RAJESH KUMAR LAKHRAN,JAIPUR vs. ITO, WD-7(1), JAIPUR

an Individual and an ordinary resident in India during the

Assessment Year 2021-22 assessee worked with EBE NV -

BACCO Belgium from 30 September, 2019 till 25 July, 2020. He

offered to tax salary income earned for services rendered in

Belgium as his Global Income was taxable in India. He claimed

3 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO foreign tax credit (FTC) for taxes paid in Belgium. The ld. AO noted

that the Assessee did not file form 67 before filing the income tax

return (ITR). Thus, he filed form 67 in support of foreign tax credit

claim later after filing of ITR. CPC processed the assessee's return

without allowing claim of FTC (Rule-129). Assessee filed

rectification application before Assessing Officer (AO) asking for

FTC claim. However, AO denied it on the ground that assessee

had failed to furnish form 67 on or before the due date of furnishing

of ITR. This is a mandatory requirement to claim the benefit of FTC

in accordance with rule 128 (9) of the Income tax Rules.

Assessing Officer the order and Aggrieved For more details,

please refer DTAA (with Belgium country).

assessee prefer the appeal before the ld. CIT (A) with a prayer to

allow the relief u/s 90. Apropos to the grounds so raised the

relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:-

“4. APPELLATE FINDINGS:

4.1 Ground of Appeal Nos. 1to4: In these grounds, the appellant has taken a plea that the AO has erred in not allowing relief under section 90 of the Income Tax Act, 1961 (FTC Rule 128(9)) whereas the appellant

4 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO filed Form No. 67 after receiving intimation order and submitted to the AO during rectification proceedings. 4.2 During the appellate proceedings, the appellant submitted that he is an individual and an ordinary resident in India during the year under consideration and worked with EBE NV-BACCO Belgium and offered to tax salary income earned there but did not file Form 67 before filing the income tax return but filed the same later after filing of ITR. 4.3 In view of the above facts and circumstances, it is noted that the only issue with respect to the grounds raised by the appellant is regarding non-filing of Form No. 67 filing of return income and consequential denial of foreign tax credit by invoking the rule 128(9) of the IT Rules. The undersigned extract herein below Rule 128(9) of the IT Rules, 1962 for reference:- "128 (9) The statement in Form No. OTMENT 67 referred to in clause (i) 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." 4.4. From the plain reading of rule 128(9) of the IT Rules, it is clear that the statement in Form No. 67 shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139 of the Act. Therefore, in my considered view that since the word "shall" has been used in the Rule 128(9) that it is mandatory in nature. Therefore, I find no infirmity in the order of the AO/ CPC and hence no interference is required. Thus, the ground of appeal Nos. 1to4 is dismissed. 5. In the result, the appeal filed by the appellant is dismissed.”

CIT(A) confirming the view of the ld. AO holding that word shall

used in the rule 128(9) prescribed mandatory condition to file the

form no. 67 on or before the due date of furnishing the return of

income. Feeling dissatisfied with the said finding of the ld. CIT(A)

5 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO the assessee prefers the present appeal on the grounds as

reiterated here in above in para 2. Assessee has submitted the

written submission praying there to allow the claim u/s. 90 of the

Act as the assessee has already suffered the tax at Belgium on the

income offered in India and considering the double taxation

agreement between India and Belgium the claim should be allowed

to the assessee.

upon the reasoning which is again confirmed by the ld. CIT(A) after

passing a detailed order. Based on these arguments the ld. DR

supported the orders of the lower authority.

available on record. It is not imperative to repeat the facts of the

case as the similar issue was decided by this ITAT Jaipur Bench

vide its order dated 27-09-2023 in IT(IT)A No. 12/JP/2023 for the

assessment year 2021-22 in the case of Juan Miguel Guerrero

Ferrer vs DCIT wherein the relevant observation as made by this

bench is reproduced as under:-

6 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO ground of appeal, the assessee has filed Form 67 for claiming relief under section 90 of the IT Act. The said form was filed by the assessee on 28.12.2022 and the Income Tax Return was filed as on 08.09.2021 claiming relief under section 90/90A of the IT Act of Rs. 37,41,228/-. It is an undisputed fact that the assessee has got salary from his employer in Spain and due tax has been deducted by the employer. As per Article 15 of Double Taxation Avoidance Agreement (DTAA) with country Spain, the tax payable by assessee in that country is eligible for relief under section 90 of the Income Tax Act, 1961 to the assessee. The said relief was denied by the revenue authorities on the ground that the return for the year under consideration was filed by the assessee on 08.09.2021. However, the form 67 was filed on 28.12.2022 and not along with the return of income filed on 08.09.2021. Since according to revenue the said form 67 was filed after the due date of filing the return of income for the year under consideration, therefore, the assessee was rightly found not eligible for the credit of that amount.

“ 5.1. After having meticulously gone through the facts of the present case, we are of the view that there is no dispute that assessee is entitled to claim relief under section 90 of the IT Act but the disallowance was confirmed on the sole ground that the relevant form 67 prescribed under section 128(8) was not filed within the time stipulated under sub rule 9 of Rule 128. It is important to mention here 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. In this regard Article 22 of India Finland DTAA provides for credit for foreign taxes. The relevant portion of sub clause (2) of Article 22 is reproduced below :-

“ 2. In India double taxation shall be eliminated as follows:- Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Finland, India shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in Finland. Such deduction shall not, however,

7 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in Finland.”

