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TMI Blog2023 (5) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... and also in accordance with the Double Taxation Avoidance Agreement entered between India and United Kingdome. 2. In the facts and circumstance of the case and law, ld. CIT (A) has erred in confirming the action of ld. AO (CPC), in rejecting the rectification application filed by the assessee against the order passed under section 143(1), for not allowing credit of taxes paid outside India by the assessee. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the credit of taxes paid by the assessee outside India by directing the ld. AO (CPC) to allow the rectification application filed by the assessee. 3. In the facts and circumstance of the case and law, ld. CIT (A) has erred in confirming the action of ld. AO (CPC), in rejecting the rectification filed by the assessee for sole reason that not allowing such credit was not a mistake apparent on record, even though the assessee was entitled for claiming the credit of the taxes paid outside India, in accordance with Section 90/90A of the Income Tax Act, 1961 and also the double Taxation Avoidance Agreement entered between India and United Kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on 02.11.2019. The AO, while processing return of income under section 143(1) of IT Act, 1961, rejected the Foreign Tax Credit claimed of Rs. 2,32,870/- on the ground that assessee filed the Form 67 for claiming FTC after the due date prescribed under section 139(1) relevant for the year under consideration, and raised demand against the assessee of such amount including interest. Against the order passed under section 143(1), assessee filed rectification application under section 154 contending that as the assessee has not been allowed credit of the taxes paid outside India, which is nothing but a mistake apparent on record and deserves to be rectified under section 154 of the IT Act. The said rectification application filed by the assessee was disposed off by the AO (CPC) confirming the rejection of FTC. Against the rectification order, appeal was filed by the assessee before the ld. CIT (A), who vide order dated 20.12.2022 rejected the appeal of the assessee. 3. Aggrieved by the order of ld. CIT (A), now the assessee is in appeal before this Tribunal. 4. Before us, the ld. A/R of the assessee has filed his written submission as under :- "FILING OF FORM 67, NOT MANDATO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng return of income u/s 139(1), in the manner specified for furnishing such return on income. The relevant Sub-Rule (8) and Sub-Rule (9) of Rule 128 are set out hereunder for the sake of ready reference. "...(8) Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely:- (i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein; (ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,- (a) from the tax authority of the country or the specified territory outside India; or (b) from the person responsible for deduction of such tax; or (c) signed by the assessee: Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by, - (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee; (B) proof of deduction where the tax has been deducted. (9) The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and UK. 2.12 Thus, rejecting the FTC for delay in filing of Form 67 would tantamount to pitting the Income Tax Rules, 1962 on a higher pedestal, in comparison to the provisions of the DTAA. It is well understood that the rules are a form of delegated legislation and are not approved by parliament as against the provisions of the ITA which are amended/modified or introduced by the parliament. 2.13 As regards the legal position that the provisions of the DTAA shall always supersede the provisions of the ITA, attention is drawn towards the below mentioned judicial precedents: - Supreme Court * P.V.A.L. Kulandagan Chettiar [2004] 267 ITR 654 (SC) It was also held that in case of any conflict between the provisions of the DTAA and the ITA, the provision of the DTAA would prevail over the provisions of the ITA as is clear from the provisions of Section 90(2). * Azadi Bachao Andolan [2003] 263 ITR 70 (SC), It was held that the provisions of DTAA, with respect to cases to which they apply, would operate even if inconsistent with the provisions of the Income Tax Act. High Courts * Sanofi Pasteur Holding SA [2013] 354 ITR 316 (AP) It was held that the Double Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provisions of Section 206AA of the Act will not have an overriding effect for all other provisions of the Act and the provisions of the Treaty to the extent they are beneficial to the assessee will override Section 206AA by virtue of Section 90(2). In our opinion, the assessee therefore cannot be held liable to deduct tax at higher of the rates prescribed in Section 206AA in case of payments made to non-resident persons having taxable income in India in spite of their failure to furnish the permanent account numbers. We, accordingly, answer the question referred to this Special Bench in the negative and in favour of the assessee and allow both the appeals of the assessee for the assessment year 2011-12 and 2012-13..." 