2025 (1) TMI 237 - AT - Income Tax

Denial of Credit for Foreign Tax paid - Form No.67 was filed belatedly, i.e., beyond the due date for filing of the return of income - Directory v/s mandatory provision - HELD THAT - Form No.67 was not filed within the due date for filing of the return of income under the provisions of section 139(1), but Form No.67 was filed on 22.03.2019. The CPC, Bangalore had processed the return of income as on 23.05.2020, which means that Form No.67 was very much available with the CPC, Bangalore. Therefore, the CPC, Bangalore cannot deny the claim for credit for foreign tax paid merely because Form No.67 was not filed within the due date specified for filing the return of income under the provisions of section 139(1) of the Act, as it is merely a directory. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Centralized Processing Center (CPC), Bangalore, was justified in denying the credit for Foreign Tax paid due to the late filing of Form No.67 beyond the due date for filing the return of income as specified under section 139(1) of the Income Tax Act, 1961.
Whether the requirement to file Form No.67 within the due date is mandatory or merely directory in nature.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of CPC's Denial of Foreign Tax Credit

Relevant Legal Framework and Precedents: The issue revolves around the interpretation of section 139(1) of the Income Tax Act, 1961, concerning the due date for filing returns, and Rule 128 regarding the filing of Form No.67 for claiming Foreign Tax Credit (FTC). The judgment also references a precedent set by the Hon'ble Madras High Court in the case of Duraiswamy Kumaraswamy Vs. The PCIT, which deemed the filing of FTC as directory.
Court's Interpretation and Reasoning: The court interpreted that the requirement to file Form No.67 within the due date is not mandatory. The judgment emphasized that the rule is intended to aid the implementation of the Act's provisions and should be considered directory.
Key Evidence and Findings: The appellant filed Form No.67 on 22.03.2019, which was after the due date for filing the return of income under section 139(1). However, this form was available to the CPC when processing the return on 23.05.2020.
Application of Law to Facts: The court applied the principle that the requirement to file Form No.67 within the due date is directory, not mandatory, thereby allowing the appellant's claim for FTC despite the late filing.
Treatment of Competing Arguments: The Departmental Representative argued that the denial was justified based on the amended provisions. However, the court found that the procedural requirement was directory and not grounds for denying the FTC.
Conclusions: The court concluded that the CPC's denial of the FTC was unjustified and directed the CPC to amend the Intimation under section 143(1) to consider the Form No.67 filed by the appellant.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The CPC, Bangalore cannot deny the claim for credit for foreign tax paid merely because Form No.67 was not filed within the due date specified for filing the return of income under the provisions of section 139(1) of the Act, as it is merely a directory."
Core Principles Established: The judgment establishes that procedural requirements, such as the timely filing of Form No.67 for FTC, are directory rather than mandatory. This principle allows for flexibility in procedural compliance when substantive rights are at stake.
Final Determinations on Each Issue: The appeal was allowed, and the court directed the CPC to amend the Intimation under section 143(1) to include the FTC claim based on the belatedly filed Form No.67. Other grounds of appeal were deemed general and required no adjudication.

The judgment underscores the importance of distinguishing between mandatory and directory procedural requirements, especially in tax matters where substantive rights, such as tax credits, are involved. This decision aligns with the broader judicial trend of prioritizing substantive justice over procedural technicalities.

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