2024 (11) TMI 852 - AT - Income Tax

Foreign Tax Credit (FTC) - denial of claim on delay in filing of Form 67 prescribed under Rule 128 of the Income Tax Rules - HELD THAT - Admittedly, the assessee has revised the return of income claiming the foreign tax credit much before the intimation generated u/s 143(1). Thus, in our considered view, the Revenue should have allowed the benefit of foreign tax credit to the assessee. The assessee has filed Form 67 for claiming the benefit of foreign tax credit, which is directory in nature. Thus, even there was no Form 67 filed by the assessee with the original return of income, yet the Revenue should have accepted the claim made by the assessee in the revised return of income. In holding so, we draw support and guidance form the order of this Tribunal in the case of Sanjeev Gopal 2022 (10) TMI 1033 - ITAT BANGALORE . Thus direct the AO to allow the benefit of foreign tax credit to the assessee after due and necessary verification as per the provisions of law. Hence, the ground of appeal filed by the assessee is allowed.

Summary

Issues Involved:

1. Denial of Foreign Tax Credit (FTC) due to delay in filing Form 67.
2. Interpretation of Rule 128(9) regarding the mandatory nature of filing Form 67.
3. The applicability of Double Taxation Avoidance Agreement (DTAA) over the Income Tax Act and Rules.

Detailed Analysis:

1. Denial of Foreign Tax Credit (FTC) due to delay in filing Form 67:

The primary grievance of the assessee was the denial of the Foreign Tax Credit (FTC) amounting to Rs. 52,43,835/- due to the delayed filing of Form 67. The assessee had filed a revised return of income on 19/06/2020, well before the intimation under Section 143(1) dated 17/03/2021. The authorities below, including the CIT(A), upheld the denial of FTC, asserting that the delay in filing Form 67 was the reason for disallowance. However, the Tribunal noted that the revised return was filed much before the intimation, and thus, the FTC should have been allowed. The Tribunal cited a precedent where it was held that the requirement to file Form 67 is directory and not mandatory, thereby supporting the assessee's claim for FTC.

2. Interpretation of Rule 128(9) regarding the mandatory nature of filing Form 67:

The Tribunal examined Rule 128(9) of the Income Tax Rules, which stipulates that Form 67 should be filed on or before the due date specified under Section 139(1) of the Act. The Tribunal referenced the decision in the case of Ms. Brinda Ramakrishna, where it was held that Rule 128(9) does not mandate the disallowance of FTC for delayed filing of Form 67. The Tribunal emphasized that filing Form 67 is a procedural requirement and not a substantive condition for claiming FTC. It was argued that procedural non-compliance should not extinguish the substantive right to claim FTC, as supported by various judicial precedents, including the Supreme Court's stance on procedural versus substantive conditions.

3. The applicability of Double Taxation Avoidance Agreement (DTAA) over the Income Tax Act and Rules:

The Tribunal highlighted the supremacy of the DTAA over the Income Tax Act and Rules, particularly when the provisions of the DTAA are more beneficial to the taxpayer. The Tribunal reiterated that neither Section 90 of the Act nor the DTAA stipulates that FTC should be disallowed for procedural non-compliance. The DTAA's provisions, which allow for FTC, override the procedural requirements of Rule 128(9). The Tribunal thus concluded that the assessee's right to claim FTC is protected under the DTAA, and procedural delays should not negate this right.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to grant the FTC to the assessee after due verification, emphasizing that procedural delays in filing Form 67 should not impede the substantive right to FTC under the DTAA. The decision underscores the principle that procedural rules should not override substantive rights granted under international tax agreements.