2022 (10) TMI 1033 - AT - Income Tax

Foreign Tax Credit (FTC)) u/s 90 - delay in filling Form 67 - As per NFAC filing of form No.67 before the due date of filing return of income u/s.139(1) of the Act was mandatory and failure to do so will result in FTC not being allowed - HELD THAT - The said issue under consideration is no longer res integra. We note that on identical issue, the Co-ordinate Bench of ITAT, Bangalore 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 The assessee is entitled to FTC and the AO is directed to allow the claim. The decision rendered in MURALIKRISHNA VADDI, VISAKHAPATNAM case 2022 (6) TMI 693 - ITAT VISAKHAPATNAM is distinguishable in as much as in the present case, Form No.67 was filed along with the return of income by the assessee and not after the commencement of the scrutiny proceedings by the AO after a delay of more than 2 years, as was the facts in the case decided. We are therefore of the view that the said decision rendered by the Visakapatnam Bench is not applicable to the facts of the present case and the other decisions taking a view in favour of the assessee are applicable. The said decision also does not consider the effect of DTAA and Sec.90 of the Act, vis- -vis the provisions of Rule 128(9) of the Rules and as to whether the Rules can override the Act. Therefore, we hold that the assessee is entitled to FTC and the AO is directed to allow the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for Foreign Tax Credit (FTC) despite delayed filing of Form No. 67.
2. Interpretation of Rule 128(9) regarding mandatory filing deadlines.
3. Interaction between Double Taxation Avoidance Agreement (DTAA) and Income Tax Act provisions.

Detailed Analysis:

1. Eligibility for Foreign Tax Credit (FTC) despite delayed filing of Form No. 67:
The assessee, an individual with salary income from the Netherlands, claimed FTC of Rs. 7,61,129 under Section 90 of the Income Tax Act and the India-Netherlands DTAA. The claim was disallowed by the Assessing Officer (AO) because Form No. 67 was filed after the due date specified under Section 139(1). The assessee argued that the filing of Form No. 67 is a procedural requirement and not mandatory, citing precedents where delayed filing did not result in disallowance of FTC. The Tribunal agreed with the assessee, emphasizing that Rule 128(9) does not explicitly disallow FTC for delayed filing of Form No. 67 and that DTAA provisions override procedural rules.

2. Interpretation of Rule 128(9) regarding mandatory filing deadlines:
The first appellate authority and the AO held that Rule 128(9) mandates filing Form No. 67 by the due date under Section 139(1) for claiming FTC. The Tribunal, however, referred to the ITAT Bangalore decision in Brinda Rama Krishna, which concluded that Rule 128(9) is directory, not mandatory. The Tribunal emphasized that procedural requirements should not nullify substantive rights, and the word "shall" in Rule 128(9) does not imply mandatory compliance that would disallow FTC for delayed filing.

3. Interaction between Double Taxation Avoidance Agreement (DTAA) and Income Tax Act provisions:
The Tribunal highlighted that Section 90 of the Income Tax Act and the India-Netherlands DTAA provide relief from double taxation, and these provisions override procedural rules like Rule 128(9). The Tribunal cited the Supreme Court's stance that DTAA provisions prevail over domestic law to the extent they are more beneficial to the taxpayer. The Tribunal concluded that the procedural non-compliance of filing Form No. 67 by the due date should not result in disallowance of FTC, thus directing the AO to allow the FTC claim.

Conclusion:
The Tribunal allowed the appeal, directing the AO to grant the FTC claim, reinforcing the principle that procedural delays should not negate substantive tax reliefs provided under DTAA and the Income Tax Act. The decision underscores that procedural rules should aid, not obstruct, the implementation of substantive legal rights.