2022 (12) TMI 742 - AT - Income Tax

Credit of foreign tax paid - delayed filing of Form 67 - authorities below denied stating that under rule 128(9) Of the Income tax Rules, 1963 assessee should have furnished the statement in Form 67 before the due date specified for furnishing the return of income under sub-section (1) of Section 139 whereas in this case, the assessee furnished such Form 67 along with the return of income filed u/s 139(5) - HELD THAT - A lot many decisions of the Hon'ble Apex Court including the case in Union of India Vs. Azadi Bachao Andolan 2003 (10) TMI 5 - SUPREME COURT and reached a conclusion that since Rule 128(9) of the Rules does not provide for disallowance of FTC in the case of delay in filing Form 67 and such filing within the time allowed for filing the return of income under section 139(1) of the Act is only directory, since DTAA over rides the Act, and the Rules cannot be contrary to the Act. We find from Article 25(2)(a) of the DTAA that where a resident of India derives income which, in accordance with the provisions of the convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of the resident an amount equal to the income tax paid, paid in the United States, whether directly or by deduction. In view of this provision over riding the provisions of the Act, according to us, Rule 128(9) of the Rules has to be read down in conformity thereof. Rule 128(9) of the Rules cannot be read in isolation. Rules must be read in the context of the Act and the DTAA impacting the rights, liabilities and disabilities of the parties. We are of the considered opinion that the decisions relied upon by the assessee are applicable to the facts of the case on hand while respectfully following the same, we allow the appeal, and direct the Learned Assessing Officer to verify the details of the foreign tax paid by the assessee on the earnings at foreign source and take a view inconformity with the established law discussed above. Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of Foreign Tax Credit (FTC) due to delay in filing Form 67.

Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad revolved around the denial of foreign tax credit to the assessee for the assessment year 2018-19. The primary issue was whether the assessee's failure to furnish Form 67 before the due date specified for filing the return of income under section 139(1) of the Income Tax Act, 1961, rendered him ineligible for the credit. The authorities contended that the assessee submitted Form 67 along with a revised return filed under section 139(5), which was deemed non-compliant. The crux of the matter was the interpretation of Rule 128(9) of the Income Tax Rules, 1963, which mandates the timely submission of Form 67 for claiming foreign tax credit. The assessee argued that the filing of Form 67 was a directory requirement, citing various Tribunal decisions supporting this stance.

The learned Accountant Member and Judicial Member analyzed the conflicting views presented by the parties. The Learned AR representing the assessee emphasized that Rule 128(9) does not entail disallowance of FTC for delayed Form 67 filing, supported by precedents such as Babu Rao Atluri Vs. DCIT and M/s. 42 Hertz Software India (P) Ltd Vs. ACIT. Conversely, the Learned DR for the Revenue contended that the language of Rule 128(9) clearly mandates timely submission of Form 67, referencing the decision in Murali Krishna Vaddi Vs. ACIT. The Tribunal scrutinized these arguments in light of the case law and legal provisions to arrive at a reasoned decision.

In its deliberation, the Tribunal examined the precedents cited by both sides, notably focusing on the interpretation of Rule 128(9) in conjunction with the India-USA Double Taxation Avoidance Agreement (DTAA). The Tribunal highlighted the significance of Article 25(2)(a) of the DTAA, which outlines the allowance of foreign tax credit to Indian residents. Relying on the DTAA provisions, the Tribunal concluded that Rule 128(9) must align with the DTAA to uphold the assessee's right to claim foreign tax credit. The Tribunal emphasized that rules should be interpreted in harmony with the Act and international agreements to uphold the rights and obligations of the parties involved.

Ultimately, the Tribunal found merit in the assessee's arguments, aligning with the decisions cited in similar cases. Considering the DTAA's primacy over domestic rules, the Tribunal allowed the appeal, directing the Assessing Officer to verify and grant the foreign tax credit to the assessee in accordance with established legal principles. Consequently, the Tribunal dismissed the stay application as the appeal was allowed, affirming the assessee's entitlement to the foreign tax credit and setting a precedent for future cases involving similar issues.