SWAPAN BHTTACHARYA,KOLKATA vs. ACIT, CIRCLE 61,, KOLKATA

Brief facts of the case are that the assessee is an individual and had e-filed his return of income for AY 2017-18 on 30.07.2017 declaring total income of Rs. 1,77,15,290/-. Thereafter, the assessee filed a revised return of income on 30.03.2019 declaring total income of Rs. 2,23,86,630/-. The revised return was selected for scrutiny through CASS and accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and duly served upon the assessee which were complied with by the assessee. The Assessing Officer (hereinafter referred to as I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. the ld. 'AO') found that the assessee had claimed tax relief of Rs. 2,07,098/- u/s 90 of the Act on salary income earned in USA. It was noticed by the Ld. AO that the assessee claimed relief by filing Form No. 67 beyond the due date. Thereafter, the Ld. AO issued show cause notice to the assessee to explain the eligibility of such tax relief. The assessee complied with the show cause. However, the Ld. AO noted that the contention of the assessee could not be accepted as the CBDT vide Notification dated 19.09.2017 had mandated that for claiming credit of any taxes paid in a country or territory specified outside India should file Form No. 67 under Rule 128(9) of the Income Tax Rules, 1962 before the due date of filing of return of income u/s 139(1) of the Act. Since the assessee had not complied to the procedure for claiming relief mandated by the CBDT, the Ld. AO did not provide the tax credit of Rs. 2,07,098/- to the assessee and assessed the total income of the assessee amounting to Rs. 2,23,86,630/- u/s 143(3) of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who vide order dated 16.01.2025 dismissed the appeal of the assessee after observing as under: “5.1 I have carefully considered written submission of the appellant, facts of the case and order u/s 143(3) of the Act, 1961. The issue involved in this appeal is not allowing of Foreign Tax Credit of Rs. 2,07,098/-.

2 Ground No.1 to 6: These grounds of appeal are interrelated; hence they are being dealt with together. They are directed against not allowing of Foreign Tax Credit Relief of Rs. 2,07,098/-.

3 The appellant had filed income tax return on 30/07/2017 declaring total income of Rs. 1,77,15,290/-. Subsequently, the appellant filed the revised return on 30/03/2019 declaring total income of Rs. 2,23,86,630/-. The revised return was selected for scrutiny and the AO held that the credit of FTC amounting to Rs. 2,07,098/- cannot be allowed to the appellant, since, the appellant filed form 67 on 15/03/2019 which is beyond the due date I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. u/s 139(1) of the Act and therefore, the appellant is not eligible for relief u/s 90 of the I.T. Act.

4 I have carefully considered the written submissions and facts of the case, it is an admitted fact that the appellant has violated the provisions of Rule 128(9) of the Income Tax Rule, 1962 wherein it is mandatory to file statutory ITR and Form No. 67 within due date. The issue under dispute is examined in the light of the provision of the statute. At the outset, as discussed above as per Rule 128 of the Income Tax Rules, 1962, a resident taxpayer is eligible to claim credit for any foreign tax paid, in a country or specified territory outside India. The credit shall be allowed only if the assessee furnishes the required particulars in Form 67 within the specified timelines i.e. on or before the due date specified for furnishing the return of income under sub-section (1) of Section 139 to claim credit of such taxes. Since, the appellant did not file statement in Form No. 67 as per time line specified u/s 139(1) of the I.T. Act, the A.O.'s action of non-allowance of foreign tax credit/relief u/s 90 of Rs. 2,07,098/- vide order u/s 143(3) dated 27/12/2019 is justified as the From(Form) No. 67 was not accompanied with ITR. Keeping in view of the above, I am of the opinion that the AO has rightly disallowed the foreign tax credit relief of Rs. 2,07,098/-. Therefore, these grounds of appeal are dismissed.”

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

Rival submissions were heard and the record and the submissions made have been examined. During the course of the appeal, the Ld. DR submitted that the Form No. 67 was filed on 30.03.2019, which was late and was filed beyond the due date of filing the return of income. The Ld. AR submitted that during the year the income was earned in USA and section 90 of the Act read with the DTAA was applicable. Though Form No. 67 was filed late but the same was filed on 30.03.2019 and was available at the time of processing of the return of income carried out u/s 143(1) of the Act on 25.12.2019 as well as at the time of completion of assessment under section 143(3) of the Act on I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 1497/KOL/2024 order dated 06.12.2024, a copy of which was filed along with the case law paper book in which reliance has also been placed upon several other judicial pronouncements. The Ld. DR submitted that the assessee had filed multiple returns which was countered by the Ld. DR by stating that the return was revised but in the computation sheet, different figure has been adopted by the Ld. AO. Our attention was drawn to the computation sheet in which the figure of Rs. 2,49,43,470/- was adopted while in the assessment order u/s 143(3) of the Act, the total income is assessed at Rs. 2,23,86,630/- which is the same as the income as per the return of income. Our attention was further drawn to column 14 of the computation sheet in which total income after deduction is shown at Rs. 2,49,43,470/- while in column 16 the aggregate income is shown at Rs. 2,23,86,630/-. The assessee had claimed the refund but on the contrary demand was raised. The Ld. CIT(A) did not consider the ground relating to the enhanced income. An application filed u/s 154 of the Act filed was rejected. After analysis of the computation sheet, it was noted that the income from capital gains shown at Rs. 68,28,041/- was not correct which as per the final revised return at pages 22 to 27 of the paper book was shown at Rs. ‘NIL’ on account of short term capital gains earned outside India and set off of brought forward losses for A.Y. 2016-17. It was submitted that the Ld. CIT(A) did not adjudicate this issue in the appeal. The Ld. DR vehemently supported the order of the Ld. CIT(A). I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya.

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 I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. 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: "Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States."

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 I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. 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.

I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya.

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 I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. 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. I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya.

As regards Ground no. 3, the Ld. AO is directed to verify the return of income with the computation made and allow the requisite relief as pre law as the tax computation apparently has been made on a higher income and the figure of capital gains has been incorrectly adopted.

Ground nos. 1 & 4 being general in nature do not need any separate adjudication.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 5th May, 2025. [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 05.05.2025 Bidhan (P.S.) I.T.A. No.: 242/KOL/2025 Assessment Year: 2017-18 Swapan Bhttacharya. Copy of the order forwarded to:

Addl/JCIT(A)-Udaipur.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order