2023 (5) TMI 1103 - AT - Income Tax

Denial of foreign tax paid - assessee furnished the statement in Form 67 with a delay - effect of overriding provisions - HELD THAT - 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 allow the appeal, and direct AO 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 as discussed - Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in this judgment are related to the denial of Foreign Tax Credit (FTC) to the assessee due to a delay in filing Form No. 67 and the dismissal of the rectification request made under section 154 of the Income Tax Act, 1961.

Issue 1: Denial of Foreign Tax Credit (FTC) due to delay in filing Form No. 67:
The assessee filed the return of income on 24/07/2019 instead of the due date of 31/08/2019, and subsequently filed Form No. 67 on 26/10/2020. The denial of FTC was based on the delay in filing the form. The learned CIT(A) upheld the denial of FTC citing Rule 128 of the Income Tax Rules, which mandates the filing of the statement of foreign tax deduction in Form No. 67 on or before the due date for claiming FTC.

Issue 2: Interpretation of Rule 128(9) of the Income Tax Rules:
The learned AR argued that Rule 128(9) does not explicitly provide for disallowance of FTC in case of a delay in filing Form No. 67. Various Tribunal decisions were cited to support the contention that filing Form No. 67 is a directory requirement, not a mandatory one, especially considering the provisions of the India-USA Double Taxation Avoidance Agreement (DTAA) which allows the assessee to claim the credit.

Issue 3: Conflict in views regarding the mandatory nature of filing Form No. 67:
The Learned DR contended that Rule 128(9) clearly states that the form must be furnished on or before the date specified for furnishing the return of income, making it a mandatory requirement. A decision from the Visakhapatnam Bench of the Tribunal was cited to support this view.

Judgment:
The Tribunal analyzed the arguments presented by both sides and referred to relevant case laws. It was noted that while there were conflicting views on the mandatory nature of filing Form No. 67, the Tribunal found that the provisions of the DTAA took precedence over the Rules. Article 25(2)(a) of the DTAA allows for deduction of foreign tax paid, which influenced the interpretation of Rule 128(9). The Tribunal held that Rule 128(9) must be read in conformity with the DTAA and allowed the appeal, directing the Assessing Officer to verify the foreign tax paid by the assessee and act in accordance with the established law.

Separate Judgment by Judge:
No separate judgment was delivered by the judges in this case.