2022 (2) TMI 752 - AT - Income Tax

Rectification of mistake u/s 154 - allowability of Foreign Tax Credit - Assessee from Australia has a global income as taxable in India - Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India and claimed foreign tax credit ( FTC ) for taxes paid in Australia - India Australia DTAA - HELD THAT - We agree with the contentions put forth by the learned counsel for the Assessee and hold that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. - the issue was not debatable and there was only one view possible on the issue which is the view set out above. The issue in the proceedings u/s.154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee s application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. therefore do not agree with the submission of the learned DR in this regard. Assessee appeal allowed.

Summary

Issues:
Claim of Foreign Tax Credit (FTC) under Rule 128 of Income Tax Rules, 1962 for Assessment Year 2018-19.

Detailed Analysis:

1. The appeal concerned an individual taxpayer (Assessee) claiming FTC for taxes paid in Australia while offering income for taxation in India. The dispute arose due to the non-filing of Form 67 before the due date specified under Rule 128(9) of the Income Tax Rules, which was considered mandatory by the revenue authorities.

2. The Assessee contended that the denial of FTC based on procedural non-compliance was against the provisions of Section 90 of the Income Tax Act and Article 24 of the India-Australia Double Taxation Avoidance Agreement (DTAA). The Assessee argued that FTC is a vested right under the DTAA and cannot be disallowed for procedural lapses.

3. The Assessee further argued that Rule 128 should be interpreted as a procedural provision rather than a mandatory one, citing precedents where procedural requirements were considered directory and not substantive. The Assessee emphasized that the DTAA provisions override those of the Act, ensuring the Assessee's right to claim FTC.

4. The Tribunal, after considering the arguments, held that Rule 128(9) did not explicitly provide for disallowance of FTC due to delayed filing of Form 67. The Tribunal also emphasized that the DTAA prevails over domestic laws, and procedural requirements should not impede substantive rights granted under international agreements.

5. The Tribunal concluded that the issue was not debatable, and there was only one correct interpretation, which favored the Assessee's claim for FTC. Therefore, the Tribunal allowed the appeal, emphasizing the primacy of the DTAA in granting relief to taxpayers and rejecting the revenue authority's stance on the mandatory nature of Rule 128(9).

6. The judgment highlighted the importance of upholding international agreements like DTAA and ensuring that procedural requirements do not unduly restrict taxpayers' rights to claim benefits such as FTC. The decision underscored the need for a harmonious interpretation of domestic laws and international treaties to safeguard taxpayers' interests.