Loading judgment…
Facts
The assessee earned professional income from services rendered in the USA and also income from salary in India. The assessee claimed Foreign Tax Credit (FTC) for taxes paid in the USA while filing the return of income in India. The FTC claim was rejected by the Assessing Officer under section 143(1) without assigning any reasons. The CIT(A) also dismissed the appeal stating it was unclear if the tax was paid in the foreign jurisdiction.
Held
The Tribunal held that the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and USA, specifically Article 25, allow for FTC claims. The filing of Form 67 is a procedural requirement under Rule 128 of the Income Tax Rules and not a mandatory condition that can debar the assessee from claiming the credit if other conditions are met. The DTAA provisions override the Income Tax Act where they are more beneficial to the assessee.
Key Issues
Whether the assessee is entitled to claim Foreign Tax Credit (FTC) for taxes paid in USA despite alleged procedural non-compliance with filing Form 67, considering the DTAA provisions.
Sections Cited
Section 143(1), Section 90, Section 90A, Rule 128, Article 25 of DTAA between India and USA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’SMC” JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 107/JP/2024
ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 29-12-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2020-21. It is noted that ld AR of the assessee has concised the grounds which is reproduced as under:- Ground No.1 -3: Rejection of the Foreign Tax Credit claimed be the assessee was outside the purview of Section 143(1) and even though complied with the requirements of Rule 128 of Income Tax Rules, 1962.
2 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR 2.1 Brief facts of the case are that the assessee for the relevant previous year earned professional income from rendering services outside India i.e. USA and also earned income from salary and income from other sources from his sources in India. While filing return of income, the assessee considered income earned from USA as part of total income for the purpose of paying tax in India. Therefore, in the return of income the assessee took credit of amount paid in USA of Rs.1,16,379/- in accordance with Section 90/90A of the Income Tax Act for claiming FTC, as per rule, Form 67 was also filed before filing of Return of Income. However, while processing the return u/s 143(1), the FTC claimed by the assessee was rejected. Now before the Bench, the only question for adjudication is as to whether the assessee is entitled for FTC. 2.2 During the course of hearing, the ld. AR of the assessee filed the written submission before the Bench and mainly submitted that the AO(CPC), while rejecting the claim of FTC of the assessee, did not provide any reason for making such rejection, which in itself, renders the entire such rejection illegal and void ab initio. He further submitted that ld. CIT(A), NFAC dismissed the appeal of the assessee for the reason that it is not known as to whether the assessee had actually paid the tax in the foreign jurisdiction. Further, it was held that the requirements for claiming benefit under Article 25 of the DTAA had not been examined by the Assessing Officer. It is submitted that the FTC was rejected in the case of assessee 3 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR by the Id. AO(CPC) without assigning any proper reason. The fact has also been accepted by NFAC in his order at page 7,para 9. This itself, as also slated above, renders the entire proceedings under section 154 void ab initio and accordingly the order of Id. AO(CPC) deserves to be dismissed. Even otherwise, it is undisputed that the assessee had earned income in USA and had offered the same while filing the return of income in India. Also, while filing Form 67 before the Tax Authorities in India, the assesseo had claimed the Foreign Tax Credit in accordance with Rule 128 and also Article 25 of the Double Taxation Avoidance Agreement (DTAA) between India and USA Accordingly, the conditions for claiming FTC were fulfilled by the assessee, at the time of filing Form 67. The case laws relied upon by NFAC, while dismissing the appeal of the id AO(CPC) in the first proceedings, are not relevant for the issue at hand. In view of the above, the appeal of the assessee deserves to be allowed and direction may be given to the Id. AO(CPC) to allow the claim of Foreign Tax Credit. 2.3 On the other hand, the ld.DR supported the order of the ld. CIT(A) 2.4 In this regard, after having heard the parties at length and after going through the order passed by the Revenue Authorities, the Bench is of the view that considering the provisions of ITA and the rules thereunder, assessee was required to fulfill the conditions, as prescribed under Rule 128 of the ITR, for claiming FTC of the taxes paid in USA. In this regard, it is noted that the assessee has fulfilled 4 ITA NO. 107/JP/2024 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR all the conditions as prescribed under Rule 128 of the ITR. More specifically, as per Sub-Rule (9) of Rule 128, Form 67, as specified in Sub- Rule (8), has to be furnished on or before the due date of furnishing return of income u/s 139(1), in the manner specified for furnishing such return on income. The relevant Sub-Rule (8) and Sub-Rule (9) of Rule 128 are set out hereunder for the sake of ready reference.
"(8) Credit of any foreign tax shall be allowed on fumishing the following documents by the assessee, namely: - (i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein; (ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee -, (a) From the tax authority of the country or the specified territory outside India; or (b) From the person responsible for deduction of such tax; or (c) Signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by, - (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee; (9) The statement in Form No.67 referred to in clause (1) 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..."