And since as per section 90 of the Act read with Article 22 sub clause (2) provides that Finland Income Tax paid shall be allowed as a credit against the Indian Tax but limited to proportion of Indian tax. In my view, neither section 90 nor DTAA provides that FTC shall be disallowed for non compliance with any procedural requirements. Since FTC is assessee’s vested right as per Article 22(2) of the DTAA read with section 90 and thus same cannot be disallowed for non compliance of procedural requirement that is prescribed in the Rules. 5.2. In my view, section 295 sub section (1) of the Act provides powers to the CBDT to prescribe Rules for various purposes. Section 295 sub section (2) sub clause (ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follows :-

“ (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;”

Thus, in this way the Board has power to prescribe procedure for granting FTC. Therefore, in my view the procedure prescribed in Rule 128 should be interpreted in this context. Therefore, Rule 128 is a procedural provision and not a mandatory provision. The said rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed under section 139(1) of the Act. However, the said 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 under section 90 of the Act would be denied. In case the intention of the Act or Rule was to deny the FTC, then in that eventuality 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. Thus filing of Form 67, in my view, is a procedural/directory requirement and is not a mandatory requirement. Therefore, violation of procedural

8 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO norms does not extinguish the substantive right of claiming the credit of FTC. While reaching to this conclusion, we draw strength from the decision of Hon’ble Supreme Court of India in the case of Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner, (1992) Supp (1) Supreme Court Cases 21 wherein the Hon’ble Supreme Court has held 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.”

Apart from the above decision, I further rely upon the decision of Hon’ble Supreme Court in the case of Sambhaji &Ors. vs. Gangabai&Ors., (2008) 17 SCC 117 (SC) wherein it was 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. According to Hon’ble Supreme Court, the procedures are handmaid and not the mistress. It is a lubricant and not a resistance. Thus, a procedural law should not ordinarily be construed as mandatory. The procedural law is always subservient to and is in aid to justice. Even otherwise, since there are no conditions prescribed in DTAA that FTC can be disallowed for non compliance of any procedural provision, therefore, the provisions of DTAA override the provisions of the Act. As the assessee has vested right to claim the FTC under the tax treaty and the same cannot be disallowed for mere delay in compliance of a procedural provision. 5.3. Even otherwise, the said Form 67 filed by the assessee before the tax authorities was available before the AO when the intimation under section 143(1) of the Act dated 25.11.2021 was passed. Therefore, in such circumstances, in my view, there were no reasons with the tax authorities for making disallowance when the said Form 67 was very much available with the AO at the time of framing the assessment order. While reaching to this conclusion, I further strengthen my view by relying upon the decision in the case of Brinda Rama Krishna vs. ITO 135 taxmann.com 358 wherein the Coordinate Bench of the Bangalore Tribunal had directed the Revenue to allow relief of FTC under section 90 of the Act, wherein Form 67 was filed after the prescribed due date. The ratio of the said decision in the case of Brinda Rama Krishna vs. ITO (supra) was further followed in another case decided by the Coordinate

9 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO Bench of the Bangalore Tribunal in the case of 42 Hertz Software India Pvt. Ltd. vs. ACIT in IT Appeal No. 29 of 2021. On the contrary, I respectfully with all humility disagree with the view taken by the Visakhapatnam Bench of the Tribunal in the case of Muralikrishna Vaddi (supra) while relying upon the decision of Hon’ble Supreme Court and also of the decisions of Coordinate Benches of the Tribunal in the cases of Brinda Rama Krishna vs. ITO (supra) and 42 Hertz Software India Pvt. Ltd. vs. ACIT (supra). Therefore, considering the totality of facts and legal position as discussed above, I am of the view that assessee is entitled for the credit of FTC under section 90 of the Act. Thus, I, accordingly direct the AO to allow the relief of FTC under section 90 of the Act in the case of assessee. 6. In the result, appeal of the assessee is allowed.” ‘’We, therefore, following the coordinate bench decision referred herein above, wherein case laws cited was considered and reliance was placed on the judgment of the Hon’ble Supreme Court, allow the claim of Foreign Tax Credit (FTC) in favour of the assessee. The AO is accordingly directed to allow relief to the assessee. The order of the ld. CIT (A) is set aside.’’ Since the issue raised by the assessee (supra) is similar to the

case of Juan Miguel Guerrero Ferrer vs DCIT(supra), therefore,

the decision taken therein shall apply mutatis mutandis in the case

of the assessee also as the claim of the assessee is duly

supported by the ITR filed and the Form no. 67 though late. Thus,

the AO is accordingly directed to allow relief to the assessee based

on the ITR and form no 67 filed by the assessee. The order of the

ld. CIT (A) is set aside.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 07/02/2024.

10 ITA No. 761/JPR/2023 Rajesh Kumar Lkhran vs. ITO

Sd/- Sd/- ¼ jkBkSM deys’k t;arHkkbZ ½ ¼ lanhi xkslkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 07/02/2024 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Rajesh Kumar Lakhran, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward-7(1), Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA Nos. 761/JPR/2023} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत