ANINDYA SARKAR,KOLKATA vs. A.D.I.T., CPC, BENGALURU, BENGALRU

Present for: Appellant by : Shri C.M. Roy, C.A. Respondent by : Shri Subhro Das, Addl. CIT, Sr. DR Date of Hearing : 11.07.2024 Date of Pronouncement : 26.07.2024 O R D E R

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

2. The grounds of appeal raised by the assessee are reproduced as under:

“1. That the learned CIT(A) has erred in disallowing the foreign tax credit due to delay in submission of Form 67.

2 Anindya Sarkar : AY: 2020-21 2. That the learned CIT(A) has failed to appreciate the fact that in case of delayed filing of Form 67 by way of foreign tax credit which is deducted in foreign country would be denied (sic). 3. For that the assessee craves leave to add, alter or withdraw any ground/s of appeal before or at the time of hearing.”

3. Brief facts of the case as noted from Form No. 35 filed before the Ld. CIT(A) are that the assessee is an individual and during the previous year 2019-20, he was employed with M/s Finmechanics Pte. Ltd., #23-09,20, Cecil Street, Singapore – 049705. He had to stay in India for more than 108 days, hence for the purpose of income tax he was treated as a resident. The assessee/appellant, during the said previous year, has voluntarily disclosed gross total income of Rs. 1,46,04,863/- arising out of his salary income of Rs. 1,30,21,582/-, H.P. income of Rs. 61,797/-, Other Source Income of Rs. 10,64,132/- and Capital Gains of Rs. 4,57,352/-. Since, the salary income was from Singapore, taxes were paid in Singapore and relief under Section 90 of the Act was claimed by the assessee, who is an Indian resident, since India has entered into a Double Taxation Avoidance Agreement (for short ‘DTAA’) with Singapore from where he had earned income. The claim of Foreign Tax Credit was not allowed as Form No. 67 was filed late. The rectification applications under Section 154 of the Act were filed on two occasions i.e. on 10.01.2022 and 21.05.2022 but the same were processed without any change in the original intimation issued under Section 143(1) of the Act. A demand notice for AY 2020-21 with the tax demand of Rs. 17,71,860/- was sent on 07.06.2022. Accordingly, the rectification order dated 07.06.2022 of the CPC Bengaluru was appealed against before the Ld. CIT(A). Before the Ld. CIT(A), it was claimed that the AO ought to have accepted the payment of tax on salary income in Singapore for foreign tax credit as the same was permitted under the mechanism of claiming deduction or credit on taxes paid in source country against the tax liability in country of residence by virtue of Article 25 of the India-Singapore of DTAA. The 3 Anindya Sarkar : AY: 2020-21 assessee had vested right under the DTAA for allowance of tax credit. And procedural delay in filing of Form 67 cannot take away the right vested under the sovereign agreement between India and Singapore signed under Section 90 of the Act as double taxation of the same income under two tax jurisdiction amounts to violation of spirit of Section 90 and the consequent DTAA between two countries. Before the Ld. CIT(A), the assessee could not succeed and the appeal was dismissed by mentioning as under:

On perusal of the intimation u/s 143(1) dated 24.12.2021 and rectification order dated 07.06.2022, it is observed that the claim of tax relief of Rs. 13,28,903/- Under Section 90/90A of the IT Act was disallowed due to non-filing of the form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act. It is pertinent to mention here that the CBDT also through its Notification No. 9 dated 19 September 2017 categorically mandates that for claiming credit of any taxes in a country or territory specified outside India, the assessee shall file Form No. 67 under sub-rule (9) of rule 128 of the Income-tax rules, 1962 before the due date for filing the return of income under section 139(1) the Income-tax Act, 1961 and also mandates that filing of Form No. 67 shall precede the filing of the return. In the instant case, the Form No 67 was not filed along with the return of income. Although a claim of foreign tax credit was made in the return of income and the same was not accompanied by the Form No 67 which is mandated by the law. However, the appellant claimed that on 26.12.2020 he had submitted the Form 67 after receiving communication from the e-Filing Team, Income Tax Department on 25.12.2020. But, during the appellate proceedings, the appellant could not submit the Form no 67 which according to him was originally filed on 26.12.2020. Accordingly, the CPC processed the return of income without allowing the credit for foreign tax deduction. Afterwards, the appellant filed a rectification request on 21.05.2022 and on 07.06.2022, the CPC, Bengaluru passed the rectification order, rejecting the claim as there was no legally valid Form 67 available at that point of time. Later on, as per the submission filed by the appellant, he filed the Form No 67 on 03.07.2022 which is beyond the due date for filing the return of income under section 139(1) the Income-tax Act, 1961 under sub-rule (9) of rule 128 of the Income-tax rules, 1962 and hence, non-est as per law.

