2024 (12) TMI 631 - AT - Income Tax

Denial of Foreign Tax Credit relief u/s 90 - assessee did not file Form No.67 for claiming foreign tax credit on or before filing of return u/s 139(1) - HELD THAT - Since the provision of DTAA override the provision of Section 90 of the Act as they are more beneficial to the assessee, in view of judicial pronouncements in this regard and since Rule 128(9) does not preclude the assessee from the claiming credit for FTC in case of delay in filing the return of income as the credit for FTC is a vested right of the assessee and Form No. 67 was filed by the assessee, therefore, there was no justification for not allowing the credit for FTC. Hence the order of the Ld. CIT(A) is set aside and Ground Nos. 1 and 2 of the appeal are allowed and the Ld. AO is directed to allow the FTC in accordance with DTAA between India UK and as per law. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Denial of Foreign Tax Credit (FTC) due to late filing of Form 67.
2. Interpretation of procedural requirements under Rule 128 of the Income Tax Rules, 1962.
3. Application of Double Taxation Avoidance Agreement (DTAA) provisions.

Detailed Analysis:

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

The primary issue in this appeal was the denial of FTC amounting to Rs. 34,09,987, which the assessee claimed for taxes paid in the UK on pension income. The Assessing Officer (AO) disallowed this credit because the assessee failed to file Form 67 before the due date for filing the return of income as required under Section 139(1) of the Income Tax Act. The CIT(A) upheld this decision, emphasizing that the filing of Form 67 is a mandatory requirement under Rule 128 of the Income Tax Rules, 1962.

2. Interpretation of procedural requirements under Rule 128 of the Income Tax Rules, 1962:

The Tribunal examined whether the requirement to file Form 67 is mandatory or merely procedural. Rule 128(9) stipulates that Form 67 must be filed on or before the end of the assessment year. However, the Tribunal noted that neither the Income Tax Act nor the DTAA explicitly mandates the disallowance of FTC for failure to comply with this procedural requirement. The Tribunal referred to several judicial precedents, including decisions by the ITAT and the Hon'ble Supreme Court, which held that procedural lapses should not extinguish substantive rights, such as claiming FTC. The Tribunal concluded that the filing of Form 67 is directory, not mandatory, and non-compliance should not lead to the denial of FTC.

3. Application of Double Taxation Avoidance Agreement (DTAA) provisions:

The Tribunal emphasized the overriding nature of DTAA provisions over domestic tax laws when they are more beneficial to the assessee. Article 24 of the India-UK DTAA allows for credit of taxes paid in the UK against Indian tax liability. The Tribunal highlighted that the DTAA does not stipulate the disallowance of FTC due to procedural non-compliance, such as late filing of Form 67. Citing various judicial pronouncements, the Tribunal affirmed that the DTAA provisions should prevail, ensuring that the assessee's vested right to FTC is upheld.

Conclusion:

The Tribunal set aside the order of the CIT(A) and directed the AO to allow the FTC in accordance with the DTAA between India and the UK. The Tribunal's decision was grounded in the principle that procedural requirements should not hinder the substantive rights granted under international tax agreements. The appeal was allowed, reinforcing the precedence of DTAA provisions over domestic procedural rules when beneficial to the taxpayer.