DARSANA DAS,GUWAHATI vs. INCOME TAX OFFICE WARD 1(2), GUWAHATI, GUWAHATI

Brief facts of the case are that the assessee is an individual and derives income from salary and had filed the return of income for the AY 2020-21 on 31.10.2020 declaring total income of ₹19,45,640/-. The return was processed u/s 143(1) of the Act dated 15.12.2021 by CPC, Bangalore making certain adjustments/raising tax payable over and above the returned income/tax payable. The assessee filed a rectification request against the said intimation, against which the CPC passed an order u/s 154 of the Act dated 28.12.2021 without modifying the adjustments made in the earlier intimation u/s 143(1) of the Act. Aggrieved with the rectification order, the assessee filed an appeal before the Ld. CIT(A), who dismissed the appeal of the assessee as per his findings as under: “5.1 I have carefully gone through the Intimation u/s 143(1), the grounds of appeal and submission made by the appellant in this regard. Briefly stating facts of the case is that the appellant filed return of income which was processed u/s 143(1) by CPC making certain adjustments over and above the returned income. Appellant’s request for rectification was rejected by CPC in the subsequent order u/s 154. The only issue involved in this case is that the appellant had claimed relief of double taxation u/s 90 of the I.T. Act in the return of income which was disallowed in the Intimation u/s 143(1).

2 All the grounds raised by the appellant are against disallowance of relief claimed u/s 90 of the I.T. Act in the return of income (ITR). Appellant has claimed that such disallowance was made in violation of the procedure laid down in sec. 143(1)(a) of the I.T. Act and against the provisions contained in Double Taxation Avoidance Agreement (DTAA). Facts involved in the issue is that the appellant being a resident in India during the relevant year, claimed to have resided in Germany for a part of the year where she earned income by way of salary. While filing ITR in India, she disclosed the income earned in Germany within total income and claimed relief of tax u/s 90 of the I.T. Act as per the provisions contained in Double Taxation Avoidance Agreement (DTAA) entered into between Governments of India and Germany. Amount of relief claimed in ITR was Rs.3,44,116/-. Intimation u/s 143(1) revealed that such relief was disallowed. The appellant raised the following grounds against such disallowance:- . .

3 As regard the issue of the above adjustment (i.e. disallowance of relief u/s 90) carried out by CPC, it is to be stated that the said adjustment was done as per the provisions of sec. 143(1)(c) of the Act which stipulates as under:- . .

4 As regard the procedure for claiming relief u/s 90 is concerned, it is to be stated that same is governed as per Rule 128 of the I.T. Rules, 1962. CBDT, vide its Notification no. 9/2017 issued from F.No. DGIT(S)-ADG(S)- 3/e-filing notification/form67/2017 dated 19.09.2017 has issued detailed guideline in this regard which is reproduced as under:- . .(the Ld. CIT(A) has reproduced the contents of the guidelines) . It is therefore clear from the contents of Rule 128 of I.T. Rules and CBDT’s above Notification that an assessee is required to e-file Form 67 within the due date specified in section 139(1) of the Act. In the present case, the extended due date of filing ITR u/s 139(1) was 10.01.2021. But the appellant filed Form 67 first on 29.12.2021 and after noting some mistake in it, a revised Form 67 on 30.03.2022. It is significant to mention here that Intimation u/s 143(1) was passed on 15.12.2021 and Order u/s 154 was passed on 28.12.2021. Both the Form 67s were filed after the Intimation and order u/s 154 were passed. In the absence of Form 67, AO, CPC was justified in disallowing the relief u/s 90. 5.5 As regard appellant’s claim that relief u/s 90 was disallowed in violation of the provisions contained in DTAA, it is to be stated that nowhere in the I.T. Act or in the DTAAs with different countries, it has been expressly stated that provisions of DTAA shall supersede the provisions of the I.T. Act or I.T. Rules. Since filing of Form 67 read with Rule 128 of I.T. Rules is mandated by the I.T. Act and I.T. Rules, the same must be satisfied to claim the benefits referred to in DTAA. Appellant’s claim in this regard is therefore rejected. In view of above discussion, action of CPC disallowing the relief claimed u/s 90 is therefore upheld and appellant’s appeal dismissed.”

