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Facts
The assessee, a US citizen, shifted to India and claimed Foreign Tax Credit (FTC) for US-sourced income in his Indian tax return. The claim was denied because Form 67 was filed after the due date for filing the income tax return.
Held
The Tribunal held that the delay in filing Form 67 is a procedural requirement and not a mandatory condition that should lead to the denial of FTC, especially when it is a vested right under the Double Tax Agreement. Therefore, the denial of FTC solely on the ground of delayed filing of Form 67 was incorrect.
Key Issues
Whether the claim for Foreign Tax Credit can be denied solely on the ground of delayed filing of Form 67, when it is a procedural requirement and not a mandatory condition leading to denial of a vested right.
Sections Cited
90, 139(1), 143(1)
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
& 981/Ahd/2024 & C.O. 17/Ahd/2024 DCIT vs. Jay Dushyant Patel Asst. Years –2019-20 & 2021-22 - 2– O R D E R PER BENCH: These are appeals have been filed by the Department and the Cross Objection filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-1, Coimbatore vide order dated 13.03.2024 passed for A.Ys. 2019-20 & 2021-22. Since the common facts and issued are involved for both the years under consideration, all the cases are taken up together.
At the outset the Counsel for the assessee submitted that we shall not be pressing for cross objection filed by him for A.Y. 2021-22 and accordingly, the Cross Objection filed by the assessee in C.O. No. 17/Ahd/2024 is being dismissed as not pressed.
Now we shall take up the Department’s appeal for A.Y. 2019-20
The Department has taken the following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl./JCIT(A) is justified in directing the Assessing Officer to allow Foreign Tax credit claimed u/s. 90 of the Act without appreciating the fat that the assessee has neither filed return of income nor Form No.67 within due date of filing of return of income as per Section 139(1) of the Act, as provided in Sub-rule (9) of Rule 128 of the IT Rules? ii. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl. JCIT(A) is justified in directing the Assessing Officer to allow Foreign Tax Credit claimed u/s 90 of the Act, without appreciating the fact that the assessee has failed to adhere to the mandatory condition of filing of Form No.67 within due date of filing of return of income as per Section 139(1) of the Act, as provided in Sub-rule (9) of Rule 128 of the IT Rules? 3. The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.” & 981/Ahd/2024 & C.O. 17/Ahd/2024 DCIT vs. Jay Dushyant Patel Asst. Years –2019-20 & 2021-22 - 3–
4. The brief facts of the case are that the assessee is an individual and US citizen. After completing his graduation in India, he shifted to United States and completed his higher studies and started business in USA. The assessee was Non-Resident Indian till 2018-19. In the year 2017, due to personal reason the assessee decide to gradually shift to India and started living in India. For A.Y. 2019-20, the assessee filed return of income in India under Section 139(4) of the Act on 09.07.2020, declaring total income of Rs. 1,86,95,720/-. This income primarily comprised of US sourced income of Rs. 1,85,62,939/- and Indian sourced income of Rs. 1,32,781/-. The US income and corresponding amount of tax credit entitlement (FTC) was derived from the US tax return filed in USA. The assessee had filed his US tax return on 28.01.2020 and on the basis of this, the assessee determined his total income liable to be taxed in India and filed the Income Tax Return in India on 05.07.2020. For the year under consideration, the assessee offered total foreign income of Rs. 1,85,62,943/- and claimed corresponding FTC (Foreign Tax Credit) of Rs. 53,73,987/-. The CPC while processing the return of income, in the intimation under Section 143(1) of the Act, did not allow the claim of Foreign Tax Credit of Rs. 53,73,987/-. The reason for denial of FTC was that as per the provisions of Rule 128 of the Income Tax Rules, the assessee is required to furnish Form 67 on or before the due date of filing of return of income under Section 139(1) of the Act. The Department denied the claim of FTC on the ground that since Form 67 was filed by the assessee beyond the due date of filing of return of income under Section 139(1) of the Act, therefore, Foreign Tax Credit could not be allowed to the assessee in terms of Rule 128 of the Income Tax Rules.
5. In appeal before Ld. CIT(A), the assessee relied on a large number of rulings in support of the contention that claim for Foreign Tax Credit cannot be & 981/Ahd/2024 & C.O. 17/Ahd/2024 DCIT vs. Jay Dushyant Patel Asst. Years –2019-20 & 2021-22 - 4– rejected solely on the basis of delay in submitting Form No. 67. Ld. CIT(A) after taking into consideration the case laws submitted by the assessee, allowed Foreign Tax Credit to the assessee with the following observations:
5.6 In summary, the Tribunals has held that the belated filing of Form 67 for claiming relief under Section 90 is not explicitly provided for in the Income Tax Act and that Rule 128 of the Income Tax Rules, which obliges taxpayers to submit Form 67 before filing their income tax return to claim Foreign Tax Credit (FTC), is not a strict requirement but just a guideline. According to the judgments it's a proven fact that the filing of Form No. 67 is directory in nature and not mandatory. Following the decisions of the Tribunals as cited above the AO is directed to allow relief under Section 90 and rework tax accordingly. Ground 1 to 2 is allowed.
