SUKDEV SEN,NAVI MUMBAI vs. ACIT, CIR. 61, KOLKATA
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Before: Shri Rajesh Kumar & Shri Sonjoy Sarma
आयकर अपीलीय अिधकरण, कोलकाता पीठ ‘बी’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA
Before Shri Rajesh Kumar, Accountant Member and Shri Sonjoy Sarma, Judicial Member
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen……………................................…...........................……….……Appellant 1503 55, Nerul Seawoods Estate, NRI Complex, Sector-54,56,58, Navi Mumbai-400706. [PAN: BNDPS4119K] vs. ACIT, Circle-61, Kolkata.............…..….…..….........……........……...…..…..Respondent Appearances by: Shri S. S. Gupta, AR, appeared on behalf of the appellant. Shri P. P. Barman, Addl. CIT, Sr. DR, appeared on behalf of the Respondent.
Date of concluding the hearing : March 26, 2024 Date of pronouncing the order : 24th April , 2024 ORDER Per Rajesh Kumar, Accountant Member: The present appeal is filed by the assessee for the assessment year 2017-18 against the order dated 06.12.2023 of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
The assessee has raised following grounds of appeal:-
“1. That the Order passed by the Ld. Assessing Officer u/s. 143(3) is arbitrary, bad in law and facts and the Ld. CIT(A), erred in confirming the same. 2. That the Ld. AO erred in law as well as in facts in not allowing the Foreign Tax Credit of Rs. 21,89,828/- on the alleged ground of delayed filing of Form No. 67 as required by rule 128 and the Ld. CIT(A) erred in confirming the
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen same in as much as in view of the facts and circumstances of the case the said Foreign Tax Credit should have been allowed to the Appellant. 3. That the Ld. AO erred in law as well as in facts in not holding the requirement of filing of Form No. 67 as per rule 128 as procedural and directory and not mandatory, in as much as in view of the facts and circumstances of the case such requirement should have been considered as procedural and directory. 4. That the Ld. AO erred in law as well as in facts in not allowing the Foreign Tax Credit of Rs. 21,89,828/- in as much as in view of the provisions of Sec. 90(2), the same was to be allowed and the Ld. CIT(A) erred in confirming the action of Ld.AO. 5. That the Ld. AO erred in law as well as in facts in levying/charging excess interest of Rs. 1,09,489/- u/s. 234A and the Ld. CIT(A) erred in not adjudicating the said ground by holding that the ground is general and consequential in nature. 6. That the Ld. AO erred in law as well as in facts in levying/charging excess interest of Rs. 8,00,679/- u/s. 234B and the Ld. CIT(A) erred in not adjudicating the said ground by holding that the ground is general and consequential in nature. 7. That the Ld. AO erred in law as well as in facts in levying/charging excess interest of Rs. 18,628/- u/s. 234C and the Ld. CIT(A) erred in not adjudicating the said ground by holding that the ground is general and consequential in nature. 8. That the appellant craves leave to add, alter, change and/or modify any of the grounds of appeal at or before hearing of the appeal and claim further relief or reliefs which is necessary for the ends of justice.” 3. Brief facts of the case are that the assessee is an individual and had filed its return of income on 22.12.2017 for A.Y. 2017-18. The assessee had left India on 19 September 2016 for an assignment of three years in USA. During the assessment year under consideration, the assessee had earned salary of Rs.70,20,936/- from Thermo Fisher Scientific India Private Limited for services rendered in India for the period of April 2016 to September 2016 and salary of Rs.1,11,93,926/- for rendering services in Thermo Fisher Scientific, USA for the period of
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen October 2016 to March 2017. The case was taken up for limited scrutiny (CASS) on the issue of Double Taxation Relief u/s 90/91 of the Act. While framing the assessment, the Assessing Officer disallowed claim of Foreign Tax Credit of Rs.21,89,828/- in terms of rule 128 of the Income Tax rules, 1962 on the ground of delay in filing Form No. 67 by relying on Notification No. 9 dated 19 September 2017 which 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 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. The return of income was filed on 22.12.2017 and Form No. Form No. 67 was filed electronically on 18.08.2018 and as the assessee had not complied with that prescribed procedure for making such claim of relief under rule 128 of the Income-tax rules, 1962 read with the Notification, the claim of the relief under section 90 of the Act was not sustainable and was denied. The assessment order under section 143(3) of the Act was passed on 10.12.2019.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and submitted that the return of income was due to the filed on 31st July 2017 but the electronic utility for e-filing of the Form No. 67 was notified by notification No. 9 of 19th September 2017 and under these circumstances, since the utility to file Form No. 67 was not available till 3
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen the due date of filing the return of income and rule 128 was introduced for the first time during the year under consideration, the said requirement was incapable of being performed for the said year by any assessee. The delay in submission of Form No. 67 was not condoned and the assessee could not succeed before the CIT(A) and the claim was rejected. Aggrieved, the assessee is now in appeal before the Tribunal.
