under: “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.”
4.9 In another decision in Anuj Bhagwati vs DCIT, in ITAs No.1844 and 1845/Mum. /2022, the coordinate bench of the Tribunal vide order dated 20/09/2022, while deciding a similar issue held that section 90/91 of the Act has not been amended insofar as grant of foreign tax credit is concerned and Rules cannot override the Act and therefore filing of Form No. 67 is not mandatory but it is directory. The relevant findings of the coordinate bench of the Tribunal in the aforesaid decision are as under: “We considering the facts, circumstances provisions of the Act and judicial decisions are of the opinion that there is no amendment on these aspects in the Section 90 of the Act and the Rules cannot override the Act and therefore the filing of Form No 67 is not mandatory but it is directory. Accordingly, we restore the disputed issue to the file of the CIT(A) to adjudicate afresh on merits considering the observations in above paragraphs and the ratio of judicial decisions. Further the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information for early disposal of appeal and allow the grounds of appeal of the assessee for statistical purposes.”
4.10. Mumbai bench of Hon’ble ITAT in the case of Nirmala Murli Relwani Vs ADIT ITA No. 2094/Mum. /2022 was held that- “Mere delay in filing Form No. 67 as per the provisions of Rule 128(9) will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India”.
The facts of appellate case, are similar to above mentioned and discussed judgements. Considering the totality of facts and legal position as discussed above, I am of the view that assessee is entitled for credit of FTC under section 90 of IT Act. I accordingly direct the AO to allow the relief of FTC under section 90 of the IT Act in the case of assessee after due verification of tax credit paid by the assessee outside India as per record.
In the result, appeal of the assessee is allowed.”
6. None appeared on behalf of the assessee. So we heard the ld. DR at length and perused the relevant material on record.
At the very outset, the ld. DR submitted that the ld. CIT(A) was not justified in allowing relief of FTC u/s 90/91 though Form 67 has not been filed by the assessee as prescribed u/s 90 r.w.Rule 128. As per rule 128 (8) it is clearly mentioned that FTC shall be allowed after furnishing Form 67 by the assessee.
We have heard the rival submissions and have perused the relevant material on record. There is no dispute from the Revenue that Foreign Tax Credit (FTC) is not due to the assessee. The Assessing Officer has denied the credit of FTC only on the ground that the procedural requirement of filing Form 67 within the prescribed time has not been followed. We find that this particular issue has been dealt with various Benches of ITAT such as Hon’ble Bangalore Bench in case of 42 Hertz Software India (P) Ltd vs ACIT (IT Appeal no 29 of 2021) [2022 Taxpub(DT) 1975]; ITAT Jaipur in the case of Ritesh Kumar Garg Vs Mumbai ITAT in the case of Anuj Bhagwati vs DCIT, in ITAs No.1844 and 1845/Mum. /2022, in the case of Nirmala Murli Relwani Vs ADIT ITA No. 2094/Mum./2022. The ITAT Benches have consistently held that neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements. Mere delay in filing Form No. 67 as per the provisions of Rule 128(9) will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. We are, therefore, of the considered view that FTC is assessee's vested right as per the DTAA read with section 90 and same cannot be disallowed for non- compliance of procedural requirement that is prescribed in the Rules.
We are inclined to agree that the Rules cannot override the Act and therefore filing of Form No. 67 is not mandatory but it is directory and accordingly we hold that there is no reason to interfere with the decision of the CIT(A). Accordingly, the grounds of the Revenue are dismissed. is dismissed.
The order is pronounced in the open court on 05.06.2025.