Loading judgment…
Facts
The assessee, a resident of India and USA, earned income in both countries and paid taxes. The assessee filed their return of income and claimed Foreign Tax Credit (FTC) for taxes paid in the USA. However, the FTC was disallowed by the CPC for non-filing of Form 67 within the due date.
Held
The Tribunal held that the requirement of filing Form 67 within the due date is directory, not mandatory. It also noted that the provisions of the Double Taxation Avoidance Agreement (DTAA) override the provisions of the Act, and the DTAA does not prescribe disallowance of FTC for non-compliance with procedural provisions.
Key Issues
Whether disallowance of Foreign Tax Credit (FTC) for non-filing of Form 67 within the due date is justified, considering that DTAA provisions override the Act and Rule 128(9) is directory.
Sections Cited
Section 90(2) of the Income Tax Act, 1961, Rule 128(9) of the Income-tax Rules, 1962, Article 25 of the India-USA DTAA, Section 139(1) of the Income Tax Act, 1961, Section 139(4) of the Income Tax Act, 1961, Section 154 of the Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member
This appeal is filed by the assessee against the order dated 12.06.2024 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2017-18 on the following grounds :-
“ 1. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ADDL/JCIT (A)-2 Gurugram (herein referred to id. CIT(A)') had erred in upholding the disallowance made by Centralized Processing Centre (`CPC') u/s 143(1) of the Income Tax Act 1961 (`the Act') in respect of foreign tax credit of INR 7,05,587 against the federal taxes paid by the appellant in the USA on the doubly taxed USA sourced income of INR 40,86,983 claimed u/s 90(2) of the Act, read with Article 25 of the India-USA Double Taxation Avoidance Agreement (`DTAA').
The Ld. CIT(A) has failed to interpret Rule 128 liberally and take cognizance of the fact that the filing of Form 67 is a procedural requirement.
3. Any consequential credit, to which the appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal
, or otherwise, may be thus granted.”
2. Briefly stated the facts of the case are that the assessee is a resident and ordinarily resident as per section 6(1) r.w.s. 6(6) of the Act and for the subject assessment year the assessee was a resident in India as per the provisions of Article 4 of DTAA between India & USA. Accordingly the assessee was liable to be taxed on his worldwide income in India i.e., income earned in India as well as income from outside India. The assessee earned income from outside Inia from 18.2.2015 to 08.10.2016 and paid taxes thereon as well as paid taxes in India. During the relevant year, the assessee filed return of income u/s. 139(4) on 22.12.2017 declaring total income of Rs.63,11,720 and tax liability was Rs.12,51,990 after claiming Foreign Tax Credit (FTC) of Rs.7,05,587 on income earned from USA and TDS was deducted from salary by the employer, i.e., Microsoft Global Services Pvt. Ltd. and income from SBI. The assessee earned income outside India from 18.2.2015 to 08.10.2016 and paid taxes thereon as well as paid taxes in India. The assessee claimed foreign tax credit (FTC) in respect of income tax paid in USA as per provisions of section 90(2) of the Act r.w. Article 25(2)(a) of India-US DTAA. The return was processed u/s. 143(1) on 30.3.2019 wherein FTC claimed by the assessee was disallowed for non-filing of Form 67 as per the provisions of the Act. Accordingly demand was raised of Rs.9,65,970. Aggrieved from the above order, the assessee filed appeal before the First Appellate Authority (FAA).
The ld. FAA noted that the assessee filed return of income on 22.12.2017 after the extended due date on 05.08.2017. Form 67 was filed on 18.08.2023 which is beyond due date and therefore the ld. FAA did not accept the plea of the assessee and dismissed the appeal. Aggrieved, the assessee is in appeal before the ITAT.
