2022 (10) TMI 87 - AT - Income Tax

Foreign Tax Credit u/s. 90/90A - Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee - claim of the assessee has been denied while processing return of the assessee u/s 143(1) - HELD THAT - We note that on identical issue, This Tribunal in the case of Brinda Rama Krishna 2022 (2) TMI 752 - ITAT BANGALORE held that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (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, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. We direct the AO to give credit for foreign tax as per Form 67 filed on 22.9.2018 before Ld. CIT(A) after due verification.

Issues Involved:
1. Disallowance of Foreign Tax Credit (FTC) due to late filing of the income tax return.
2. Disallowance of FTC due to late filing of Form 67.

Issue-wise Detailed Analysis:

1. Disallowance of Foreign Tax Credit (FTC) due to late filing of the income tax return:

The assessee filed the return of income for AY 2018-19 on 22/09/2018, which was after the extended due date of 31/08/2018. Consequently, the AO, CPC disallowed the FTC claimed by the assessee under sections 90/90A of the IT Act, 1961, and raised a demand of Rs. 38,540. The CIT(A) upheld this disallowance, citing Rule 128(9) of the IT Rules, which mandates that Form 67 and the return of income must be filed on or before the due date specified under section 139(1) of the Act. The CIT(A) concluded that the AO, CPC was correct in disallowing the FTC claim as both the return and Form 67 were filed after the due date.

2. Disallowance of FTC due to late filing of Form 67:

The Tribunal considered the rival submissions and materials on record. The assessee contended that the disallowance of FTC resulted in double taxation, as the foreign income was already taxed. The Tribunal referred to its previous decision in the case of Brinda Ramakrishna (ITA No.454/Bang/2021), where it was held that Rule 128(9) does not mandate the disallowance of FTC for delayed filing of Form 67. The Tribunal emphasized that filing Form 67 is a directory requirement, not a mandatory one, and that the Double Taxation Avoidance Agreement (DTAA) overrides the provisions of the Act. Therefore, non-furnishing of Form 67 before the due date under section 139(1) is not fatal to the FTC claim.

The Tribunal further noted that the Board (CBDT) has the power to prescribe procedures for granting FTC, but not to impose conditions for its disallowance. The procedural requirement of filing Form 67 should not extinguish the substantive right to claim FTC. The Tribunal cited various judicial precedents, including the Supreme Court's decisions in Mangalore Chemicals & Fertilizers Ltd. and Sambhaji & Others v. Gangabai & Others, which support the view that procedural norms should not obstruct substantive rights.

The Tribunal directed the AO to grant FTC as per Form 67 filed on 22/09/2018 after due verification. The appeal was partly allowed for statistical purposes.

Conclusion:

The appeal was partly allowed, with the Tribunal directing the AO to grant FTC based on Form 67 filed on 22/09/2018, recognizing that procedural delays should not negate substantive rights under the DTAA. The Tribunal emphasized that filing Form 67 is a directory requirement and not mandatory for claiming FTC. The decision underscores the principle that procedural requirements should not override substantive rights granted under tax treaties.

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