2.16 Similarly, in the below mentioned decisions the controversy was that assessee were not having Tax Residency Certificate, accordingly as per Sub-Section (4) of Section 90, the beneficial provisions of DTAA were denied to the assessee. However, it was held that the benefit under the DTAA cannot be denied to the assessee and that the provisions of Sub-Section (4) of Section 90 cannot override Sub-Section (2) of Section 90 which provides that DTAA shall al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chartered Accountant, before the due date of furnishing the return of income u/s 139(1). However, there were instances, wherein, such form could not be filed by the assessee within the stipulated time period and hence the assessees claim, under such section was rejected. 2.20 In the below mentioned decisions, specifically as regards Section 80-IB, the claim was allowed by different appellate authorities as the assessee had furnished the requisite form before completion of the assessment:- * Fortuna Foundation Engineers & Consultants (P.) Ltd. [2017] 81 taxmann.com 189 (Allahabad) "Headnote II: Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Housing Project) - Assessment year 2005- 06 - Whether where assessee, claiming deduction under section 80- IB(10), did not file audit report in Form 10CCB along with return of income but filed same before assessment was complete, assessee could not be made to suffer for it - Held, yes [Para 44] [In favour of assessee]" * AKS Alloys (P.) Ltd. [2012] 18 taxmann.com 25 (Mad.) "....5. In so far as it relates to the substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard are set out hereunder:- * Zenith Processing Mills vs CIT [1996] 219 ITR 721 (Gujarat) "Headnote: Section 80J of the Income-tax Act, 1961 - Deductions - Profits and gains from new industrial undertakings, ships or hotels - Assessment year 1976-77 - Whether provision of section 80J(6A) to extent it requires furnishing of auditor's report in prescribed form along with return, is directory in nature and not mandatory - Held, yes - Whether assessee can be permitted to produce such report at later stage when question of disallowance arises during course of assessment proceedings - Held, yes" * Shivanand Electronics [1994] 75 TAXMAN 93 (BOM.) "Headnote: Section 80J of the Income-tax Act, 1961 - Deductions - Profits and gains from new industrial undertakings - Assessment years 1976-77 and 1977-78 - Whether for purpose of claiming relief under section 80J(6A), filing of audit report before ITO is mandatory - Held, yes - Whether filing of audit report along with return is mandatory - Held, no - Whether, if an assessee fails to file audit report along with return and files it subsequently but before completion of assessment, ITO will have power to accept same if he is sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 139(4). When the FTC claimed by the assessee was rejected while processing the return of income under Section 143(1), assessee filed a rectification application. Such rectification application was rejected by the concerned Assessing Officer, similar to the case at hand, by stating that since Form 67 was not filed by the assessee FTC was not to be allowed. On appeal preferred by the assessee before Hon'ble ITAT, Bangalore Bench, such appeal was allowed. Relevant extracts of the decision of Hon'ble ITAT is as under:- "...I have given a careful consideration to the rival submissions. I 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. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above. I am also of the view that the issue in the proceedings u/s. 154 of the Act, even if it involves lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapatnam Bench, in case of Murikrishnam Vaddi (supra), as relied upon by the NFAC have not been followed in the below mentioned judicial pronouncement, including that rendered by the ITAT, Jaipur Bench:- S.No. Case law ITA No. Bench Case Law Page 1 Ritesh Kumar Garg 261/JP/2022 Jaipur Page 7 2 Bhaskar Dutta 1869/DEL/2022 New Delhi Page 18 3 Baburao Atluri 108 and 118/Hyd/2022 Hyderabad Page 25 2.33 In the below mentioned decisions, also cited above, Form 67 was filed by the respective assessees, even after the end of the relevant assessment year. However, inspite of such delay, the claim of FTC was allowed by different benches of Hon'ble ITAT. S.No. Case law ITA No. Bench AY Date of filing Form 67 Case Law Page 1 Ritesh Kumar Garg 261/JP/2022 Jaipur AY 2020-21 24.04.2021 Page 5 2 Brinda Ramakrishna 454/Bang/2021 Bangalore AY 2018-19 18.04.2020 