Case Law Details
Kazuya Watanabe Vs Assistant Director of Income Tax (ITAT Bangalore)
ITAT Bangalore held that delay in filing the return and Form No.67, beyond period under section 139(1) of the Act, is not fatal to the claim of FTC. Foreign Tax Credit duly available in respect of income taxable in India and received outside India for the amount of taxes paid outside India.
Facts- Assesse is a Japanese national. Since assessee was a resident and ordinary resident during the year, he had filed the return of income offering global income which claimed to include salary income earned in India as well as salary income earned outside India along with dividend income earned outside India. The assessee had claimed taxes paid outside India as FTC u/s. 90 of the Act. For the Assessment Year 2021-22, the return of income was filed on 10.01.2022 declaring total income of Rs.99,85,580/-. The tax liability on the said income declared in the return was Rs.32,12,551/- and the same was sought to be discharged by credit of FTC u/s. 90 of the Act to the extent of Rs.9,47,077/- and TDS of Rs.22,65,473/-.
AO did not grant FTC to the extent of Rs.9,47,077/- as claimed in the return of income. The CIT(A) confirmed the view taken by the AO primarily for the reason that the assessee has not filed the return of income within the time prescribed under section 139(1) of the Act.
Conclusion-The Bangalore Bench of the Tribunal in the case of Sanjiv Gopal Vs. ACIT considered various orders of the Tribunal and decided the issue in favour of the assessee. The Bangalore Bench of the Tribunal 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.
Held that 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.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against order of CIT(A), dated 22.03.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2021-22.
2. Assessee has raised 2 grounds and various sub-grounds. All the grounds relate to the issue of denial of claim of Foreign Tax Credit (FTC) amounting to Rs.9,47,077/-.
3. Brief facts of the case are as follows:
Assesse is a Japanese national. For the relevant Assessment Year, assessee was deputed to India as an employee of M/s. Toyota Kirloskar Auto Parts Pvt. Ltd., Bengaluru. Since assessee was a resident and ordinary resident during the year, he had filed the return of income offering global income which claimed to include salary income earned in India as well as salary income earned outside India along with dividend income earned outside India. The assessee had claimed taxes paid outside India as FTC under section 90 of the Act. For the Assessment Year 2021-22, the return of income was filed on 10.01.2022 declaring total income of Rs.99,85,580/-. The tax liability on the said income declared in the return was Rs.32,12,551/- and the same was sought to be discharged by credit of FTC under section 90 of the Act to the extent of Rs.9,47,077/- and TDS of Rs.22,65,473/-.
3. The return was processed and intimation under section 143(1) of the Act was issued on 13.10.2022. In the said intimation, the AO did not grant FTC to the extent of Rs.9,47,077/- as claimed in the return of income.
4. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The CIT(A) confirmed the view taken by the AO primarily for the reason that the assessee has not filed the return of income within the time prescribed under section 139(1) of the Act. Secondly, it was also mentioned in the impugned order of the CIT(A) that FTC is available in respect of only income taxable in India and received outside India for the amount of taxes paid outside India. The CIT(A) was of the view that in the instant case, the income was earned and received in India only and not outside India and therefore the claim of the FTC has been rightly denied by the CPC under section 143(1) of the Act.
5. Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR submitted that the issue in question is squarely covered by the following orders of the Tribunal :
- Sanjiv Gopal vs. ACIT (2023) 198 ITD 411 (Bangalore) (order dated 29.09.2022)
- Brinda Rama Krishna vs. ITO (2022)193 ITD 840 (Bangalore) (order dated 17.11.2021)
- Shri Sunkesulapati Sumanth vs. ITO [TS-5735-ITAT-2022(Bangalore)] (Order dated 29.04.2022)
- Shyamol Banerji vs. DCIT [TS-5164-ITAT-2023(Bangalore)] (order dated 13.02.2023)
- Ajay Kumar Mishra vs. DCIT ITA No.1835/De1/2022, Order dated 17.04.2023
- Sonia Sharma vs. ITO [TS-5659-ITAT-2023(Delhi)] (Order dated 27.04.2023)
6. The learned DR supported the order of the CIT(A).
7. We have heard the rival submission and perused the material on record. In the instant case, Form No.67 as mandated under Rule 128 of the Income Tax Rules, 1962, has been filed well within the time prescribed for filing the return under section 139(1) of the Act. The extended due date for filing return of income for Assessment Year was 31.12.2021. Form No.67 has been filed on 13.12.2021. However, the return has been filed on 10.01.2022. Therefore, there is a delay of 10 days in filing the return of income. The Bangalore Bench of the Tribunal in the case of Sanjiv Gopal Vs. ACIT (supra) was considering a case where both return and Form No.67 was filed belatedly. The Bangalore Bench of the Tribunal considered various orders of the Tribunal and decided the issue in favour of the assessee. The Bangalore Bench of the Tribunal 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. The relevant finding of the Bangalore Bench of the Tribunal reads as follows:
“6. Aggrieved by the order of NFAC (Appeals), the assessee is in appeal before this Tribunal. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the CIT(A) and other materials brought on record. The only issue under consideration in the present appeal is that the NFAC denied of FTC available to the sssessee merely because there was a delay in filling Form 67 i.e., it was filed after the due date for filling original return of income prescribed under section 139(1) of the income tax Act. The said issue under consideration is no longer res integra. We note that on identical issue, the Co-ordinate Bench of ITAT, Bangalore in the case of Brinda Rama Krishna (in ITA No. 454/Bang/2021 for AY.2018-19), order dated 17.11.2021 held 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. Therefore, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. The findings of the Coordinate Bench is reproduced below:
“2. The Assessee is an individual and during the previous year relevant to AY 2018-19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20.11.2017 till 16.05.2019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit (“FTC”) for taxes paid in Australia.