The ld. AR reiterated the submissions made before the FAA and submitted that the assessee was not aware about filing of Form 67 and this was the first year of introduction of Form 67 for getting foreign tax credit and later on when the necessary From received, immediately Form 67 was filed on 18.08.2023 and requested that the delay may be condoned and the matter may be sent back to the AO. In support of his arguments, he relied on the coordinate Bench decisions in dated 7.3.2024 and & 26/Bang/2024 dated 13.2.2023.
The ld. DR relied on the order of lower authorities and submitted that assessee should have filed Form 67 for claiming FTC within the due date which was filed on 18.08.2023 which is beyond due date. As per Rule 128(9) assessee was required to file return u/s. 139(1) and the ld. DR relied on the order in the case of Ms. Brinda RamaKrishna [2022] 135 taxamann.com 358 (Bang. Trib).
Considering the rival submissions we note that the assessee filed the return belatedly and Form 67 was filed on 18.8.2023 claiming FTC of Rs.7,05,585. However, the CPC has not granted FTC and the ld. FAA has also confirmed the same. Similar issue has been decided by coordinate Bench of the Tribunal in dated 7.3.2024 and it is held as under:-
“ 7. We have heard the rival submissions and perused the material on record. The various orders of the Tribunal (cited supra), had categorically held that the requirement of filing Form 67 within the due date prescribed u/s.139(1) of the Act cannot be treated as mandatory. Further, it was held that it is to be treated as directory in nature. This is because Rule 128(9) of the Income-tax Rules, 1962 does not provide for disallowance of FTC in case of delay in filing Form 67. On identical facts, the Ahmedabad Bench of the Tribunal in the case of Keval Niraj Hutheesing in (order dated 29.03.2023) after considering the judicial pronouncements, had directed the AO to give credit for FTC after due verification of Form 67 filed. In the afore-mentioned case also, Form 67 was not filed before the processing the return u/s.143(1) of the Act, but was filed subsequently. The relevant finding of the Ahmedabad Bench of the Tribunal in the case of Keval Niraj Hutheesing (supra), reads as follows:- “ 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has paid the taxes on the income earned in United Kingdom in that country and assessee is asking for credit of the same while filing the return of income. The CIT(A) held that the assessee has not filed Form 67 before time allowed under Section 139(5) of the Act and therefore, Form 67 is non-est in law does not categorically discussed the assessee’s case as the assessee has already paid taxes in UK and as per Article 24(2) of the DTAA between India and UK the foreign income cannot be taxed twice. The decision of Bangalore Tribunal in case of Vinodkumar Lakshmipathi vs. CIT is dealing on the identical situation and the Tribunal has taken cognizance of the same in light of the decision of Hon’ble Supreme Court in case of Mangalore Chemicals & Fertilizers Ltd. vs. DCIT (1992 Supp (1) SCC 21) wherein it was observed as under:
“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."
The Tribunal further held that: 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.
It was further submitted that even in the context of 80-IA(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 v. Axis Computers (India) (P.) Ltd. [2009] 178 Taxman 143 (Delhi) ♦ PCIT, Kanpur v. Surya Merchants Ltd. [2016] 72 taxmann.com 16 (Allahabad)
♦ CIT, Central Circle v. American Data Solutions India (P.) Ltd [2014] 45 taxmann.com 379 (Karnataka) ♦ CIT-II v. Mantec Consultants (P.) Ltd. [2009] 178 Taxman 429 (Delhi) ♦ CIT v. ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
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 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 (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) (Pgs. 106-109 of PB 2-Paras 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.
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.
8. Thus, the facts are identical in the present case as well and therefore, we direct the Assessing Officer to give credit for foreign tax as per Form 67 dated 05.04.2021 filed by the assessee prior to the filing of the appeal before the CIT(A) after due verification.”
In the light of the aforesaid judicial pronouncements, we direct the A.O. to give credit for FTC after due verification of Form 67.” 7. Following the above judicial pronouncement, we direct the AO to allow Foreign Tax Credit after due verification of Form 67.
In the result, the appeal by the assessee is allowed for statistical purposes.
Pronounced in the open court on this 23rd day of October, 2024.