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Facts
The assessee, a salaried individual, initially filed a return of income declaring salary income. Subsequently, a revised return was filed including salary earned in Norway and claiming Foreign Tax Credit (FTC) under Section 90 of the Act, as per the India-Norway DTAA. The CPC disallowed the FTC claim because Form 67 was not filed before the due date of the original return.
Held
The Tribunal held that the requirement to file Form 67 is directory and not mandatory. The disallowance of FTC solely on account of a procedural lapse, especially when Form 67 was filed before the completion of assessment and DTAA provisions override domestic law, would defeat the purpose of avoiding double taxation. The CPC's action also violated principles of natural justice.
Key Issues
Whether the non-filing of Form 67 before the due date for filing the return of income is a fatal procedural lapse leading to denial of Foreign Tax Credit, despite the form being filed before the completion of assessment and the provisions of the DTAA.
Sections Cited
90, 139(1), 143(1), 295
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Income Tax Appellate Tribunal, ‘SMC’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 18/11/2024 vide DIN No. ITBA/APL/S/250/2024-25/1070432784(1) for the assessment year 2018- 19.
The interconnected issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of the foreign tax credit of ₹ 2,34,743/- only.
The brief facts are that the appellant, a salaried individual employed with Evry India Pvt. Ltd. The assessee in the original returned filed dated 29-08-2018 declared gross income from the salary at ₹ 3,85,964/- and after claiming deduction under section 80C and 80D of the Act for ₹ 1,25,984/- declared net taxable income at Rs. 2,59,980/- only.
Subsequently, the assessee filed revised return dated 28-03-2019 in which the assessee declared income under head salary at ₹ 20,19,492/- and after claiming deduction under section 80C and 80D of the Act for ₹ 1,25,984/- declared net taxable income of ₹ 18,93,510/- only. The assessee computed gross tax liability (tax + cess) on the declared income at ₹ 3,91,970/- against which claimed relief under section 90 of the Act, amounting to ₹ 2,34,743/- on account of taxes paid in foreign country namely “Norway”.
5. The Centralized Processing Centre (CPC), while processing the revised return under section 143(1) of the Act, disallowed the assessee’s claim for foreign tax credit under section 90 of the Act.
Aggrieved by the intimation order under section 143(1) of the Act, the appellant assessee preferred appeal before the learned CIT(A)/NFAC.
The assessee before the learned CIT(A)/NAFC submitted that during the year under consideration he was employed in the country Norway for 153 days where the employer has deducted withholding tax of ₹ 2,34,743/- only. At the time of filing of original return, the income . tax return in the country Norway was not finalized due to the difference in accounting period. Once the income tax in the Norway was finalized, he has revised the return wherein salary income earned in India (₹ 3,85,964/-) as well as salary income from Norway (₹ 16,33,528/-) was offered to tax and accordingly credit of tax paid in Norway was claimed in accordance with the provision of section 90 of the Act as well as in accordance with the provisions of India-Norway DTAA.
8. The appellant submitted that the CPC without communicating the proposal to make disallowances proceeded to disallow the FCT in the intimation order under section 143(1) which is against the principles of natural justice.
The appellant further argued that the requirement of filing Form 67 as per the provision of rule 128 of IT Rule on or before the due date specified under section 139(1) of the Act, is a directory requirement, therefore FTC should be allowed even if the Form-67 is filed before the completion of assessment.
10. The learned CIT(A) after considering the facts and the appellant's claim, held that to claim for relief of FTC under section 90 of the Act, the conditions prescribed under rule 128 of the IT Rule must be fulfilled. However, the appellant had failed to comply with the prescribed procedural requirements.
