2023 (7) TMI 1369 - AT - Income Tax

Entitlement to foreign tax credit - required Form No. 67 is not filed in accordance with the provision of rule 128(9) - violation of procedural mandate - HELD THAT - 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, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Admittedly, Rule 128 does not prescribe denial of credit of FTC. Further the Act i.e. section 90 or 91 also do not prescribe timeline for filing of such declaration on or before due date of filing of ROI. Further rule 128 (4) clearly provides the condition where the foreign tax credit would not be allowed. Rule 128 (9) does not say that if prescribed form would not be filed on or before the due date of filing of the return no such credit would be allowed. By the amendment to the rule with effect from 1 April 2022, the assessee can file such form number 67 on or before the end of the assessment year. Therefore, legislature in its own wisdom has extended such date which is beyond the due date of filing of the return of income. The fact in the present case is quite distinct then the issue involved in the decision of the honourable Supreme Court in case of Wipro Ltd 2022 (7) TMI 560 - SUPREME COURT Here it is not the case of violation of any of the provisions of the act but of the rule, which does not provide for any consequence, if not complied with. Therefore, we hold the assessee is eligible for foreign tax credit, as he has filed in form 67 before completion of the assessment. We hold that the claim of foreign tax credit cannot be denied and we direct the AO to allow the FTC based upon the belated form No. 67 filed by the assessee accordingly. Appeal of the assessee is allowed.

Summary

Issues involved:
The judgment addresses the denial of foreign tax credit claimed by the assessee in the return of income for assessment year 2018-19. The issues include the eligibility for tax relief under section 90 of the Income Tax Act, the requirement to file Form 67 before the due date specified for filing the return of income, the potential for double taxation of income earned in the United States of America, the procedural aspects of claiming credit for taxes paid in a treaty country, and the levying of interest under sections 234A, 234B, and 234C of the Act.

Issue 1 - Denial of Foreign Tax Credit:
The assessee filed an appeal challenging the rectification order disallowing foreign tax credit of Rs. 15,53,686 claimed in the return of income. The National Faceless Appeal Centre upheld the order, citing non-compliance with the requirement to file Form 67 before the due date specified for filing the return of income under section 139(1) of the Act. The denial was based on procedural grounds, leading to the dismissal of the appeal.

Issue 2 - Double Taxation Concerns:
The appellant argued that taxing salary income received in the USA would result in double taxation, contrary to the provisions of the Act and the treaty. The contention was that the tax liability for salary income earned in the USA during a secondment period was discharged in the USA and should not be taxable in India under the India-US Double Taxation Avoidance Agreement. However, the NFAC and CIT(A) did not find merit in this argument.

Issue 3 - Procedural Compliance and Eligibility for Relief:
The dispute also revolved around the requirement to file Form 67 under Rule 128 of the Income Tax Rules before the due date specified for filing the return of income. The authorities held that failure to meet this procedural requirement rendered the assessee ineligible for relief under section 90/90A of the Income Tax Act, leading to the dismissal of the appeal.

Issue 4 - Interest Levied under Sections 234A, 234B, 234C:
The appellate tribunal addressed the issue of levying interest under sections 234A, 234B, and 234C of the Act, noting that it was a consequential matter that did not require specific adjudication. The grounds related to the charging of interest were dismissed without further elaboration.

Separate Judgment by the Tribunal:
The judgment delivered by the appellate tribunal allowed the appeal of the assessee, emphasizing that the failure to file Form 67 before the due date specified for filing the return of income did not automatically disqualify the assessee from claiming foreign tax credit. The tribunal considered the procedural nature of the requirement and cited precedents to support the view that the filing deadline for Form 67 was directory rather than mandatory. As a result, the tribunal directed the Assessing Officer to allow the foreign tax credit based on the belated filing of Form 67 by the assessee, ultimately allowing the appeal.