TESSOLVE SEMICONDUCTOR PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1) , BANGALORE

Brief facts of the case are that assessee is a company engaged in the business of Semiconductor Test Engineering solutions. During the Assessment Year 2021-22, assessee filed its original return of income on 10.03.2022. Thereafter, the assessee filed revised return on 28.03.2022 and claimed the Foreign Tax Credit (FTC) earned for the income earned by them outside India. The return was processed under section 143(1) of the

General ground: 1.1The learned Additional / Joint Commissioner of Income Tax, Appeal Madurai (hereinafter referred to as CIT (A) for short) and the learned Assistant Director of Income Tax, CPC, Bengaluru (hereinafter referred to as CPC for short) have erred in passing the appellate order under section 250 of the Act and intimation under section 143(1) of the Act respectively, in the manner passed by them. The appellate order and the intimation so passed are bad in law and liable to be quashed.

Ground relating to principles of natural justice- Section 143(1) 2.1. The learned CPC has erred in passing the intimation under section 143(1) by disallowing the foreign tax credit u/s 90 without issuing a communication as required under proviso to section 143(1) and without providing opportunity to submit the response by the appellant. The intimation passed under section 143(1) is bad in law and liable to be deleted. 2.2 The learned CPC has erred in making adjustments not contemplated under the provisions of section 143(1) of the Act. The same being bad in law, the demand payable as determined in the Intimation under section 143(1) is to be deleted in its entirety. 2.3 Based on facts and circumstances of the case and law applicable, the intimation passed under section 143(1) is bad in law and liable to be deleted. 3. Ground relating to denial of foreign tax credit under section 90/90A 3.1 The learned CPC and the CIT(A) have erred in denying the appellant the foreign tax credit of Rs. 50,11,531 claimed under section 90/90A of the Act merely on delay in filing of Form 67. 3.2 The learned CPC and the CIT(A) have erred in not appreciating the time limit prescribed under Rule 128 of the Income Tax Rules, 1962 is directory in nature and not mandatory. 3.3 The learned CPC and the CIT(A) have erred in not appreciating that rule 128 does not provide for disallowance of foreign tax credit on account of non filing or late filing of prescribed form i.e., Form No 67 3.4 The learned CPC and the CIT(A) have erred in not following the judgment of the Madras High Court in the case of Duraiswamy Kumaraswamy in WP No. 5834 of 2022 and WMP No. 5925 and 5927 of 2022. The learned CPC and CIT(A) also erred in not following the judgements of the ITAT, Bangalore bench in several cases. 3.5 On facts and circumstances of the case and law applicable, the foreign tax credit claimed in the revised return is to be accepted and the variations thereto is to be deleted fully.

Prayer: 4.1Based on the above grounds and other grounds adduced at the time of hearing, the appellant prays that the order passed under section 250 be quashed or in alternative the above grounds and relief prayed thereof be allowed. The appellant prays accordingly.

The learned AR at the time of hearing had filed a Paper Book and also the case laws in support of his arguments and prayed to allow the appeal since the intimation was issued after the revised return along with Form 67 was filed before the AO. The ld AR also relied on the order of the coordinated Bench of this Tribunal and the judgement of the Hon’ble High Court of Madras in support of his argument.

The learned DR relied on the orders of the Lower Authorities and prayed to dismiss the appeal.

We heard the arguments of both sides and perused the materials available on record and also the case laws and Paper Book filed by the assessee. As seen from the records, the assessee filed the revised return on 28.03.2022 and claimed the FTC earned by the company as per sections 90/91 of the Act by filing Form 67. Thereafter, the return was processed under section 143(1) of the Act and the intimation was issued on 13.11.2022 in which the FTC was denied. These facts are not disputed by the Department but the Department relied on the Rule 128(9) of the IT Rules that the Form 67 should be filed along with the original return of income filed under section 139(1) of the Act. This issue was already decided by the Co-ordinate Bench of the Tribunal in the case of Sanjiv Gopal Vs. ADIT [2022] 145 taxmann.com 378 (Bangalore Trib.) in which

Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that Section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below: “4. In the case of India, double taxation shall be avoided as follows: (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;” It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements. FTC is Assessee’s vested right as per Article 24(4)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules. 8. It was further submitted by him that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: “(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:— (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”

It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision. 10. It was further submitted that 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. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to section 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9). 11. It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that: “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.” 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

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. 15. 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. 16. 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. 17. In the result, the appeal is allowed.” 7. The aforesaid decision has also been followed by a Division Bench of ITAT Surat Bench in the case of Sanjay Patil Vs Assessing Officer (ITAT Surat) ITA No.189/SRT/2021 Order dated 18/05/2022. Following the view expressed in the aforesaid decision, we hold that

In the result, the appeal is allowed.” 6. The above view of the coordinated Bench was approved by the Hon’ble Madras High Court in its judgement reported in (2023) 156 taxmann.com 445 (Madras) in the case of Duraiswamy Kumaraswamy Vs. Principal Commissioner of Income Tax, wherein it was held that,

In view of the above Judgement of the Hon’ble Madras High Court cited supra and the order of the Co-ordinate Bench of the Tribunal, which are identical to the facts of the present case, we set aside the orders of the authorities below and allow the appeal filed by the assessee.

In the result, appeal filed by the assessee is allowed.