2025 (1) TMI 694 - AT - Income Tax

Foreign tax credit disallowed - form 67 has not been filed within the due date - AR submitted that even though, the form 67 was filed later on, the assessee made the claim in the return of income filed by him which was filed in time and therefore prayed to allow the appeal - HELD THAT - We are not in agreement with the view expressed by the authorities since admittedly assessee was remitted the tax in the foreign country and also reported the said income in the return of income filed by him in India and claimed the deduction on the foreign tax paid by him. Therefore the filing of form 67 along with the return could be treated as a directory and not a mandatory one when the facts are not in dispute. Further the allowance of foreign tax credit is based on the DTAA signed between the countries. The Rule 128 also does not bar the claim of FTC when the assessee had not filed the Form 67 along with the return of income. In the facts and circumstances of the case, the disallowance of the foreign tax paid by the assessee is not correct. See MS. BRINDA RAMA KRISHNA 2022 (2) TMI 752 - ITAT BANGALORE and M/S. 42 HERTZ SOFTWARE INDIA PVT. LTD. 2022 (3) TMI 834 - ITAT BANGALORE wherein held that filing of Form No.67 is not mandatory but a directory requirement. Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67. No hesitation to grant relief as prayed for by the assessee and direct the AO to grant necessary relief in accordance with law, after due verification. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the disallowance of Foreign Tax Credit (FTC) due to the late filing of Form 67 is justified.
Whether the requirement to file Form 67 before the due date of filing the return is mandatory or directory.
Whether the disallowance of FTC affects the consequential interest under sections 234B and 234C.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of Foreign Tax Credit due to Late Filing of Form 67

Relevant legal framework and precedents: Rule 128 of the Income Tax Rules, 2016, prescribes the filing of Form 67 for claiming FTC. The rule was introduced effective from Assessment Year 2018-19. The precedents include the cases of Ms. Brinda Ramakrishna and 42 Hertz Software India Pvt. Ltd., where it was held that the filing of Form 67 is not mandatory but directory.
Court's interpretation and reasoning: The Tribunal found that the requirement to file Form 67 is directory and not mandatory. The Tribunal emphasized that the Double Taxation Avoidance Agreement (DTAA) overrides the provisions of the Act and the Rules, and Rule 128 does not explicitly bar the claim of FTC if Form 67 is not filed timely.
Key evidence and findings: The assessee had paid tax in a foreign country, reported the income in India, and remitted taxes to the Indian department. The only lapse was the late filing of Form 67.
Application of law to facts: The Tribunal applied the principle that procedural requirements should not obstruct substantive rights, especially when the facts are undisputed. The assessee had complied with the substantive requirement of reporting foreign income and paying taxes in India.
Treatment of competing arguments: The Revenue argued for disallowance based on procedural non-compliance, while the assessee argued for substantive compliance. The Tribunal sided with the assessee, emphasizing the directory nature of the requirement.
Conclusions: The Tribunal concluded that the disallowance of FTC was incorrect and directed the Assessing Officer (AO) to grant the necessary relief after verification.

Issue 2: Consequential Interest under Sections 234B and 234C

Relevant legal framework and precedents: Sections 234B and 234C pertain to interest for defaults in payment of advance tax and deferment of advance tax, respectively.
Court's interpretation and reasoning: The Tribunal did not directly address the issue of consequential interest but implied that if the FTC is allowed, the basis for interest under these sections would change.
Key evidence and findings: The Tribunal focused on the allowance of FTC, which would inherently affect the calculation of interest under these sections.
Application of law to facts: By allowing the FTC, the Tribunal indirectly addressed the issue of interest, as the tax liability would be recalculated.
Treatment of competing arguments: The Tribunal did not explicitly discuss arguments regarding interest but focused on the primary issue of FTC.
Conclusions: The Tribunal's decision to allow FTC implies a recalculation of interest under sections 234B and 234C.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; filing of Form No.67 is not mandatory but a directory requirement and DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act."
Core principles established: The Tribunal established that procedural requirements should not impede substantive rights, particularly when the DTAA provides for FTC. The filing of Form 67 is a directory requirement, not a mandatory one.
Final determinations on each issue: The Tribunal allowed the appeal, granting the FTC to the assessee, and directed the AO to verify and provide relief in accordance with the law.

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