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Facts
The assessee, a non-resident, claimed foreign tax credit (FTC) for taxes paid in the USA. The FTC claim was denied for non-compliance with filing Form 67 before the due date. The assessee filed Form 67 belatedly and sought rectification, which was also rejected.
Held
The Tribunal held that the requirement to file Form 67 before filing the return, as per Rule 128, is directory and not mandatory. Double Taxation Avoidance Agreements (DTAA) override the Act and Rules, and a procedural delay should not disallow the FTC claim. The case was remanded to the AO for fresh consideration.
Key Issues
Whether the foreign tax credit can be denied for delay in filing Form 67 when DTAA provisions override the Act and Rules.
Sections Cited
Section 90, Section 154, Section 139(1), Rule 128(9), Rule 128(8)
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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI LAXMI PRASAD SAHU
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 25.04.2024 passed by NFAC, Delhi for A.Y. 2019-20.
The Ld.AR submitted that the only issue that arises in the present appeal is regarding denial of foreign tax credit claimed by assessee u/s. 90 amounting to Rs.29,46,150/- in respect of taxes paid in USA.
The Ld.AR submitted that the assessee being a non-resident in India during the relevant period was not aware about Form 67 to be filed in order to claim the FTC. It is only upon the intimation received u/s. 143(1) that the assessee was informed regarding Form 67 not having complied, due to which the claim of FTC was denied. It is submitted that immediately the assessee on 10.02.2022 furnished Form 67 and filed a rectification request u/s. 154 of the act. The Ld.AR submitted that, the rectification request filed by the assessee was not considered by the CPC and the order u/s. 154 was passed on 22.02.2022 disallowing the FTC.
Against the order u/s. 154, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) upheld the order u/s. 154 by holding that Rule 128 has to be strictly complied with and the assessee should have filed Form 67 before the timeline specified u/s. 139(1) and that any omission would prevent assessee from claiming the FTC.
Aggrieved by the order of the Ld.CIT(A)/NFAC, the assessee is in appeal before this Tribunal.
The Ld.DR on the contrary has supported the orders passed by the authorities below. He submitted that fulfilment of requirement under rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to FTC.
We have perused the submissions advanced by both sides in the light of records placed before us.
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 Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of M/s. 42 Hertz Software India Pvt. Ltd. vs. ACIT reported in (2022) 139 taxmann.com 448.
There is no dispute that the assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) & (9), it is clear that, one of the requirements of Rule 128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns. In our view, this requirement cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67. This view is fortified by the decision of coordinate bench