3. There is no dispute that the Assessee is entitled to claim FTC. Rule 128 of the Income Tax Rules, 1962 (Rules) provides for giving FTC and reads thus: “Foreign Tax Credit. 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule: Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.” One of the requirements of Rule 128 for claiming FTC is provided by Rule 128 (8) & (9) of the Rules and the same reads thus:
“(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 statement in Form No.67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under subsection (1) of section 139, in the manner specified for furnishing such return of income.”
4. The Assessee claimed FTC of Rs. 4,73,779/- u/s. 90 of the Act read with Article 24 of India Australia tax treaty (“DTAA”) in a revised return of income filed on 31.8.2018. The Assessee had not filed the Form 67 before filing the return of income. On realising the same, the Assessee filed Form 67 in support of claim of foreign tax credit on 18.04.2020. The revised return of income was processed by Centralized Processing Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28.05.2020 was passed disallowing the claim of FTC.
5. The Assessee filed a rectification application before the AO on 15.06.2020 & 25.02.2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10.03.2021, the AO upheld the action on the ground that the Assessee has failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to Rule 128(9) of the Rules.
6. On appeal by the Assessee, the CIT(A) vide Order dated 03.09.2021 confirmed the Order of AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is non-est in law. The CIT(A) also held that provisions of Rule 128 are mandatory in nature. The CIT(A)rejected the contention of the Assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC.
7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that Section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below: “4. In the case of India, double taxation shall be avoided as follows: (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;” It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements. FTC is Assessee’s vested right as per Article 24(4)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules.
8. It was further submitted by him that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: “(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:— (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”
9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision.
10. It was further submitted that Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to section 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9).
11. It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that: “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.” Further reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted that filing of Form 67 as per the provisions of section 90 read with Rule 128(9) is a procedural law and should not control the claim of FTC.
12. It was further submitted that even in the context of 80IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases: CIT vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi) PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 com 16 (Allahabad) CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 com 379 (Karnataka) CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi) CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
13. It was submitted that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer. Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the following cases and circulars: Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505 (SC) GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC) Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 com 42 (SC) (Pg 106-109 of PB 2-Para 25 & 26) CBDT Circular No 333 dated 2/4/82 137 ITR (St.) It was submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision.
14. The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and cannot be subject matter of decision in Sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record.
15. In his rejoinder, the learned counsel for the Assessee submitted that Form No.67 was available before the AO when the intimation u/s.143(1) of the Act dated 28.5.2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s.154 of the Act on the ground that the issue was debatable but rather the decision was given that the relevant rule was mandatory and hence non-furnishing of Form No.67 before the due date u/s.139(1) of the Act was fatal to the claim for FTC.
16. 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 long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee’s application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard.
17. In the result, the appeal is allowed.”
7. The aforesaid decision has also been followed by a Division Bench of ITAT Surat Bench in the case of Sanjay Patil Vs Assessing Officer (ITAT Surat) ITA No.189/SRT/2021 Order dated 18/05/2022. Following the view expressed in the aforesaid decision, we hold that the assessee is entitled to FTC and the AO is directed to allow the claim. The decision rendered by the ITAT Visakapatnam Bench in ITA No.269/Viz/2021 dated 14.6.2022 is distinguishable in as much as in the present case, Form No.67 was filed along with the return of income by the assessee and not after the commencement of the scrutiny proceedings by the AO after a delay of more than 2 years, as was the facts in the case decided by the Visakapatnam Bench (supra). We are therefore of the view that the said decision rendered by the Visakapatnam Bench is not applicable to the facts of the present case and the other decisions taking a view in favour of the assessee are applicable. The said decision also does not consider the effect of DTAA and Sec.90 of the Act, vis-à-vis the provisions of Rule 128(9) of the Rules and as to whether the Rules can override the Act. Therefore, we hold that the assessee is entitled to FTC and the AO is directed to allow the same.
8. In the result, the appeal is allowed.”
8. In view of the above order of the Tribunal which has categorically held that 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.
9. However, we notice that the CIT(A) in the impugned order at para 14 had held that the 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. The assessee is directed to file the necessary evidences / documents to prove its case to the extent of FTC credit claimed amounting to Rs.9,47,077/-is on the income earned abroad for which the taxes has been paid abroad and the same has been disclosed in the return of income filed for the relevant Assessment year 2021-22. It is ordered accordingly.
10. In the result, appeal filed by the assessee is allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
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