2023 (6) TMI 352 - AT - Income Tax

Denial of claim of Foreign Tax Credit (FTC) - assessee has not filed the return of income within the time prescribed u/s 139(1) - procedural provision v/s mandatory provision - HELD THAT - There is a delay of 10 days in filing the return of income - In the case of Sanjiv Gopal Vs. ACIT 2022 (10) TMI 1033 - ITAT BANGALORE was considering a case where both return and Form No.67 was filed belatedly decided the issue in favour of the assessee and held that Rule 128 is only a procedural provision and not a mandatory provision and cannot override the provisions of the Act or the DTAA. Delay in filing the return and Form No.67 (i.e., beyond period under section 139(1) of the Act) is not fatal to the claim of FTC, we hold that CIT(A) is not justified in not granting the benefit of FTC on this count. FTC is available only in respect of income taxable in India and received outside India for the amount of taxes paid outside India. This aspect of the matter needs to be examined by the AO. It is not clear from the records whether the entire part of the salary income has been earned in India or outside India. To the extent of salary earned outside India which assessee had offered to tax in India, the assessee would be entitled to the claim of FTC on the same. Therefore, we restore the matter to the file of the AO for denovo consideration - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of Foreign Tax Credit (FTC) due to delayed filing of return.
2. FTC availability only for income taxable in India and received outside India.

Summary:

Issue 1: Denial of Foreign Tax Credit (FTC) due to delayed filing of return

The assessee, a Japanese national deputed to India, filed a return of income for the Assessment Year 2021-22 on 10.01.2022, claiming FTC of Rs. 9,47,077/-. The return was processed, and FTC was denied by the AO due to the return being filed beyond the due date prescribed under section 139(1) of the Income Tax Act, 1961. The CIT(A) upheld this denial, emphasizing that the return was not filed within the stipulated time and that FTC is available only for income taxable in India and received outside India.

The Tribunal, referencing previous decisions, held that Rule 128 is procedural and not mandatory, thus, the delay in filing Form No.67 and the return should not result in the denial of FTC. The Tribunal cited the Bangalore Bench decision in Sanjiv Gopal vs. ACIT, which stated that procedural requirements should not override substantive rights provided under the Act and DTAA. Consequently, the Tribunal directed the AO to allow the FTC claim.

Issue 2: FTC availability only for income taxable in India and received outside India

The CIT(A) also contended that FTC is only available for income taxable in India and received outside India for taxes paid outside India. The Tribunal noted that it was unclear whether the entire salary was earned in India or outside India. Therefore, the Tribunal restored the matter to the AO for a de novo consideration to verify if the FTC claimed pertains to income earned abroad and taxed in India. The assessee was directed to provide necessary evidence to substantiate the FTC claim.

Conclusion:

The appeal was allowed for statistical purposes, with directions to the AO to reconsider the FTC claim based on the provided evidence and in light of the Tribunal's findings that procedural delays should not negate substantive entitlements under the Act and DTAA.