The issue for A.Y .20121-22 is also similar, wherein the claim of Foreign Tax Credit was denied to the assessee on account of late filing of Form No. 67 beyond the due date of filing of return under Section 139(1) of the Act.
The Department is in appeal before us against the aforesaid orders passed by Ld. CIT(A) allowing the Foreign Tax Credit of taxes paid in USA.
On going through the instant facts, and the judicial precedents on the subject, we observe that Ld. CIT(A) has correctly held that Foreign Tax Credit cannot be denied to the assessee on account of delay in filing of Form No. 67 after the due date specified for furnishing return of income under Section 139(1) of the Act.
We would like to reproduce the jurisdictional Ahmedabad Tribunal decision on this issue which have also affirmed the principle that mere delay in filing of Form No. 67 cannot take away the vested right of the assessee to claim credit of taxes paid in overseas jurisdiction in terms of Double Tax Agreement with the relevant country. In the instant case, there is no dispute that the assessee had filed return of income in USA and had produced all relevant documents with & 981/Ahd/2024 & C.O. 17/Ahd/2024 DCIT vs. Jay Dushyant Patel Asst. Years –2019-20 & 2021-22 - 5– respect to taxes paid by the assessee in USA. Therefore, mere delay in filing of Form No. 67, which is a procedural requirement, cannot be take away the vested right of the assessee to claim Foreign Tax Credit in respect to taxes paid by the assessee in overseas jurisdiction.
In the case of Chiragkumar Nandalal Makadia vs. Income-tax Officer [2024] 166 taxmann.com 26 (Ahmedabad - Trib.)[12-08-2024], the ITAT Ahmedabad held that where assessee was on deputation to Netherlands by his employer and salary earned in Netherlands and tax thereof was paid in said foreign country as per provisions of article 23 of DTAA between India and Netherlands, late filing of Form No. 67 could not be reason for denying benefit of foreign tax credit to assessee. The ITAT made the following observations in this regard:
It is pertinent to note that the assessee has filed return of income beyond the due date of filing of return of income, but the same was filed within the extended due date of the return of income. The revised return of income was also filed on 9-6-2020 and Form 67 was also filed within the extended period of filing of the due return. This aspect was not taken into account and, in fact, the assessee has paid the taxes outside India under section 90 read with article 23 of the India-Netherlands DTAA. This fact is not denied by the Assessing Officer or by the Commissioner (Appeals). The late filing of Form No. 67 cannot be the reason for denying the entitlement of the assessee in respect of the benefit of treaty when the salary earned in Netherlands and the tax thereof was paid in the said foreign country as per the provisions of article 23 of the DTAA between India and Netherlands. The same should have been taken into account. The salaries earned outside India and this fact was not disputed, in fact, the payment of tax in foreign country was also not disputed. Therefore, the assessee cannot be taxed twice on the same amount which results into double taxation. Thus, the Commissioner (Appeals) as well as Assessing Officer was not right in denying the claim of the assessee. Accordingly, the appeal filed by the assessee is allowed.
In the case of Niravsinh Kishoresinh Gehlot vs. Income-tax Officer, CPC [2024] 159 taxmann.com 743 (Ahmedabad - ITAT)/[2024] 206 ITD 123 (Ahmedabad - ITAT)[08-02-2024], the Ahmedabad ITTA held that where assessee claimed Foreign Tax Credit (FTC) and filed Form No. 67 after due & 981/Ahd/2024 & C.O. 17/Ahd/2024 DCIT vs. Jay Dushyant Patel Asst. Years –2019-20 & 2021-22 - 6– date specified for furnishing return under Section 139(1) but before completion of assessment proceedings, assessee's FTC claim was to be allowed. The ITAT made the following observations in this regard:
“We find that it has been held by the Hon'ble Apex Court on identical issue that the Rule 128(9) of the IT Rules does not provide for disallowance of FTC in the case of delay in filing Form No.67. Filing of such Form 67 is not mandatory but a directory requirement. Moreso, when DTAA overrides the provision of the Act, the Rules cannot be contrary to the Act and hence, this right to claim of FTC is a vested right of the appellant, cannot be denied. We find sufficient case has been made out by the appellant. Hence, respectfully relying upon the same, we allow the appeal on this aspect of filing of Form No.
We condone the delay, if any. We, thus, direct the Ld. CIT(A) to pass orders on merit strictly in accordance with law upon giving an opportunity of being heard to the appellant and upon considering the evidence on record or any other evidence which the appellant may choose to file at the time of hearing of the matter.”
In the result, we find that Ld. CIT(A) has correctly held that Rule 128 of the Income Tax Rules which obliges tax payers to submit Form 67 before filing their Income Tax Return to claim Foreign Tax Credit is a procedural requirement and filing of Form 67 should not result in denial of Foreign Tax Credit to the tax payer.
In the result, the appeals filed by the Department for A.Y. 2019-20 and 2021-22 are dismissed and Cross Objection of the assessee for A.Y. 2021-22 is dismissed and “Not Pressed”.