2024 (8) TMI 463 - AT - Income Tax

Denial of Foreign Tax Credit - assessee failed to furnish Form 67 on or before the due date for furnishing the return prescribed u/s 139(1) which is mandatory - HELD THAT - As an admitted position that the assessee filed Form 67 on 08.01.2022 before the end of the relevant AY 2021-22 which is in conformity with the CBDT notification No. 100/2022 amending sub-rule (9) of Rule 128 of the Rules. The Rule nowhere provides that if Form 67 is not filed within time, relief sought by the assessee under section 90 of the Act would be denied. The assessee filed Form 67 before the return for the relevant AY was processed u/s 143(1) of the Act by the Ld. AO. Various coordinate benches of the Tribunal have held that filing Form 67 is a procedural/directory requirement and is not a mandatory requirement. We find Tribunal in the case of Baburao Atluri 2022 (12) TMI 525 - ITAT HYDERABAD has allowed the FTC despite delay in filing the FTC certificate in form No.67. Since the FTC certificate/statement in Form No. 67 was not examined by the Ld. AO, therefore, considering the totality of the facts and circumstances of the case and in the interest of justice, we deem it appropriate to restore the issue to the file of the AO with the direction to verify Form No. 67 and allow consequential FTC in accordance with law - Grounds raised by the assessee allowed for statistical purposes.

Issues Involved:
1. Denial of Foreign Tax Credit (FTC) by CPC, Bengaluru.
2. Non-recognition of taxes paid in the USA and Netherlands.
3. Double taxation due to disallowance of FTC.
4. Mandatory nature of filing Form No. 67 under Rule 128.
5. Procedural requirement versus substantive right of claiming FTC.

Issue-wise Detailed Analysis:

1. Denial of Foreign Tax Credit (FTC) by CPC, Bengaluru:
The Centralized Processing Center (CPC), Bengaluru, disallowed the Foreign Tax Credit (FTC) of Rs. 1,48,111/- claimed by the assessee for taxes paid in the USA and Netherlands. The disallowance was made during the processing of the assessee's return under section 143(1) of the Income Tax Act, 1961, as the assessee did not file Form 67 on or before the due date for furnishing the return under section 139(1) of the Act.

2. Non-recognition of taxes paid in the USA and Netherlands:
The assessee argued that he had duly paid taxes on his income in the USA and Netherlands and was eligible for FTC in India under section 90 of the Income Tax Act, 1961, and the respective Double Taxation Avoidance Agreements (DTAAs) with the USA and Netherlands. The assessee contended that the DTAA provisions override the Act and that non-compliance with procedural requirements should not lead to the disallowance of FTC.

3. Double taxation due to disallowance of FTC:
The assessee claimed that the disallowance of FTC would result in double taxation, which is contrary to the provisions of the Income Tax Act, 1961, and the DTAAs. The assessee emphasized that the purpose of the DTAA is to avoid double taxation and that procedural lapses should not defeat this objective.

4. Mandatory nature of filing Form No. 67 under Rule 128:
The CIT(A) upheld the AO's order, stating that filing Form 67 on or before the due date under section 139(1) is mandatory according to Rule 128(9) of the Income Tax Rules, 1962. The CIT(A) relied on the Supreme Court's decision in PCIT-III, Bengaluru vs. Wipro Ltd., which emphasized strict compliance with statutory requirements for claiming exemptions or concessions.

5. Procedural requirement versus substantive right of claiming FTC:
The assessee argued that filing Form 67 is a procedural requirement and should not disentitle the substantive right of claiming FTC. The assessee cited various Tribunal decisions, including the Bangalore Bench in Vinodkumar Lakshmipathi and the Mumbai Bench in Sonakshi Sinha's case, which held that DTAA provisions override the Act and non-filing of Form 67 within the prescribed time should not lead to the denial of FTC.

Tribunal's Findings:
The Tribunal considered the submissions and noted that the sole ground for denying FTC was the delay in filing Form 67. The Tribunal observed that the assessee filed Form 67 before the end of the relevant assessment year, in line with the CBDT notification No. 100/2022, which amended Rule 128(9) to allow filing Form 67 till the end of the assessment year. The Tribunal found that various coordinate benches have held that filing Form 67 is a procedural requirement, not mandatory.

The Tribunal referred to the Hyderabad Bench's decision in Baburao Atluri Vs. DCIT, which allowed FTC despite a delay in filing Form 67, and the Bangalore Bench's decision in M/s. 42 Hertz Software India Pvt. Ltd., which held that FTC cannot be denied for delayed filing of Form 67 as it is directory in nature. The Tribunal also noted that the delay in the assessee's case was minimal and justified.

Conclusion:
The Tribunal restored the issue to the AO for verification of Form 67 and directed the AO to allow FTC in accordance with the law. The appeal was allowed for statistical purposes, emphasizing that procedural lapses should not defeat the substantive right to claim FTC. The Tribunal distinguished the CIT(A)'s reliance on Supreme Court decisions as misplaced, as they pertained to different sections and contexts. The Tribunal upheld that DTAA provisions override procedural requirements, ensuring relief from double taxation.

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