2024 (2) TMI 159 - AT - Income Tax

Foreign Tax Credit u/s 90/90A - assessee filed his return of income belatedly u/s 139(4) - solitary reason of not filing FTC claim Form No 67 accompanying certificates, statements etc., within the time limit of filing ITR prescribed u/s 139(1) of the Act as specified u/r 128(9) - whether belated compliance for FTC made after the expiry of time limit prescribed for filing ITR u/s 139(1) of the Act is allowable? - HELD THAT - A careful reading conjunct consideration of provisions of section 90/90A of the Act and provisions of DTAA, prima-facie it appears us that, the provisions of DTAA in general does not prevail over the provisions of Act and rules made thereunder. Section 90/90A of the Act does also not provide so. However, wherever the DTAA has provided the taxation of a particular category of income at certain rates, then charging of that income at different rates as per the Act, may come in conflict with the DTAA and hence, the taxes over that category of income will be levied at that the rates, so provided in the DTAA. But where no such rates on an income or a category of income on the status of an assessee has been prescribed in the DTAA, then there cannot be any conflict with the Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act/Rules, that will govern the taxation of income. Therefore, in absence of any specific compliance provided in INDO-USA DTAA, in view of the ratio laid down in CIT Vs Hindusthan Paper Corpn. Ltd. 1994 (2) TMI 312 - CALCUTTA HIGH COURT the general provisions of the Act or the IT Rules will govern matter of taxation/assessment. The very purpose and object of insertion of rule 128 to statute is to allow FTC and it is so subscribed by s/r (1) therefore, mandate of s/r (9) is sub-servient to s/r (1). As the river cannot rise higher to its source hence s/r (9) it is to be read harmoniously so as not to defeat the purpose of s/r (1) enabling FTC to resident assessee to in terms of article 25 of DTAA. It is apt to mention here that the very insertion of rule 128 is stemmed out of provision of section 295(1)(ha) of the Act which empowered the board to prescribe procedure for granting of relief or deduction of any income-tax paid in any foreign country outside India u/s 90/90A or 91, against the income-tax payable under the Act; This ispo-fact clarifies amply that, the compliance envisaged under s/r (9) is procedural in nature. Therefore, we are afraid as this could not rescue the Revenue s concern as their Hon ble Lordships in PCIT Vs WIPRO Ltd 2022 (7) TMI 560 - SUPREME COURT have dealt with mandate of provisions of the Act which circumscribed with non-obstante clause, dissimilar with the present case relating to procedural rule brought in by CBDT to give effect to the provision DTAA. Prime object of prescribing filing of requisite form, certificate statement on record is to verify and vouch genuineness correctness of the FTC claimed by resident assessee. It would not only be difficult but impossible for the Revenue to honour each and any FTC claim without first verifying the eligibility of the claimant, genuineness correctness of claim. Undisputedly, a belated compliance would be indifferent to eligibility, genuineness correctness, hence cannot be subjected to rejection or denial. In our considered view filing of claim form alongwith certificates/statement etc., is mandatory as it relates to essence of FTC claim to be allowed as matter of substance, however directory with respective to time limit within which it is to be made as it is merely matter of convenience rather than substance, as the matter of fact rule 128 of IT Rules prescribed no consequences for delayed compliance or non-compliance. This view we find fortified by the judgement in Hyundai Motors India Ltd. Vs UOI 2015 (1) TMI 23 - MADRAS HIGH COURT wherein their Hon ble lordships have also dealt with nature of time limit prescribed whether mandatory or directory co-relating with prescription of consequences for non-compliance. It is held that, the rule setting a time clock prescribing no consequences for non-compliance within such time limit, then such rule for the limited purpose of time clock has to be seen as directory in nature. Placing reliance thereon, we agree with the decision of Brinda Rama Krishna 2022 (2) TMI 752 - ITAT BANGALORE wherein it is adjudicated that, the s/r (9) does not provide for disallowance of FTC in case of delay in filing as same is not mandatory but a directory requirement, therefore non-furnishing the same before the due date u/s 139(1) of the Act is not fatal. Thus, we hold that belated filing of form no 67, certificate statement as envisaged under s/r (8) any-time before it is actually processed or before the final assessment is actually made is sufficient compliance of s/r (9) of IT Rules, thus entitled to FTC. Assessee appeal allowed.

Summary

Issues Involved:
1. Denial of Foreign Tax Credit (FTC) due to delayed filing of Form No. 67.
2. Interpretation of procedural compliance under Rule 128 of IT Rules, 1962.
3. Supremacy of Double Tax Avoidance Agreement (DTAA) over domestic tax laws.

Summary:

1. Denial of Foreign Tax Credit (FTC) due to delayed filing of Form No. 67:
The appellant, an individual resident in India, filed his income tax return (ITR) belatedly on 28/02/2020 for AY 2019-20, claiming FTC of Rs. 11,11,174/- for taxes paid in the USA. The Centralised Processing Centre (CPC) denied the FTC claim because Form No. 67 was not filed within the prescribed time limit under section 139(1) of the Act. The First Appellate Authority (FAA) upheld this decision, leading the assessee to appeal before the ITAT.

2. Interpretation of procedural compliance under Rule 128 of IT Rules, 1962:
The appellant argued that the DTAA does not prescribe a filing requirement for FTC and that Rule 128(9) of IT Rules, 1962, which mandates filing Form No. 67 by the due date under section 139(1), is procedural and not mandatory. The Revenue contended that timely filing is mandatory, citing the Supreme Court decision in 'PCIT Vs WIPRO Ltd'. The ITAT noted that Rule 128(1) mandates FTC allowance, and Rule 128(9) prescribes a time limit for filing Form No. 67. The ITAT concluded that while filing the form is mandatory for verifying the FTC claim, the time limit is directory, not mandatory, as no consequences for delayed compliance are prescribed.

3. Supremacy of Double Tax Avoidance Agreement (DTAA) over domestic tax laws:
The ITAT examined the provisions of the INDO-USA DTAA and concluded that the DTAA does not override the procedural requirements of domestic tax laws unless there is a specific conflict. The DTAA entitles the resident assessee to FTC but does not nullify the filing requirements under Rule 128 of IT Rules, 1962. The ITAT held that the DTAA does not provide specific compliance requirements, and thus, the general provisions of the Act and IT Rules govern the matter.

Conclusion:
The ITAT allowed the appeal, holding that belated filing of Form No. 67 and accompanying certificates before the final assessment is sufficient compliance with Rule 128(9) of IT Rules, entitling the assessee to FTC. The decision emphasizes that procedural rules should not defeat the substantive right to FTC. The appeal was allowed in favor of the assessee.