11. The learned CIT(A) found that as per the provisions of the Act, a resident taxpayer is eligible for foreign tax credit for taxes paid in another country, provided that such tax corresponds to income that has . been offered for taxation in India. Rule 128 of the Income Tax Rules, 1962, specifies the conditions under which FTC can be claimed, including the requirement to furnish Form No. 67 along with supporting documents before the due date of filing the return under Section 139(1) of the Act. Sub-rule 9 of Rule 128 explicitly mandates that Form No. 67 and relevant certificates must be submitted within the prescribed time limit to validate the claim for FTC.
Furthermore, CBDT Notification No. 9 dated 19.09.2017 established the procedure for online filing of Form No. 67, stipulating that it must be submitted before the filing of the return of income. In the present case, the due date for filing the return of income for Assessment Year (A.Y.) 2018-19, after an extension, was 31.08.2018. Form No. 67, which is a prerequisite for claiming foreign tax credit, was not submitted at the time of filing the original return. Instead, the appellant filed a revised return on 28.03.2019, and Form No. 67 was also submitted on the same date. This delay in submission meant that the appellant did not adhere to the procedural requirements mandated under Rule 128 of Income Tax Rule. The requirement that Form No. 67 must be furnished before or at the time of filing the return is not merely procedural but a substantive requirement to establish the validity of the claim. Since the appellant did not file Form No. 67 within the statutory time limit, the conditions for claiming foreign tax credit under Section 90/90A were not fulfilled.
The learned CIT(A) further emphasized that there are no express provisions in the Act that empower any authority to condone the delay in filing Form No. 67. Citing the Supreme Court ruling in State of Uttar .
Pradesh v. Singhara Singh AIR 1964 SC 358 and Chandra Kishore Jha v. Mahavir Prasad [1999] 8 SCC 266, the ld. CIT(A) reiterated the principle that when a statute prescribes a specific manner for performing an act, it must be done in that manner alone and not otherwise.
14. Further, reliance was placed on the Bombay High Court ruling in Commissioner of Income-tax v. Shivanand Electronics 209 ITR 63, which held that when the legislature imposes a duty on an assessee to fulfill certain procedural requirements to claim a benefit, failure to do so disentitles the assessee from availing that benefit. The Hon’ble Court observed that an assessee cannot argue that it was the duty of the tax authorities to remind them to comply with procedural norms. The onus is on the assessee to follow the statutory requirements, and if not complied with, the tax authorities are justified in denying the relief.
15. In light of these legal precedents and the factual matrix, the ld. CIT(A) concluded that the appellant's failure to submit Form No. 67 within the statutory time frame was a clear violation of Rule 128, and there was no provision allowing condonation of such delay. Therefore, CPC action in disallowing the foreign tax relief claim of Rs. 2,34,743 under Section 90/90A was upheld.
16. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The learned AR before us reiterated the argument taken before the learned CIT(A) that the requirement of filing of Form-67 on before the due date specified for filing return under section 139(1) of the Act is . directory/procedural in nature and not the mandatory. Therefore, the assessee shall not be deprived from the benefit of FTC merely for the reason that impugned form was not filed along with original return under section 139(1) of the Act, if the said requirement has been fulfilled before the completion of assessment. In the present the appellant assessee furnished the required form along with the revised return on i.e. before the issuance of intimation order under section 143(1) of the Act.
17.1 The learned AR further argued that the provisions of the Double Taxation Avoidance Agreement (DTAA) have an overriding effect over the provision of the Act. The learned AR emphasized that international tax treaties must take precedence over domestic tax laws, and therefore, the claim for FTC should not have been disallowed merely on procedural grounds.
17.2 The learned AR also submitted that the leaned CIT(A) failed to consider relevant decisions from the jurisdictional ITAT. The appellant specifically relied on the rulings in Shashidhar Seetharam Sharma Vs ITO (ITA No. 708/Bang/2022, dated 19-09-2022) and Brinda Ramakrishna Vs ITO (ITA No. 454/Bang/2021, dated 17-11-2021), where it was held that Rule 128(9) of the Income Tax Rules does not mandate disallowance of FTC due to a delay in filing Form 67. These rulings established that the filing of Form 67 is a directory requirement rather than a mandatory one, and procedural lapses should not result in the denial of a legitimate tax credit. Therefore, the appellant contended that the disallowance of FTC was erroneous and should be reversed.
