2024 (2) TMI 1426 - AT - Income Tax

Denial of relief claimed u/s. 90/90A - foreign tax credit (FTC) denied - non grant of credit of TDS as assessee had failed to furnish form 67 on or before the due date of furnishing of ITR - mandatory V/S directory requirement - HELD THAT - As relying on Juan Miguel Guerrero Ferrer 2023 (9) TMI 1401 - ITAT JAIPUR as the claim of the assessee is duly supported by the ITR filed and the Form no. 67 though late. Thus, the AO is accordingly directed to allow relief to the assessee based on the ITR and form no 67 filed by the assessee. The order of the ld. CIT (A) is set aside. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Denial of Foreign Tax Credit (FTC) due to non-filing of Form 67 before the due date.
2. Interpretation of Rule 128(9) of the Income Tax Rules, 1962.
3. Applicability of Double Taxation Avoidance Agreement (DTAA) provisions.

Issue-wise Detailed Analysis:

1. Denial of Foreign Tax Credit (FTC) due to non-filing of Form 67 before the due date:
The appellant, an ordinary resident of India, worked in Belgium and included his global income in his tax return filed in India. He claimed FTC for taxes paid in Belgium. However, the Assessing Officer (AO) denied the FTC claim because the appellant did not file Form 67 before the due date of filing the Income Tax Return (ITR). The appellant filed Form 67 after the ITR submission, which led to the denial of FTC by the Central Processing Centre (CPC) and subsequent rejection of the rectification application under Section 154 of the Income Tax Act, 1961.

2. Interpretation of Rule 128(9) of the Income Tax Rules, 1962:
The appellant argued that the AO erred in not allowing relief under Section 90 of the Income Tax Act (FTC Rule 128(9)), despite the submission of Form 67 during rectification proceedings. Rule 128(9) mandates that Form 67 must be furnished on or before the due date specified for filing the return of income under Section 139(1). The appellant contended that this procedural requirement should not override the substantive right to claim FTC. The CIT (A) upheld the AO's decision, emphasizing the mandatory nature of the word "shall" in Rule 128(9), thus dismissing the appeal.

3. Applicability of Double Taxation Avoidance Agreement (DTAA) provisions:
The appellant cited the DTAA between India and Belgium, which stipulates that income tax paid in Belgium should be allowed as a deduction from the tax payable in India. The appellant argued that the DTAA provisions, which grant substantive rights to claim FTC, should prevail over procedural requirements. The ITAT Jaipur Bench, in a similar case (Juan Miguel Guerrero Ferrer vs DCIT), allowed the FTC claim despite the late filing of Form 67, recognizing the procedural nature of Rule 128(9). The ITAT emphasized that procedural non-compliance should not extinguish the substantive right to FTC, supported by the Supreme Court's rulings that procedural laws should aid justice and not obstruct it.

Conclusion:
The ITAT Jaipur Bench, following its earlier decision and Supreme Court judgments, directed the AO to allow the appellant's FTC claim. The order of the CIT (A) was set aside, and the appellant's appeal was allowed, reinforcing that procedural requirements should not negate substantive rights granted under DTAA and Section 90 of the Income Tax Act. The judgment underscores the precedence of substantive rights over procedural compliance in tax matters.