ANANT KASHINATH KAKATKAR,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5, PUNE, PUNE

Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 18.07.2019 declaring total income of Rs.4,72,23,840/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the CPC determining the total income of the assessee at Rs.5,34,23,840/-, wherein the amount of Rs.62 lakhs shown as royalty income to be charged at special rate of 10% u/s 115BBF of the Act was determined to be taxed at normal rate.

Before the Addl/JCIT(A), Panchkula, it was submitted that the assessee tried to file Form No.3CAF before filing the return. However, the relevant assessment year 2019-20 was not enabled on the system for which, the Form could not be filed. It was submitted that Form No.3CFA was filed after the system made the relevant assessment year available for selection in the Form, exercising the option u/s 115BBF of charging royalty at special rate of 10%. However, the CPC in the intimation u/s 143(1) of the Act taxed such royalty at normal rate instead of taxing at special rate of 10%.

However, the Addl/JCIT(A), Panchkula was not satisfied with the arguments advanced by the assessee and dismissed the appeal by observing as under: “7. Decision: On July 18 2019, the appellant filed its Income Tax Return (ITR-3) Vide Acknowledgement no 637090160180719 for the Assessment Year 2019-20, declaring a total income of Rs 4,69,03,840/- including special income of Rs.62,00,000/-. The return was processed under section 143(1) of the Act on February 26, 2020, determining the total income at Rs.4,69,03,840/-but calculating tax payable on special income at different rates vis- a vis-in ROI. FORM No. 3CFA u/ sub section (3) of section 115BBF Read with rule 5G i.e. Form for Opting for taxation of income by way of royalty in respect of Patent was elatedly filed by appellant on 25.09.2019 vide Ack no 174395130250919 after due date of ITR (Due date was 31.08.2019) Assessee contends that Royalty income of Rs 6200000 chargeable at special rate of 10 percent under section 115BBF has been wrongly charged to tax at normal rate.

Aggrieved with such order of the Addl/JCIT(A), the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee strongly challenged the order of the Addl/JCIT(A) in dismissing the appeal filed by the assessee. He submitted that although Form No.3CFA was not filed along with the return of income due to the reason that the system was not enabled, however, the same was filed subsequently before processing of the return. Relying on various decisions, he submitted that under somewhat similar circumstances where the statutory forms required to be filed along with the return, were filed before completion of the assessment, no addition / disallowance was called for. He accordingly submitted that the Addl/JCIT(A) was not justified in dismissing the appeal filed by the assessee.

The Ld. DR on the other hand strongly supported the order of the Addl/JCIT(A) and submitted that since the assessee failed to furnish the Form No.3CFA along with the return of income, therefore, the Addl/JCIT(A) was fully justified in confirming the action of the CPC.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. Addl/JCIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find due to non submission of Form No.3CFA along with the return of income, the CPC taxed an amount of Rs.62 lakhs at normal rate as against the special rate of 10% claimed by the assessee. We find the Addl/JCIT(A) dismissed the appeal filed by the assessee, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the return was filed before due date but the Form No.3CFA could not be filed along with the return since the relevant assessment year was not enabled on the system. However, when it was made available in the system, the assessee filed the Form No.3CFA exercising the option u/s 115BBF of charging royalty at special rate of 10%. Since such Form No.3CFA was uploaded before passing of the intimation u/s 143(1), the CPC should have taxed royalty at special rate of 10% instead of normal rate. It is also his submission that even if the CPC could not capture the Form No.3CFA subsequently, however, the Addl/JCIT(A) should have accepted the contention of the assessee and treated such royalty income as taxable @ 10% of royalty at a special rate of 10% as against the normal rate charged by the CPC.

We find some force in the arguments advanced by the Ld. Counsel for the assessee. We find a somewhat similar issue had come up before the Hon’ble High Court of Madras in the case of Duraiswamy Kumaraswamy vs. PCIT (2024) 460 ITR 615 (Madras). In that case, the assessee who was employed in Kenya filed his Indian income tax return and claimed the benefit of FTC u/s 90/91 of the Act. However, the assessee inadvertently did not upload Form No.67 which is required to claim FTC along with the return. The assessee later uploaded the Form No.67 but before completion of the assessment proceedings. The FTC claim was rejected by the Revenue on the ground that the assessee failed to comply with the statutory obligation of filing of Form No.67 along with the return u/s 139(1) of the Act. The Hon’ble High Court restored the issue to the file of the Assessing Officer with a direction to make the re-assessment by taking into consideration of the FTC claimed by the assessee and give due credit to the Kenya income of the assessee and pass a final assessment order. The relevant observations of the Hon’ble High Court read as under: “8. Heard the learned counsel appearing on either side and perused the materials available on record. 9.In the present case, the petitioner initially worked at Kenya and subsequently, he became the resident of Indian from the assessment year 2018-2019 and 2019- 2020. The petitioner admitted the fact that he has filed his return in India on 10.08.2019. The intimation under Section 143(1) was issued on 26.03.2020. However, he has filed the return without Form-67 which is required to be filed under Rule 128 to claim the benefit of FTC and the same came to be filed on 02.02.2021 which was well before the completion of the assessment year. The intimation under Section 143(1) was issued from the CPC only on 26.03.2021. 10.According to the learned counsel appearing for the respondent, the procedure under Rule 128 is mandatory and and cannot be considered as directory in nature. The petitioner has filed his return including his Kenya income along with his Indian Income tax and claimed the benefits of FTC. However, the petitioner would submit that it is not mandatory. The Rule cannot make anything mandatory and it can be directory in nature, that too before the Assessment, the claim to avail the benefits of FTC is filed. Therefore, it would be the amounts to due compliance under the Act. The petitioner referred to the Judgment of the Hon'ble Supreme Court in the case of 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, wherein it was held that Form 3AA is required to be filed along with the return of income to avail the benefit and even if it is not filed, but the same is filed during assessment proceedings but before the final order of assessment is made that would amount to sufficient compliance. 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.

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.

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.”

Since in the instant case, admittedly, the assessee has uploaded the Form No.3CFA before completion of the proceedings u/s 143(1) of the Act, therefore, we are of the considered opinion that the Addl/JCIT(A), Panchkula should not have rejected the appeal filed by the assessee and thereby directing the Assessing Officer to tax the royalty income at normal rate. We, therefore, set aside the order of the Addl/JCIT(A), Panchkula and direct the Assessing Officer to tax the royalty income at special rate of 10% as against the normal rate adopted by the CPC. The grounds raised by the assessee are accordingly allowed.

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