The ld. Counsel of the assessee submitted that the authorities below have dismissed the claim of the assessee only on the ground that the assessee could not file Form No.67 within the prescribed time and thus, the authorities below have erred in denying claim of deduction on account of foreign tax credit. According to the ld. Counsel for the assessee, the assessee was resident in India during the year and sub- rule (9) of rule 128 of the Act was introduced for the first time w.e.f. 01.04.2017 relevant for A.Y 2017-18 vide which the statement in Form No. 67 referred to in clause (1) of sub-rule (8) and the certificate or statement referred to in clause (ii) of sub-rule (8) was required to be furnished on or before the due date specified for furnishing the return of income. The return was filed on 22.12.2017 which was beyond the time specified u/s 139(1) of the Act and in response to the notice u/s 143(2) dated 13.08.2018, Form No. 67 was e-filed on 18.08.2018 and the assessment u/s 143(3) was completed on 10.12.2019 thereby implying that Form No. 67 was filed before the completion of the assessment. It was submitted before the CIT(A) that the year under consideration was 4
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen the first year of application of rule 128 and e-filing of Form No. 67 was notified for the first time vide Notification No. 9 of 2017. It was further submitted that the Assessing Officer disallowed the claim of tax relief u/s 90 of the Act on the ground that Form No. 67 required under rule 128, which is applicable for A.Y 2017-18 onwards, was filed beyond the due date of filing of return u/s 139(1) of the Act. It was submitted that furnishing of Form No. 67 is directory in nature and even if the same is not furnished along with the return of income but furnished during the course of assessment proceedings before the completion of assessment, the same would meet the requirement of rule 128 and tax relief u/s 90 of the Act is allowable. Ld. Counsel submitted that sub-rule (9) of rule 128 was amended w.e.f. 1.04.2022 allowing to file Form No. 67 before theend of the A.Y. for the returns furnished under sub-section (1) or sub- section (4) of section 139 of act. It was also pleaded by the ld. Counsel for the assessee that for A.Y. 2017-18, the last date u/s 139(4) was 31.03.2019 and the assessee had filed Form No. 67 electronically on 18.08.2018 and on 23.08.2018 before the AO. It was submitted that various Tribunals have held that filing of Form No. 67 is procedural/directory requirement and not a mandatory requirement. This is because rule 128(9) does not provide for disallowance of foreign tax credit in case of delay in filing Form No. 67. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, 5
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen the relevant provisions is normally not taken to be mandatory and is considered to be purely directory as in the case of Sonakshi Sinha vs CIT(A) [ITA No.1704/MUM/2022] (Mumbai Tribunal). The ld. AR submitted that mere delay in filing Form No.67 as per the provisions of rule 128(9) will not preclude the assessee for claiming the benefit of foreign tax credit in respect of tax paid outside India as per the DTAA.
On the other hand, ld. Departmental Representative supported the order of lower authorities.
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 a 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 tax 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:
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen “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 assessee’s vested right as per Article 25(2)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance with procedural requirement that is prescribed in the rules.
Further, we would like to mention that rule 128(9) provides that Form No. 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 No. 67 is not filed within the required time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. It is therefore evident that if the intention of the legislature were to deny the foreign tax credit, either the Act or the rules would have specifically provided that the foreign tax credit would be disallowed if the assessee does not file Form No. 67 within the due date prescribed under section 139(1) of the Act. We further note that Filing of Form No. 67 is a procedural/directory requirement and is not a mandatory requirement 7
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen and violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. In support of the claim, the assessee has relied upon several decisions including the following decisions:
i. CIT vs. G.M. Knitting Industries (P) Ltd. 71 Taxmann.com 35(SC) ii. Brinda Ramakrishna vs. ITO 193 ITD 840 (Bang.) iii. 42 Hertz Software India Pvt. Ltd. vs. Asst. CIT, Ita No.29/Bang/2021 iv. Duraiswamy Kumaraswamy vs. PCIT, W.P No.5834 of 2022
Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) in resepct of compliance with the procedural requirements have 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, 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 DTAA 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 90(2) of the Income Tax Act, read with explanation 4 thereof, is to treat the DTAA provisions as the law 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.
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen 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 Commissioner of Income Tax, Circle – 3 (1)(1), Bangalore, ITA No. 29/Bang/2021 ITAT, BANGALORE it is held that:
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 of this Tribunal in case of Ms.Brinda Kumar Krishna vs.ITO in ITA no.454/Bang/2021 by order dated 17/11/2021. 7. It’s a trite law that DTAA overrides the provisions of the Act and the Rules, as held by various High Courts, which has also been approved by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. reported in (2021) 432 ITR 471. 8. We accordingly, hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee.
