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TMI Blog2024 (9) TMI 1656X X X X Extracts X X X X X X X X Extracts X X X X ..... h Article 24 of the DTAA between India Sri Lanka and as per law. Hence, Ground No. 7 is allowed. Carry forward losses claimed by the assessee in the return of income - The assessee had claimed loss in the return of income. No discussion has been made by the Ld. CIT(A) in this regard. Assessee is also directed to file necessary evidence for such claim before the Ld. AO who shall allow the loss claimed in accordance with law after verification of the details. Hence, Ground No. 8 is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act dated 24 December 2021 was issued, however in the same, the credit of foreign tax was not provided, there by resulting in a demand of Rs. 4,12,080/-. 5. The assessee filed a rectification application against the intimation u/s 143(1) on 14 January 2022 along with Form No. 67. Against the rectification application, a rectification order u/s 154 of the Act was passed on 11 July 2022 without providing for credit of foreign taxes. Subsequently, another rectification order was passed on 08 August 2022 again without providing the claim of foreign taxes. Additionally, the loss from house property which was carried forward has also been denied. 6. Aggrieved with the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A) on the ground of not granting tax credit in respect of taxes withheld on the foreign income earned by the assessee and credit claimed in accordance with section 90 of the Act and Article 23 of the India-Sri Lanka DTAA. The assessee also claimed that the belated filing of Form No. 67 was only a procedural lapse and credit of the foreign tax ought to have been granted. Additional Ground for not allowing carry forward loss of Rs. 1,85,000/- claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the merits of the case have not been discussed. However, since the facts can be ascertained from the record and setting aside the order would cause further inconvenience to the assessee, therefore, we were inclined to decide the issue on the basis of facts on record. Hence, Ground Nos. 2, 3 ,4, 5 and 6 are allowed and there was justification for the delay in filing the appeal before the Ld. Addl/Jt. CIT(A). 11. As regards, Ground No. 7, in the case of the assessee Form No. 67 was not filed along with the return of income. It was submitted before the Ld. Addl/Jt. CIT(A) by the assessee that the return of income was filed on 09.01.2021 and she had submitted the Form No. 67 after receiving the communication from the e-filing team, Income Tax Department that the return of income was not accompanied by Form No. 67 as mandated by law. Subsequently, since the credit was not allowed, she filed a rectification application and Form No. 67 on 14.01.2022. The credit was not allowed since Form No. 67 was filed beyond the date for filing the return of income under section 139(1) of the Act. Two orders u/s 154 of the Act were passed on 11.07.2022 and 05.08.2022 but the credit for the claim of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom tax in India, India may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income. In Bhutan: Where a resident of Bhutan derives income which, in accordance with the provisions of this Agreement, may be taxed in India, Bhutan shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in India. Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in India. (b) Where in accordance with any provision of the Agreement, income derived by a resident of Bhutan is exempt from tax in Bhutan, Bhutan may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income." 11. Thus, Section 90 of the Act read with Article 22(2) of the DTAA provides that tax paid in Bhutan shall be allowed as a credit against the tax payable in India but limited to the proportion of Indian tax. Neither section 90 nor the DTAA provides that FTC shall be disallowed for non-compliance with any proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial to the assessee: 165. The conclusions in the aforestated paragraph have no direct relevance to the facts at hand as the effect of section 90(2) of the Income Tax Act, read with explanation 4 thereof, is to treat the DTAA provisions as the law that must be followed by Indian courts, notwithstanding what may be contained in the Income Tax Act to the contrary, unless more beneficial to the assessee. 15. We have gone through the decisions of the coordinate Benches and concur with their findings in this regard that filing of Form No. 67 is directory and not mandatory and the credit for foreign taxes paid cannot be denied merely on the delay in filing the Form No. 67. In the case of M/s. 42 Hertz Software India Pvt. Ltd. Vs the Assistant Commissioner of Income Tax, Circle - 3 (1)(1), Bangalore, ITA No. 29/Bang/2021 ITAT, BANGALORE it is held that: 6. There is no dispute that the Assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) & (9), it is clear that, one of the requirements of Rule 128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns. In our view, this requirement cannot be treated as mandatory, rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angalore Chemicals & Fertilizers Ltd. Vs. Deputy Commissioner (1992 Supp (1) SCC 21), Sambhaji Vs. Gangabai (2008) 17 SCC 117 and a lot many decisions of the Hon'ble Apex Court including the case in Union of India Vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) etc. and reached a conclusion that since Rule 128(9) of the Rules does not provide for disallowance of FTC in the case of delay in filing Form 67 and such filing within the time allowed for filing the return of income under section 139(1) of the Act is only directory, since DTAA over rides the Act, and the Rules cannot be contrary to the Act. 12. We find from Article 25(2)(a) of the DTAA that where a resident of India derives income which, in accordance with the provisions of the convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of the resident an amount equal to the income tax paid, paid in the United States, whether directly or by deduction. In view of this provision over riding the provisions of the Act, according to us, Rule 128(9) of the Rules has to be read down in conformity thereof. Rule 128(9) of the Rules cannot be read in isolation. Rules must be read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be squarely applicable to the present case. In the present case, the returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of the Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature. This is what the Hon'ble Supreme Court had held in the above cases when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of assessment order. W.P. No. 5834 of 2022 12. Further, in the present case, the intimation under Section 143(1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore, the impugned order is liable to be set aside. 13. Accordingly, the impugned order dated 25.01.2022 is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law of Sri Lanka and in accordance with this Convention whether directly or by deduction on profits, income or chargeable gains from sources within Sri Lanka (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) or capital in Sri Lanka shall be allowed as a credit against any Indian tax computed by reference to the same items of income or capital by reference to which the Sri Lanka tax is computed : Provided that such credit shall not exceed Indian tax (as computed before allowing any such credit), which is appropriate to the income derived from sources within Sri Lanka or to capital in Sri Lanka, so however, that where such resident is a company by which surtax is payable in India, the credit aforesaid shall be allowed in the first instance against income-tax payable by the company in India, and as to the balance if any against surtax payable by it in India. 3. For the purposes of paragraph (2) of this article, the term "Sri Lanka tax payable" shall be deemed to include any amount which would have been payable as Sri Lanka tax for any year but for an exemption or reduction of tax granted for that year or any part ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as not to affect its general character." 13. Since the provisions 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 (supra) 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 since Form No. 67 was filed along with the rectification application, as contended by the assessee, therefore, there was no justification for not allowing the credit for FTC. Hence, in view of the discussion made in the preceding paragraph, the claim of foreign tax credit has to be allowed since it is a vested right of the assessee and provision of DTAA will override the normal provision of the Income-tax Act if the same are more beneficial to the assessee and there is no justification for not allowing the credit. Respectfully following the judicial pronouncements (supra), the AO is directed to allow the FTC in accordance with Article 24 of the DTAA between India & Sri Lanka and as per law. Hence, Ground No. 7 is allowed. 14. Ground No. 8 is related to not allowing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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