2024 (5) TMI 1208 - AT - Income Tax

Foreign Tax Credit (FTC) - denial of claim on late filling of form 67 after due date of filling/ of ITR - as submitted that section 90 of the Act read with Article 25(2)(a) provides that USA tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax - HELD THAT - Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act, which is recently amended and provided for filling before the end of assessment year. The Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame or incorrectly filed within time frame and rectified later on, the relief as sought by the assessee u/s 90 of the Act would be denied. It was not the legislative intention to deny the FTC, either under the Act or Rules. Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Thus JAO is directed to allow the foreign tax credit limited to proportion of Indian tax payable. Decided in favour of assessee.

Summary

Issues:
1. Claim of Foreign Tax Credit (FTC) disallowed due to late filing of Form 67.
2. Right to file a Revised Return and its implications under section 139(5).
3. Interpretation of Section 139(5) of the Income-Tax Act, 1961.
4. Disallowance of FTC for non-compliance with procedural provisions in DTAA.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved the disallowance of the Claim of Foreign Tax Credit (FTC) due to the late filing of Form 67 by the assessee. The assessee contended that the provisions of section 90(2) of the Act empower the application of beneficial provisions in case of DTAA covered cases, and the filing of Form 67 should not control the claim of FTC. The Tribunal considered the legislative intent and emphasized that the filing of Form 67 is a procedural requirement, not a mandatory one, and does not extinguish the substantive right of claiming FTC. The Tribunal relied on various judgments to support its decision, ultimately directing the allowance of foreign tax credit limited to the proportion of Indian tax payable.

The second issue raised was regarding the right to file a Revised Return under section 139(5) of the Income-Tax Act, 1961. The assessee argued that the Original Return filed under section 139(1) stood withdrawn once the Revised Return was filed within the allowed time, and the ITR processed initially had Form No.67 on record. The Tribunal considered this argument in conjunction with the provisions of section 139(5) and allowed the appeal based on the statutory right to rectify mistakes in the original tax returns through a revised return.

Furthermore, the interpretation of Section 139(5) of the Income-Tax Act, 1961 was crucial in determining the validity of the revised return filed by the assessee. The Tribunal analyzed the provisions allowing taxpayers to rectify mistakes in their original tax returns through a revised return, emphasizing the significance of correcting deductions, exemptions, and income disclosures through this process.

Lastly, the issue of disallowance of FTC for non-compliance with procedural provisions in the Double Taxation Avoidance Agreement (DTAA) was considered. The Tribunal noted that there was no condition in the DTAA that FTC could be disallowed for procedural non-compliance. By interpreting the provisions of the DTAA and relevant sections of the Income-Tax Act, the Tribunal ruled in favor of the assessee, allowing the appeal and directing the allowance of foreign tax credit limited to the proportion of Indian tax payable.