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The assessee had sought adjournment, but since there was no justified reason and the details were available on record, the adjournment was refused and the appeal was heard. Before the Ld. CIT(A), the assessee had relied upon the case of Brinda Rama Krishna v ITO [2022] 193 ITD 840 (Bengaluru – Trib.) wherein it has been held that Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.

The relevant extract of the aforesaid order read as under:

Similar issue also arose in the case of Swapan Bhttacharya Vs. ACIT, Circle-61, Kolkata, I.T.A. No. 242/KOL/2025 for the Assessment Year: 2017-18, order dated 05.05.2025 in which it has been held that the claim of FTC is allowable as filing of Form No. 67 is directory and not mandatory; the relevant extract from the order is as under:

We have gone through the submissions made and also considered the facts of the case. Similar issue arose in the case of Jaspal Singh Bindra vs. DCIT in ITA No. 1826/KOL/2024 order dated 19.11.2024 in which the Coordinate Bench (in which the Accountant Member was a member) on similar issue of FTC allowed the appeal. The following cases have been referred in the said order as well as in the order of Rahul Anand (supra) relied upon by the assessee: i. CIT vs. G.M. Knitting Industries (P) Ltd. 71 Taxmann.com 35(SC) ii. Brinda Ramakrishna us. ITO 193 ITD 840 (Bang) iii. 42 Hertz Software India Pvt. Ltd vs Asst. CIT. ITA No. 29/ Bang/2001

Before proceeding further, we would like to reproduce rule 128 of the Income- tax Rules, 1962 (the Rules) which relates to foreign tax credit and is as under: "Foreign Tax Credit. 128 (1) An assessee, being a resident shall be allowed 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 lax 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."

We further note 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 25 of DTAA between India and USA provides for credit for foreign taxes. Article 25(2)(a) is relevant in the present context and the same is extracted below:

Thus, Section 90 of the Act read with Article 25(2)(a) of the DTAA provides that tax paid in USA shall be allowed as a credit against the tax payable in India but limited to the proportion of Indian tax. Neither section 90 nor the DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirement. Foreign Tax Credit is an assessee's vested right as per Article 25[2](a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance with procedural requirement as prescribed in the rules.

Further, we would like to mention that rule 128(9) provides that Form No. 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 No. 67 is not filed within the required time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. It is therefore evident that if the intention of the legislature were to deny the foreign tax credit, either the Act or the rules would have specifically provided that the foreign tax credit would be disallowed if the assessee does not file Form No. 67 within the due date prescribed under section 139(1) of the Act. We further note that as is judicially held, filing of Form No. 67 is a procedural/directory requirement and is not a mandatory requirement and violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC and such is the finding in the cases of the coordinate Benches referred to in the order of Jaspal Singh Bindra (supra).

Hon'ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, [1992 Supp (1) Supreme Court Cases 21] in respect of compliance with the procedural requirements have observed that: "The mere fact that it is statutory does not matter one way of that 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, in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. Commissioner of Income-tax [2021] 125 taxmann.com 42 (SC)/[2021] 281 Taxman 19 (SC)/[2021] 432 ITR 471 (SC), Hon'ble Supreme Court have held as under that the provisions of DTAA shall override the provisions of the Income-tax Act unless they are more beneficial to the assessee:

The conclusions in the aforestated paragraph have no direct relevance to the facts at hand as the effect of section 90(2) of the Income-tax Act, read with explanation 4 thereof, is to treat the DTAA provisions as the law that must be followed by Indian courts, notwithstanding what may be contained in the Income-tax Act to the contrary, unless more beneficial to the assessee.