4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed this appeal before the Tribunal.

5. Before us, the assessee reiterated the submission made before the Ld. CIT(A) in support of the claim that the provision of DTAA override the 4 Anindya Sarkar : AY: 2020-21 provision of the Act and therefore, the credit for foreign tax paid in Singapore should be allowed. The assessee also relied upon the decision in the case of Mahua Bagchi Vs. ACIT, Circle 61, Kolkata, ITA No. 3/Kol/2023, AY 2017-18, dated 19.07.2023 as also the decision in the case of Deepak Shimoga Padmaraju Vs. Assistant Director of Income Tax, ITO, CPC, Bangalore, AY 2021-22, ITA No. 239/Bang/2024, dated 17.04.2024.

6. The Ld. DR supported the order of the Ld. CIT(A).

7. We have gone through the rival contention and also examined the facts. It was submitted before the Ld. CIT(A) by the assessee that the rerun of income was filed on 25.12.2020 and on 26.12.2020 he had submitted the Form No. 67 after receiving the communication from the e- filing team, Income Tax Department on 25.12.2020 that the return of income was not accompanied by Form No. 67 as mandated by law. Subsequently, since the credit was not allowed, he filed rectification application and Form No. 67 on 03.07.2022 and prior to that rectification requests on 21.05.2022 and on 07.06.2022 were also filed. The credit was not allowed since From No. 67 was filed beyond the date for filing the return of income under Section 139(1) of the Act. In the case of Mahua Bagchi Vs. ACIT (supra) relied upon by the assessee, it is held as under:

“5. After hearing rival contentions and perusing the material on record, we find that the assessee served abroad and some foreign tax to the tune of Rs. 17,72,470/- was deducted in United Kingdom under DTAA between India and UK and provision of Section 90(2) of the Act. We also note that Rule 128 sub-Rule 9 provides that Form-67 should be filed on or before the due date of filing the return of income. However, we note that nowhere it is stated that in case of delayed filing of Form-67 by way of foreign tax credit which is deducted from the assessee in foreign country i.e U.K. would be denied. Accordingly, we are of the considered view that the assessee is entitled to get this foreign tax credit of Rs. 17,72,470/- u/s 90 of the Act. We also note that the claim in respect of foreign tax was allowed in the order passed u/s 143(1) of the dated 28.03.2019 and was withdrawn by the AO by passing order u/s 154 of the Act when the assessee filed form 67 before the AO. In our opinion the credit in respect of foreign tax cannot be denied to the assessee for the technicality of not filing the form 67 within the due date of return u/s 139(1) of the Act. The case of the assessee finds 5 Anindya Sarkar : AY: 2020-21 support from the decision of Coordinate Benches in the case of Atanu Mukherjee Vs. ITO in ITA No. 439/KOL/2022 for AY 2020-21 order dated 20.12.2022 and Sobhan Lal Gangopadhyay Vs. ADIT in ITA No. 782/KOL/2022 for AY 2020-21 order dated 09.05.2023.

8. Further, in the case of Deepak Shimoga Padmaraju Vs. Assistant Director of Income Tax (supra), relying upon the case of Brinda Rama Krishna in ITA No. 454/Bang/2021 for AY 2018-19, order dated 17.11.2021 it has been held that Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.

(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. Therefore, nonfurnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. The findings of this Tribunal are reproduced below:

2. The Assessee is an individual and during the previous year relevant to AY 2018- 19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20.11.2017 till 16.05.2019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit ("FTC") for taxes paid in Australia.

6. On appeal by the Assessee, the CIT(A) vide Order dated 03.09.2021 confirmed the Order of AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is nonest in law. The CIT(A) also held that provisions of Rule 128 are mandatory in nature. The CIT(A)rejected the contention of the Assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC.

7 Anindya Sarkar : AY: 2020-21 9. Further, similar issue arose in the case of Sukhdev Sen Vs. ACIT, Circle -1, Kolkata (ITA No. 78/Kol/2014, dated 26.03.2024). The relevant extract of the aforesaid order is as under:

“7. Before proceeding further, we would like to reproduce rule 128 of the Income-tax Rules, 1962 (the Rules) which relates with foreign tax credit as under: "Foreign Tax Credit. 128 (1) An assessee, being a resident shall be allowed credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such lax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule: Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India"

8. We further note 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 25 of DTAA between India and USA provides for credit for foreign taxes. Article 25(2)(a) is relevant in the present context. Same is extracted below: "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 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"

9. Thus, Section 90 of the Act read with Article 25(2)(a) of the DTAA provides that tax paid in USA shall be allowed as a credit against the tax payable in India but limited to the proportion of Indian tax Neither section 90 nor the DTAA provides that FTC shall be disallowed for non- compliance with any procedural requirement. Foreign Tax Credit is an assesser's vested right as per Article 25[2](a) of the DNA road wat Section 90 and same cannot be disallowed for non-compliance with procedural requirement th at is prescribed in the rules.