On the contrary, the learned DR vehemently supported the findings of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The brief facts of the case are that the assessee, a salaried individual employed with Evry India Pvt. Ltd., had initially filed a return of income on 29-08-2018, declaring income from salary at ₹3,85,964/-. Subsequently, the assessee filed a revised return on 28-03-2019, including salary income earned in Norway amounting to ₹16,33,528/-, and accordingly claimed Foreign Tax Credit of ₹2,34,743/- under Section 90 of the Act, pursuant to the provisions of the India-Norway DTAA. However, the CPC, in its intimation under Section 143(1), disallowed the claim on the ground that Form 67 was not filed before the due date of filing the original return under Section 139(1) of the Act.
19.1 The learned CIT(A) upheld the disallowance, holding that the requirement of filing Form 67 within the prescribed time was mandatory, and failure to do so disentitles the assessee from claiming FTC. The learned CIT(A) further emphasized that there were no express provisions permitting condonation of delay in filing Form 67.
19.2 The primary issue for adjudication in the present appeal is whether the non-filing of Form 67 before the due date prescribed under Section 139(1) should result in the denial of FTC, despite the fact that the form was furnished before the completion of assessment.
19.3 At the outset, we note that the Rule 128 of the Income Tax Rules, 1962, which governs the claim of FTC, does not specify any consequence of non-filing or delayed filing of Form 67. In the absence of such penal consequences, the requirement should be construed as procedural rather than substantive. The intent of the legislature, as reflected in Section 90 of the Act, is to provide relief from double taxation. The denial of FTC solely on account of a procedural lapse would defeat this very purpose. Further the provisions of DTAA override domestic tax laws, as established by various rulings of the Hon’ble Supreme Court. The India-Norway DTAA specifically allows the set-off of foreign taxes paid against Indian tax liability. The Revenue authorities cannot deny FTC on a procedural ground when the substantive conditions for claiming such relief under the DTAA and the Income Tax Act have been met.
19.4 It is further noted that the CPC disallowed the FTC claim without giving an opportunity to the assessee to explain the delay in filing Form 67. This action is in clear violation of the principles of natural justice. The assessee had furnished Form 67 along with the revised return before the issuance of the intimation under Section 143(1), meaning there was no prejudice caused to the revenue.
19.5 We further find that the issue regarding the procedural requirement of filing Form 67 has already been adjudicated by various coordinate benches of the Tribunal, wherein it has been consistently held that the filing of Form 67 is a directory requirement and not a mandatory precondition for claiming FTC. This Tribunal in in the case of Brinda Rama Krishna in for AY.2018-19 vide order .
Page 9 of 14 dated 17.11.2021 has 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 relevant findings of the Coordinate Bench in the case cited above is extracted as under:
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: “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.
Page 10 of 14 (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.
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:
Page 11 of 14 “(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).
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.
12. 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.)
Page 12 of 14 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).
13. 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 (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 cannot be subject matter of decision in Sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record. 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.
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.
19.6 The finding of the coordinate bench in above discussed case was further followed in the case of Shashidhar Seetharam Sharma vs. ITO (ITA No. 708/Bang/2022).
19.7 In view of the above detailed discussion and considering the factual matrix of the case, the settled legal position, and judicial precedents, we hold that the requirement of filing Form 67 is directory and not mandatory. The assessee cannot be deprived of Foreign Tax Credit merely on account of a procedural lapse, especially when the revised return, along with Form 67, was filed before the completion of assessment.
19.8 Accordingly, we set aside the order of the learned CIT(A) and direct the AO to allow the claim of FTC amounting to ₹2,34,743/- as claimed by the assessee.
In the result, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.