We have gone through the decisions of the coordinate Benches and concur with their findings in this regard that filing of Form No. 67 is directory and not mandatory and the credit for foreign taxes paid cannot be denied merely on the delay in filing the Form No. 67. 14. We have also gone through the decision of the Hon'ble Madras High Court in the case of Duraiswamy Kumaraswamy us. PCIT (supra) and find that the facts are identical to the facts of the case of the assessee and the decision is squarely applicable to the facts of the case of the assessee. In that case, the petitioner was resident of India and had filed Indian ITR and claimed benefit of FTC u/s 90/91 of the Act r.w. Article 24 of the India-Kenya DTAA. During the year, he had income of both Kenya and India but while filing the Indian ITR for the impugned assessment year 2019-20, the Form No. 67 prescribed in rule 128 of the rules for claiming FTC was inadvertently not uploaded along with the ITR which was uploaded on 02.02.2021 The return was processed on 26.03.2021, however, the credit of FTC was not given effect to and the request made to the CPC to give effect to the FTC was not accepted and intimation along with notices of demand was received. The assessee also could not succeed with the rectification application filed and approached the CIT u/s 264 of the Act and at the same time filed a writ petition before the Hon'ble Madras High Court. It was stated by the respondent-department that rule 128 is mandatory and cannot be considered as directory in nature. The petitioner referred to the judgment of the Hon'ble Supreme Court in the case of CIT vs. G.M. Knitting Industries (P) Ltd. Civil Appeal Nos. 10782 of 2013 and 4048 of 2014 dated 24.06.2015. The Hon'ble High Court allowed the Writ Petition in favour of the assessee by holding as under:- “11. The law laid down by the Hon'ble Apex Court in Commissioner of Income Tax, Maharashtra v. G.M. Knitting Industries (P) Limited in Civil Appeal Nos. 10782 of 2013 and 4048 of 2014 dated 24.06.2015, which was referred above, would be squarely applicable to the present case. In the present case, the returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of the Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature This is what the Hon'ble Supreme Court had held in the above cases when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of assessment order. W P. No 5834 of 2022. 12. Further, in the present case, the intimation under Section 143(1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore, the impugned order is liable to be set aside.

Accordingly, the impugned order dated 25.01.2022 is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the FTC filed by the petitioner on 02.02.2021. The respondent is directed to give due credit to the Kenya income of the petitioner and pass the final assessment order. Further, it is made clear that the impugned order is set wade only to the extent of disallowing of FTC clam made by the petitioner und hence, the first respondent is directed to consider only on the aspect of rejection of FTC clam within a period of 8 weeks from the date of receipt of copy of this order"

Respectfully following the order of the Hon'ble Madras High Court in the case of Duraiswamy Kumaraswamy vs. PCIT (supra) and concurring with the views held by the coordinate Benches of the Tribunal in the cases relied upon in the cases of Rahul Anand and Jaspal Singh Bindra (supra), we hold that merely because the assessee could not file Form No. 67 within the prescribed time limit as per the provisions of rule 128(9) of the Income-tax rules, 1962, as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of the Foreign Tax Credit in respect of taxes paid outside India. Therefore, the claim of the assessee is allowed and the Assessing Officer is directed to give benefit of Foreign Tax Credit in respect of taxes paid outside India by the assessee in accordance with law and the DTAA between India and the USA. Accordingly, Ground no. 2 of the appeal is allowed.

Thus, the Bench was of the view that in in view of the above decisions and the decision of the coordinate Bench in the case of Brinda Rama Krishna (supra), the claim of FTC ought to have been allowed as the assessee had earned the income in Germany, paid tax thereon in Germany and had also made a claim in the return and subsequently had filed the Form No. 67, therefore, the claim of FTC ought to have ITA No(s). 159/GTY/2026 Assessment Year(s) 2020-21 been allowed and in the interest of justice and fair play, the request of the assessee to set aside the case before the Ld. AO may be allowed so that a proper opportunity of being heard may be provided. Hence, after examining the facts of the case, we deem it appropriate to set aside the order of the Ld. CIT(A) and remit the matter back to the Ld. AO for allowing the claim of FTC after the assessee files necessary evidence for the same and after allowing a reasonable opportunity of being heard to make any further submission she wants to make in support of her claim. Accordingly, the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 1st June, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 01.06.2026 Bidhan (Sr. P.S.)

CIT-

CIT(DR), Guwahati Benches, Guwahati.

Guard File. //// By order