In Vikash Daga Vs ACIT Circle – 3 (1) Gurgaon ITA No.2536/Del/2022 , the ITAT DELHI BENCH ‘H’, NEW DELHI vide order dated 14/06/2023 have held that:
We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee holds a foreign tax credit certificate for Rs.1887114/-. In our considered opinion filing of form 67 is a procedural / directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. We accordingly direct the AO to allow the credit of 9
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen FTC and hold that rule 128(9) of the Rules 3 does not provide for disallowance FTC in case of delay filing of form 67 is not mandatory but a directory requirement and DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. 9. In the result, the appeal filed by the assessee is allowed. 15. Similarly, in the case of Ashish Agrawal Vs. Income Tax Officer, Ward-12(1), Hyderabad ITA No. 337/Hyd/2023 ITAT HYDERABAD BENCHES “B”, have held vide order dated 26/09/2023 that:
As far as the issue of FTC is concerned, learned AR placed reliance on the decision in the case of Ms. Brinda Rama Krishna (supra). In the case of Ms. Brinda Rama Krishna (supra), the Bench considered the issue in the light of the provisions of DTAA, section 295(1) of the Act, the decisions of the Hon'ble Apex Court in the case of Mangalore Chemicals & Fertilizers Ltd. Vs. Deputy Commissioner (1992 Supp (1) SCC 21), Sambhaji Vs. Gangabai (2008) 17 SCC 117 and a lot many decisions of the Hon'ble Apex Court including the case in Union of India Vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) etc. and reached a conclusion that since Rule 128(9) of the Rules does not provide for disallowance of FTC in the case of delay in filing Form 67 and such filing within the time allowed for filing the return of income under section 139(1) of the Act is only directory, since DTAA over rides the Act, and the Rules cannot be contrary to the Act. 12. We find from Article 25(2)(a) of the DTAA that where a resident of India derives income which, in accordance with the provisions of the convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of the resident an amount equal to the income tax paid, paid in the United States, whether directly or by deduction. In view of this provision over riding the provisions of the Act, according to us, Rule 128(9) of the Rules has to be read down in conformity thereof. Rule 128(9) of the Rules cannot be read in isolation. Rules must be read in the context of the Act and the DTAA impacting the rights, liabilities and disabilities of the parties. 13. In the case of Purushothama Reddy Vankireddy (supra) also the Co-ordinate Bench of the Tribunal, in the similar circumstances, allowed the appeal of assessee for FTC claim. Respectfully following the same, we are of the considered Page 6 of 8 ITA No. 337/Hyd/2023 opinion that the decisions relied upon by the assessee are applicable to the facts of the case and the grounds raised by the assessee are accordingly allowed. 14. In the result, appeal of the assessee is allowed.
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen 16. We have also gone through the decision of the Hon’ble Madras High Court in the case of Duraiswamy Kumaraswamy vs. 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 r.w. 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 ITR 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 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 allowed the Writ Petition in favour of the assessee by holding as under: 11
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen “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 FTC, 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 FTC 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 aside only to the extent of disallowing of FTC claim made by the petitioner and hence, the first respondent is directed to consider only on the aspect of rejection of FTC claim within a period of 8 weeks from the date of receipt of copy of this order.”
Respectfully following the order of the Hon’ble Madras High Court in the case of Duraiswamy Kumaraswamy vs. PCIT (supra) and concurring with the views held by the coordinate Benches of the Tribunal (supra), we hold that merely because the assessee could not file Form No. 67 within the prescribed time limit as per the provisions of rule 128(9) of the Income-tax rules, 1962, as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of taxes paid outside India. Therefore, the claim of the assessee is allowed and the Assessing Officer is directed to give benefit of foreign tax credit in respect of tax paid outside India by 12
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen the assessee in accordance with law and the DTAA between India and the USA. Accordingly, grounds no. 2, 3, 4 of the appeal are allowed.
Ground no. 1 is general in nature and does not require any separate consideration and is not adjudicated upon.
19.The other grounds of appeal relating to charging of interest under various sections are consequential in nature and do no require separate adjudication except that after giving the credit for the FTC, the assessing officer shall recompute the interest under the relevant sections.
In the result, the appeal filed by the assessee is allowed.
Kolkata, the 24th April, 2024.
Sd/- Sd/- [Sonjoy Sarma] [Rajesh Kumar]
Judicial Member Accountant Member
Dated: .04.2024. RS Copy of the order forwarded to: 1. Sukdev Sen
ACIT, Circle-61, Kolkata
CIT(A)-
CIT- ,
CIT(DR),
I.T.A. No.78/Kol/2024 Assessment Year: 2017-18 Sukdev Sen
//True copy// By order Assistant Registrar, Kolkata Benches