The Assessee, in the present case, for the year under consideration, filed Form 67 with the Income Tax Department on 07.01.2021, which was within the time limit prescribed under Section 139(1), for the year under consideration. Such time limit being 10.01.2021. Even otherwise, filing of Form 67 is not mandatory for claiming foreign tax credit. It is noted that the entitlement for claiming FTC, of the taxes having paid outside India emerges from Double Taxation Avoidance Agreement ("DTAA") entered by India with different countries. In the present case, assessee had offered her income earned in USA, while filing return of income in India and accordingly had claimed the credit of taxes paid in USA. The same was in accordance with Article 25 of the DTAA between India and USA. Relevant extract of the same are reproduced hereunder for the sake of our ready reference.
"2. (a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part 6 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States" As per Article 25, assessee, being an Indian Tax Resident, having paid taxes in USA was entitled to claim credit of such taxes, without even fulfilling any procedural requirement, such as filing of any form or otherwise. Thus, as long as the assessee paid taxes in USA and offered the income earned in USA to tax in India the assessee was entitled to claim credit of such taxes paid in USA, without there being any embargo placed as per any of the articles of DTAA. In the present case, assessee had offered his income earned in USA, while filing return of income in India and accordingly had claimed the credit of taxes paid in USA. The same was in accordance with Article 25 of the DTAA between India and USA. It is also noted towards Sub-Section (2) of Section 90, which states that for granting relief in accordance with the provisions of the DTAA, the provisions of the ITA shall apply only to the extent they are more beneficial to the assessee. Going by the plain words of the statute, the provisions of the ITA, in a situation covered by the tax treaty/DTAA, cannot put the assessee to any greater burden than the burden placed by the provisions of applicable tax treaty/DTAA. The only limitation placed is by insertion of Sub-Section (2A) to Section 90 which states that "notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A (dealing with the General Anti Avoidance Rules) of the Act shall apply to the 7 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR assessee even if such provisions are not beneficial to him". Thus, Section 90(2A) is the only statutory provision in the ITA, which starts with a non- obstante clause vis-à-vis the provisions of Section 90(2), and it is the only rider to the treaty override provision set out in Section 90(2). Accordingly, when the provisions of DTAA are juxtaposed alongside the provisions of the ITA, then the provisions of DTAA shall always override the provisions of ITA. However, in a scenario, wherein, if the provisions of the ITA are more beneficial in comparison to the DTAA then only to that extent the beneficial provisions as contained in the ITA shall have to be made applicable on the assessee. In other words, only to the extent of the beneficial provisions, will the provisions of the ITA supersede the provisions of DTAA; otherwise, DTAA shall always have an overriding effect on the provisions of the ITA. Rule 128 was inserted by Income Tax (18th Amendment) Rules, 2016, w.e.f 1.04.2017. The requirement for filing Form 67 is prescribed under Rule 128 only and the same does not emerge out of any of the provisions contained in the ITA. It is noted that there is no requirement of filing any form, be it Form 67 or otherwise, for claiming FTC as per Article 25of the DTAA between India and USSA. Thus, rejecting the FTC for delay in filing of Form 67 would tantamount to pitting the Income Tax Rules, 1962 on a higher pedestal, in comparison to the provisions of the DTAA. It is well understood that the rules are a form of delegated legislation and are not approved by parliament as against the 8 BHAVIK SINGHAL VS ITO, WARD 1(1) JAIPUR provisions of the ITA which are amended/modified or introduced by the parliament. As regards the legal position, the provisions of the DTAA shall always supersede the provisions of the ITA. Under the DTAA, there is no requirement of filing Form 67 for availing FTC, It is submitted that Filing of Form 67, for the purpose of claiming FTC is a procedural requirement provided in the Income Tax Rules, 1962. It is a trite law that non fulfillment of any procedural requirement, cannot in any way, debar the assessee from any claim or benefit under the law to which he is otherwise entitled to. It is noted that nowhere in Rule 128 of the ITR, has it been specified that if Form 67 is not filed at all or if filed after the due date of filing of return u/s 139(1) then the assessee would be denied the claim of FTC. Hon'ble ITAT, Jaipur Bench, in the case Ritesh Kumar Garg, ITA 261/JP/2022, under identical set of facts, held that filing of Form 67, in accordance with Rule 128 was only a procedural/directory requirement and not a mandatory requirement. Hon'ble ITAT also relied upon the decision of ITAT Bangalore Bench, in the case of Brinda Rama Krishna (supra). Attention is also drawn towards the decision of ITAT, Jaipur Bench, Jaipur in the case of Sanjeev Agarwal, ITA No. 71/JP/2023. Hence, in view of the above deliberations and the case laws mentioned hereinabove, the Bench does not concur with the findings of the ld. CIT(A) and feel that the assessee is entitled for FTC and thus allow the appeal of the assessee.