Page 9 3 Bhaskar Dutta 1869/DEL/2022 New Delhi AY 2020-21 31.05.2021 Page 15 4 Sumedha Arora 1399/DEL/ 2022 New Delhi AY 2019-20 15.07.2021 Page 19 In view of the above, Foreign Tax Credit, deserves to be allowed in to-to, even if the Form 67 was filed after the due date prescribed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or rejecting the Foreign Tax Credit (FTC) to the assessee was that Form 67 for claiming FTC was filed by the assessee after the due date prescribed under section 139(1) relevant for the year under consideration. It is undisputed fact that Form 67 had already been filed by the assessee although he had filed it delayed. The entitlement of claiming FTC of taxes having paid outside India emerges from Double Taxation Avoidance Agreement (DTAA) entered by India with different countries. In the present case assessee had offered his income earned in UK by filing return of income in India. The assessee claimed the credit of taxes paid in UK which was in accordance with Article 24 of the DTAA between India and UK. The relevant extract of the same are reproduced below for the sake of brevity :- "2. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax paid in a territory outside India (which shall not affect the general principle hereof), the amount of the United Kingdom tax paid, under the laws of the United Kingdom and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income..." Our attention was drawn towards Sub-Section (2) of Section 90, which states that for granting relief in accordance with the provisions of the DTAA, the provisions of the I.T. Act shall apply only to the extent they are more beneficial to the assessee. Going by the plain words of the statute, the provisions of the ITA, in a situation covered by the tax treaty, cannot put the assessee to any greater burden than the burden placed by the provisions of applicable tax treaty. The only limitation placed is by insertion of Sub-Section (2A) to Section 90 which states that "notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A (dealing with the General Anti Avoidance Rules) of the Act shall apply to the assessee even if such provisions are not beneficial to him". Thus, Section 90(2A) is the only statutory provision in the ITA, which starts with a non-obstante clause vis-à-vis the provisions of Section 90(2), and it is the only rider to the treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case the return is not filed within the prescribed time frame. Our attention was drawn toward section 80AC, sec. 80IA, sec. 10A, sec. 10B etc. However, such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128. In this regard our attention was drawn to the recent decision passed by the Coordinate Bench of the Tribunal, Bangalore Bench in the case of Brinda Rama Krishna [2022] 135 taxmann.com 358 (Bangalore - Trib.) [Case Law Page 12] which laid down the ratio that Rule 128(9) of Income Tax Rules, 1962, does not provide for disallowance of Foreign Tax Credit in case of delay in filing Form 67, and filing of Form 67 is not mandatory but a directory requirement. In the said case, assessee had not filed Form 67 before filing the return of income. Even such Form 67 was not filed before the time-limit prescribed under Section 139(4). When the FTC claimed by the assessee was rejected while processing the return of income under Section 143(1), assessee filed a rectification application. Such rectification application was rejected by the concerned Assessing Officer, similar to the case in hand, by stating that since Form 67 was not filed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/Hyd/2022 and even in the case of Brinda Ramakrishna in ITA No. 454/Bang/2021, it has been held that not allowing FTC for the sole reason of delayed filing of Form 67 was held to be a mistake apparent on the record. Therefore, it was held by the Coordinate Benches of the Tribunal in the cases supra, that rectification application of the assessee for not allowing claim of FTC was maintainable and the Coordinate Bench of the Tribunal, in the cases of Brinda Ramakrishna in ITA No. 454/Bang/2021, Bhaskar Dutta in ITA No. 1869/Del/2022, Sumedha Arora in ITA No. 1399/Del/2022 has held that Form 67 filed by the respective assessees, even after the end of the relevant assessment year makes the assessee entitled to claim FTC. Therefore, considering the facts of the present case, the FTC deserves to be allowed to the assessee even if Form 67 was filed by the assessee after the due date of filing the return under section 139(1) of the IT Act, 1961, and in our view not allowing foreign tax credit by AO (CPC) was nothing, but a mistake apparent on record. Therefore, we direct the revenue to allow the claim of the assessee. 7. In the result, the appeal of the assessee is allowed. Order pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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