2023 (2) TMI 1154 - AT - Income Tax

Relief u/s 90 - foreign tax credit - claim denied for delay in filing Form No. 67 - assessee earned income from Tanzania and as deducted as withholding tax and the credit for the same was claimed as relief under section 90 of the Act against the tax liability arising in India - HELD THAT - As last date for filing the return u/s 139(4) of the Act for A.Y. 2017-18 was 31.03.2019 and the assessee filed Form 67 on 28.09.2018 alongwith revised return - where the assessee filed the original return on 06.07.2017 when there was no mechanism for filing Form No. 67, as it came into effect on 19.09.2017 and thereafter before the expiry of the due date prescribed u/s 139(4) of the Act, the assessee furnished Form 67 and also filed the revised return. Claim of the assessee towards withholding taxes paid in Tanzania is to be given against the tax liability on the income declared in India. Even otherwise filing of Form 67 has been held to be directory in nature by the Coordinate Bench, Mumbai in the case of Sonakshi Sinha 2022 (10) TMI 107 - ITAT MUMBAI wherein as held assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income Tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Thus allow the claim of the assessee made in From No. 67 and give benefit of relief of withholding tax credit in Tanzania against the tax liability arising in India. Decided in favour of assessee.

Summary

Issues:
- Denial of foreign tax credit under section 90
- Validity of adjustment under section 143(1) without notice
- Denial of benefits of Double Tax Avoidance Agreement (DTAA)
- Requirement of filing Form 67 for foreign tax credit
- Ignoring revised returns for substitution

Analysis:
1. Denial of Foreign Tax Credit under Section 90:
- The assessee, a Private Limited Company providing Tea Consultancy Services in Tanzania, claimed foreign tax credit under section 90 for taxes paid in Tanzania but was denied due to not filing Form 67 initially.
- The Tribunal found that the assessee filed the original return before the mechanism for filing Form 67 was in place, and subsequently filed Form 67 before the due date for filing the return under section 139(4) of the Act.
- Relying on precedents, the Tribunal held that filing Form 67 was directory in nature and not mandatory, especially when no adverse consequences were specified for non-compliance. Thus, the Tribunal directed the Assessing Officer to allow the foreign tax credit claim.

2. Validity of Adjustment under Section 143(1) without Notice:
- The assessee contended that the adjustment under section 143(1) was null and void as it was issued without a notice under section 143(1)(a).
- The Tribunal did not delve into this issue as the primary focus was on the denial of foreign tax credit under section 90.

3. Denial of Benefits of DTAA:
- The assessee argued that the benefits of the Double Tax Avoidance Agreement (DTAA) with Tanzania should override other provisions of the Act.
- While this argument was made, the Tribunal did not specifically address this issue in the judgment, as the main issue revolved around the denial of foreign tax credit.

4. Requirement of Filing Form 67 for Foreign Tax Credit:
- The crux of the matter was the denial of foreign tax credit due to the non-filing of Form 67 initially.
- The Tribunal analyzed the timeline of filing the original return, the subsequent filing of Form 67 before the due date, and the nature of the requirement to file Form 67.
- Relying on relevant notifications and precedents, the Tribunal concluded that the assessee should be allowed the foreign tax credit, as filing Form 67 was considered directory and not mandatory.

5. Ignoring Revised Returns for Substitution:
- The assessee filed a revised return along with Form 67, but the relief under section 90 was still denied.
- The Tribunal did not focus on this issue specifically in the judgment, as the primary concern was the denial of foreign tax credit and the subsequent allowance of the same based on the filing of Form 67.

This detailed analysis of the judgment showcases the Tribunal's reasoning behind allowing the assessee's appeal regarding the denial of foreign tax credit under section 90, emphasizing the procedural nature of filing Form 67 and the absence of adverse consequences for non-compliance.