12. Further, in the case of Engineering Analysis Centre of Excellence Private Limited vs the Commissioner of Income-tax & Anr. Civil Appeal Nos. 8733-8734 of 2018 & Ors. Hon'ble Supreme Court have held as under that the provisions of DIAA shall override the provisions of the Income-tax Act unless they are more beneficial to the assessee: 165. The conclusions in the aforestated paragraph have no direct relevance to the facts at hand as the effect of section 902) of the Income Tax Act wat explanation 4 thereof, is to treat the DTAA provisions as the low that must be followed by Indian courts, notwithstanding what may be contained in the Income Tax Act to the contrary, unless more beneficial to the assessee.

13. We have gone through the decisions of the coordinate Benches and concur with their findings in this regard that filing of Form No. 67 is directory and not mandatory and the credit for foreign taxes paid cannot be denied merely on the delay in filing the Form No.

67. In the case of M/s 42 Hertz Software India Pvt Ltd. Vs the Assistant 9 Anindya Sarkar : AY: 2020-21 Commissioner of Income Tax, Circle 3 (1)(1), Bangalore, ITA No. 29/Bang/2021 ITAT. BANGALORE it is held that: 6. There is no dispute that the Assessee is entitled to claim FTU 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 of this Tribunal in case of Ms. Brindu Kumar Krishna us. ITO in ITA no. 454/ Bang/2021 by order dated 17/11/2021.

by the assessee are accordingly allowed.

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

16. We have also gone through the decision of the Hon'ble Madras High Court in the case of Duraiswamy Kumaraswamy us. PCIT (supra) and found that the facts are identical to the facts of the case of the assessee and the decision is squarely applicable to the facts of the case of the assessee. In that case, the petitioner was resident of India and had filed Indian ITR and claimed benefit of FTC u/s 90/91 of the Act row. Article 24 of the India-Kenya DTAA. During the year, he had income of both Kenya and India but while filing the Indian ITR for the impugned assessment year 2019 -20, the Form No. 67 prescribed in rule 128 of the rules for claiming FTC was inadvertently not uploaded along with the ITK which was uploaded on 02.02.2021 The return was processed on 26.03.2021, however, the credit of FTC was not given effect to and the request made to the CPC to give effect to the FTC was not accepted and intimation along with notices of demand was received. The assessee also could not succeed with the rectification application filed and approached the CIT u/s 264 of the Act and at the same time filed a writ petition before the Hon'ble Madras High Court. It was stated by the respondent- department that rule 128 is mandatory and cannot be 11 Anindya Sarkar : AY: 2020-21 considered as directory in nature. The petitioner referred to the judgment of the Hon'ble Supreme Court in the case of CIT vs. G.M. Knitting Industries (P) Ltd. Civil Appeal Nos. 10782 of 2013 and 4048 of 2014 dated 24.06.2015 The Hon'ble High Court allowe d the Writ Petition in favour of the assessee by holding as under. “11. The law laid down by the Hon'ble Apex Court in Commissioner of Income Tax, Maharashtra v. G.M.Knitting Industries (P) Limited in Civil Appeal Nos. 10782 of 2013 and 4048 of 2014 dated 24.06.2015, which was referred above, would be squarely applicable to the present case. In the present case, the returns were filed without FIC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of the Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature This is what the Hon'ble Supreme Court had held in the above cases when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of assessment order. W P. No 5834 of 2022. 12 Further, in the present case, the intimation under Section 143(1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the PTC was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore, the impugned order is liable to be set aside.

13. Accordingly the impugned order dated 25.01.2022 is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the FTC filed by the petitioner on 02.02.2021. The respondent is directed to give due credit to the Kenya income of the petitioner and pass the final assessment order. Further, it is made clear that the impugned order is set wade only to the extent of disallowing of FTC clam made by the petitioner und hence, the first respondent is directed to consider only on the aspect of rejection of FTC clam within a period of 8 weeks from the date of receipt of copy of this order"

“1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where express provision to the contrary is made in this Agreement.

12. Ground No. 3 is general in nature and does not require separate adjudication.

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