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Facts
The assessee, an individual earning salary from a US company with taxes withheld in the US, claimed Foreign Tax Credit (FTC) in India for AY 2020-21. The FTC claim was disallowed by the CPC/AO and upheld by the CIT(A) primarily due to the late filing of Form 67, which is a prerequisite for claiming FTC. The assessee filed an original ITR, then a late Form 67, followed by a revised return, but the benefit was denied during processing and subsequent rectification requests.
Held
The Tribunal held that the filing of Form 67 is a procedural/directory requirement, and its late submission does not extinguish the assessee's substantive right to claim FTC under Section 90 of the Income Tax Act, read with the India-USA DTAA (Article 25). Citing precedents, the Tribunal directed the AO to allow the foreign tax credit, limited to the proportion of Indian tax payable.
Key Issues
Whether Foreign Tax Credit can be denied solely due to the late filing of Form 67, when the substantive right to such credit exists under the Income Tax Act and DTAA.
Sections Cited
Section 154, Section 90, Rule 128(9), Section 139(5), Section 139(1), Section 90(2), Section 143(1)
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. Kumar, Sh. Sudhir Kumar
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi dated 28.08.2023.
Following grounds have been raised by the assessee:
“Ground No. 1: That the order of Ld Commissioner of Income tax (Appeal Unit)-1, NATIONAL FACELESS APPEAL CENTRE (NFAC) is erroneous while confirming the order of section 154 owing to the fact that the Claim of Foreign Tax Credit (FTC was allowable as Form No. 67 was on record at the time of passing of Rectification Order and that the provisions of section 90(2) of the Act empowers provisions of the Act to be applied to the extent they are more beneficial to a taxpayer in case of DTAA covered cases and that the fling 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. Ground No. 2: That the Right to file a Revised Return is a statutory right u/s 139(5) and the Original Return, which was filed u/s 139(1), stood withdrawn once the ITR was Revised Manoj Kumar Srivastava within the time allowed as such the ITR which was processed for the first time on 25.11.2021 had Form No.67 on record. Ground No. 3: That Section 139(5) of the Income-Tax Act, 1961 allows taxpayers to rectify their mistakes in their original tax returns by filing a revised return. Deductions or exemptions wrongly claimed and incorrect disclosure of income can be fixed by fling this return. Ground No. 4: That there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance with any procedural provision.”
Heard the arguments of both the parties and perused the material available on record.
The Assessee is an individual and earned income from salary and interest. The salary derived by him is from a company based in U.S.A, which credits his salary after withholding tax as per the tax laws of U.S. Therefore, the Assessee claims the benefit of Foreign Tax Credit for the taxes withheld in by the U.S. Tax Authorities.
In the case under consideration, the assesse filed the original ITR for A.Y. 2020-21 vide Acknowledgement No. 192466970100121 claiming benefit of foreign tax credit amounting to Rs. 10,58,483/- on 10.01.2021 but did not file Form 67. The assessee later on filed Form 67 on 31.03.2021 vide receipt No. 330987350310321 and then filed the revised return on 31.03.2021 vide Acknowledgement No. 33107029031032021. The revised return was processed u/s 143(1) vide order No. CPC/2021/A2/163137704 dated 25.11.2021 and benefit of foreign tax credit was not allowed. The assessee moved for rectification u/s 154 against 143(1) for claiming the benefit of foreign tax credit. The AO/CPC rejected
Manoj Kumar Srivastava requisition for rectification u/s 154 vide order No. CPC/2021/U2/273792137 dated 22.08.2022 and upheld the intimation u/s 143(1) disallowing the credit of FTC on account of late filling of form 67 after due date of filling/ of ITR.
Aggrieved, the assessee filed appeal before the ld. CIT (A).
The ld. CIT (A)-NFAC dismissed the appeal of the assessee on ground that the assessee inadvertently filed the Form 67 of different year than the year under consideration.
Aggrieved, the assessee filed appeal before the Tribunal.
The assessee is in appeal before the Tribunal prayed for allowing the relief to the assessee as per Section 90 of the Act and as per Article 25 of India USA DTAA provides for credit for foreign taxes. It was submitted that section 90 of the Act read with Article 25(2)(a) provides that USA tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax.
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, which is recently amended and provided for filling before the end of assessment year. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame or incorrectly filed within time frame and rectified later on, the relief as sought by the assessee u/s 90 of the Act would be denied. It was not the legislative intention to deny the FTC, either under the Act or Rules. Filing of Form 67 is a procedural/directory requirement and is not a Manoj Kumar Srivastava mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC.
Reliance is placed on the following judgments:
Brinda Ramakrishna vs. ITO (135 taxmann.com 358) (Bangalore ITAT) Sonakshi Sinha vs. CIT (Appeals) (142 taxmann.com 414) (Mumbai ITAT) Bhaskar Dutta vs. ACIT (Int. Taxation) (147 taxmann.com 481) (Delhi ITAT)
Hence, keeping in view the entire facts narrated above, the JAO is directed to allow the foreign tax credit limited to proportion of Indian tax payable.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 24/05/2024.