2024 (4) TMI 1208 - AT - Income Tax

Denial of Foreign Tax Credit - delayed filing of Form No. 67 as required by rule 128 - HELD THAT - Filing of Form No. 67 is directory and not mandatory and the credit for foreign taxes paid cannot be denied merely on the delay in filing the Form No. 67 - Respectfully following the order of Duraiswamy Kumaraswamy 2023 (11) TMI 1000 - MADRAS HIGH COURT and M/s. 42 Hertz Software India Pvt. Ltd. 2022 (3) TMI 834 - ITAT BANGALORE we hold that merely because the assessee could not file Form No. 67 within the prescribed time limit as per the provisions of rule 128(9) of the Income-tax rules, 1962, as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of taxes paid outside India. Therefore, the claim of the assessee is allowed and the AO is directed to give benefit of foreign tax credit in respect of tax paid outside India by the assessee in accordance with law and the DTAA between India and the USA. Decided in favour of assessee.

Issues Involved:

1. Legality of the disallowance of Foreign Tax Credit (FTC) due to delayed filing of Form No. 67.
2. Nature of the requirement to file Form No. 67-whether procedural/directory or mandatory.
3. Applicability of Section 90 of the Income Tax Act and Article 25 of the DTAA between India and the USA.
4. Charging of excess interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Disallowance of Foreign Tax Credit Due to Delayed Filing of Form No. 67:

The primary issue in this case was whether the assessee's claim for Foreign Tax Credit (FTC) could be denied due to the delayed filing of Form No. 67. The Assessing Officer disallowed the FTC claim of Rs. 21,89,828/- because Form No. 67 was filed after the due date for filing the return of income. The CIT(A) upheld this decision, leading to the present appeal. The Tribunal noted that Rule 128 of the Income Tax Rules requires Form No. 67 to be filed before the due date for filing the return of income. However, the rule does not explicitly state that FTC will be disallowed if the form is filed late. The Tribunal concluded that the requirement to file Form No. 67 is procedural and directory, not mandatory, and therefore, the FTC should not be denied solely due to the delay.

2. Nature of the Requirement to File Form No. 67:

The Tribunal examined whether the requirement to file Form No. 67 is procedural/directory or mandatory. It was argued that the procedural requirement should not extinguish the substantive right to claim FTC. The Tribunal referred to several precedents, including decisions by other Tribunals and the Hon'ble Supreme Court, which have held that procedural requirements should not override substantive rights unless explicitly stated. The Tribunal concurred with these views, stating that the filing of Form No. 67 is a procedural requirement and non-compliance should not result in the denial of FTC.

3. Applicability of Section 90 of the Income Tax Act and Article 25 of the DTAA:

The Tribunal highlighted that Section 90 of the Income Tax Act, along with Article 25(2)(a) of the DTAA between India and the USA, provides for the allowance of tax paid in the USA as a credit against tax payable in India. Neither the Act nor the DTAA specifies that FTC should be disallowed for procedural non-compliance. The Tribunal emphasized that DTAA provisions override the Income Tax Act unless the latter is more beneficial to the assessee. Therefore, the Tribunal held that the assessee's right to FTC could not be denied due to procedural delays in filing Form No. 67.

4. Charging of Excess Interest Under Sections 234A, 234B, and 234C:

The assessee also contested the charging of excess interest under Sections 234A, 234B, and 234C. The Tribunal noted that these grounds are consequential in nature and do not require separate adjudication. However, it directed the Assessing Officer to recompute the interest after granting the FTC, ensuring that the interest charged aligns with the revised tax liability.

Conclusion:

The Tribunal allowed the appeal, directing the Assessing Officer to grant the benefit of FTC in accordance with the law and the DTAA between India and the USA. It emphasized that procedural delays in filing Form No. 67 should not preclude the assessee from claiming FTC. The decision underscores the principle that procedural requirements should not override substantive rights unless explicitly mandated by law.

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