SACHIN SHRIKANT KHEDEKAR,MUMBAI vs. ASST COMMISSIONER OF INCOME TAX, MUMBAI

In this appeal, the assessee has raised the following grounds: -

The solitary grievance of the assessee is against the denial of foreign tax credit under section 90 of the Act due to the delay in filing Form No. 67.

The brief facts of the case as emanating from the record are: The assessee is a film artist and earns income from professional activities. For the year under consideration, the assessee filed his return of income on 06/10/2018, declaring a total income of Rs. 80,48,010. Out of the total professional receipts, Rs. 26,84,478 was received from parties outside India, on which tax amounting to Rs. 5,36,896 was paid outside India. While filing his return of income, the assessee included all his income, including that earned in India and also that earned outside India. In the return of income, the assessee claimed relief of Rs. 5,36,896, as per the provisions of section 90 of the Act, in respect of tax paid outside India. The return filed by the assessee was processed vide intimation dated 17/03/2020, issued under section 143(1) of the Act, whereby the foreign tax credit of Rs. 5,36,896, claimed by the assessee under section 90 of the Act, was denied. Thereafter, the assessee filed a rectification application, inter alia, alongwith the proof of the tax paid and Form No.67 dated 06/10/2018. The rectification application filed by the assessee under section 154 was also disposed off vide order dated 18/05/2023, rejecting the relief claimed by the assessee under section 90 of the Act in respect of foreign tax credit on the basis that the assessee has not filed Form No.67. In the appeal against the order passed under section 154 of the Act, learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue and held that Form No.67 was not at all filed by the assessee as prescribed as per the provisions of Rule 128(9) of the Income Tax Rules, 1962 (“the Rules”). Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (‘learned AR’) submitted that in the present case, the assessee filed his return of income on 06/10/2018, i.e. before the due date of filing the return of income, and duly disclosed the income earned from outside India as well as the tax amounting to Rs. 5,36,896 paid outside India. It was further submitted that the assessee filed Form No. 67 dated 06/10/2018 along with other proof of payment of tax outside India for claiming relief under section 90 of the Act, along with the rectification application filed under section 154 of the Act. The learned AR also submitted that the provisions of section 90 of the Act are substantive provisions, and provisions of Rule 128 cannot override the same. In support of its submission, reliance was placed upon the various decisions forming part of the case law paper book.

On the contrary, the learned Departmental Representative (‘learned DR’) vehemently relied upon the order passed by the learned CIT(A) and submitted that the provisions of Rule 128 of the Rules are mandatory in nature.

We have considered the rival submissions and perused the material available on record. In the present case, the assessee filed his return of income on 06/10/2018. In his return of income, the assessee claimed credit of foreign tax paid under section 90 of the Act. The ADIT, CPC, Bengaluru, while processing the return of income vide intimation issued under section 143(1) of the Act, denied the foreign tax credit of Rs. 5,36,896, claimed by the assessee under section 90 of the Act. Thereafter, the assessee filed Form No. 67 and a rectification application under section 154 of the Act for claiming the foreign tax credit. Vide order dated 18/05/2023, the rectification application was disposed off without granting any relief to the assessee in respect of the issue involved. In the impugned order, it has been held that Form No. 67 was not at all filed by the assessee, as per the provisions of Rule 128(9) of the Rules, and thus the claim of the assessee was rejected.

In the present case, the assessee has placed on record Form No.67 dated 06/10/2018 in respect of taxes amounting to Rs. 5,36,896 paid outside India. Further, from the perusal of the submission dated 21/02/2023 filed by the assessee during the rectification proceedings, forming part of the paper book on page 30, we find that the assessee filed the documents to prove tax paid abroad for claiming relief under section 90 of the Act. Further, from the perusal of the assessee’s written submissions before the learned CIT(A), forming part of the paper book from pages 38-42, we find that the assessee admitted that Form No. 67 was not submitted before the due date for filing the return of income. However, the assessee submitted that the same was filed before the Assessing Officer (“AO”) in the course of rectification proceedings. We find that the assessee also furnished, before the learned CIT(A), a copy of Form No. 67, as submitted before the AO.

We find that under Rule 128(9), as it stood during the year under consideration, provided that the statement in Form No.67, referred to in clause (i) of sub-rule (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 sub-section (1) of section 139, in the manner specified for furnishing such return of income. Thus, during the year under consideration, the assessee was required to furnish Form No. 67 on or before the due date of filing the return of income under section 139(1) of the Act, as per the provisions of Rule 128(9). We further find that Rule 128(9) has been substituted by the Income-tax (Twenty- seventh Amendment) Rules, 2022, w.r.e.f. 01/04/2022, and the same reads as under:

Thus, with effect from 01/04/2022, the time period for furnishing a statement in Form No. 67 has been extended till the end of the assessment year in which the corresponding income has been offered/assessed to tax and the return of such assessment year has been furnished within the time specified under 139(1) or 139(4) of the Act.

We find that the coordinate bench of the Tribunal in Sonakshi Sinha vs CIT, reported in [2022] 142 taxmann.com 414 (Mum-Trib.), while dealing with a similar issue wherein the taxpayer filed Form No.67, after the due date for filing the return of income under section 139(1), observed as follows: -

Same view is also taken by a coordinate division bench in Vinodkumar Lakshmipathi V CIT(A) NFAC ITA No.680/Bang./2022 06.09.2022. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Admittedly, Rule 128 does not prescribe denial of credit of FTC. Further the Act i.e. section 90 or 91 also do not prescribe timeline for filing of such declaration on or before due date of filing of ROI. Further rule 128 (4) clearly provides the condition where the foreign tax credit would not be allowed. Rule 128 (9) does not say that if prescribed form would not be filed on or before the due date of filing of the return no such credit would be allowed. Further by the amendment to the rule with effect from 1 April 2022, the assessee can file such form number 67 on or before the end of the assessment year. Therefore, legislature in its own wisdom has extended such date which is beyond the due date of filing of the return of income. Further, the fact in the present case is quite distinct then the issue involved in the decision of the honourable Supreme Court in case of Wipro Ltd (supra). Here it is not the case of violation of any of the provisions of the act but of the rule, which does not provide for any consequence, if not complied with. Therefore, respectfully following the decisions of the coordinate bench on this issue, we hold the assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income Tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Accordingly, ground number 2 of the appeal of the assessee is allowed.”

Thus, respectfully following the decisions cited supra, we are of the considered opinion that mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as they stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. Since in the present case, the claim of the assessee was denied on this technical aspect without going into the merits, we deem it appropriate to direct the jurisdictional AO to decide the claim of the foreign tax credit on merits, after accepting the Form No.67 and other related documents filed by the assessee. We order accordingly. As a result, grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal by the assessee is allowed for statistical purposes.