Sanjeev Agarwal Vs DCIT (ITAT Jaipur)
ITAT Jaipur held that denial of Foreign Tax Credit merely because Form 67 was filed after the due date of filing the return under section 139(1) of the Income Tax Act is unjustified and untenable in law.
Facts- The issue is that part of the income of the assessee was received from outside India. Notably, the assessee considered income of Rs. 21,56,330/- earned in UK as part of his total income offered for tax in India.
Against the income earned in UK, assessee paid tax of Rs. 2,32,870/- in UK. Resultantly, while filing the return of income, assessee took credit of the tax paid in UK of Rs. 2,32,870/-, in accordance with section 90/91 of the IT Act. Form 67 was filed on 02.11.2019.
AO, while processing return of income u/s. 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 u/s. 139(1) relevant for the year under consideration, and raised demand against the assessee of such amount including interest.
Against the order passed u/s. 143(1), assessee filed rectification application u/s. 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 u/s. 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) which was rejected. Accordingly, being aggrieved, the present appeal is filed.
Conclusion- 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
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.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal by the assessee is directed against the order dated 20.12.2022 of ld. CIT (A), Udaipur-2 passed under section 250 of the IT Act for the assessment year 2018-19. The assessee has raised the following grounds :-
1. In the facts and circumstance of the case and law, ld. CIT (A) has erred in confirming the action of ld. AO (CPC), in not allowing the credit of the taxes paid outside India by the assessee, while processing the Return of Income under section 143(1) of the Income Tax Act, 1961. 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, for which the assessee was entitled to in accordance with the provisions of the Income Tax Act, 1961 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 Kingdom. 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 rectification application, as not allowing the taxes paid outside India is a mistake apparent on record.
4. 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 not allowing the credit of the taxes paid outside India while processing the return of income under section 143(1), even though such rejection of the claim of foreign tax credit did not fall within the purview of Section 143(1) of the Income Tax Act, 1961. The action of the CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the rectification application, as such rejection was outside the purview of section 143(1).
5. The assessee craves his right to add, amend or alter any of the grounds on or before the hearing.
2. The brief facts of the case are that the assessee for the relevant previous year earned income from salary, rental income and also income from business or profession. Part of the income was received by the assessee from outside India, i.e. from M/s. Strata Stones Ltd., entity based in United Kingdom (UK) and salary income in India from M/s. Stone Age Private Ltd. He also earned rental income from his house properties situated in India and Income from business. For the relevant previous year, assessee was a resident in India, in accordance with section 6 of the IT Act, 1961. Thus, in accordance with section 5 read with section 4 and 6, assessee offered entire income earned by him, whether in India or outside India i.e. his Global Income to tax in India, while filing his return of income on 13.03.2019 for the relevant previous year. While filing the return of income, assessee considered income of Rs. 21,56,330/- earned in UK as part of his total income offered for tax in India. Against the income earned in UK, assessee paid tax of Rs. 2,32,870/- un UK. Resultantly, while filing the return of income, assessee took credit of the tax paid in UK of Rs. 2,32,870/-, in accordance with section 90/91 of the IT Act. For claiming the aforementioned Foreign Tax Credit (FTC), amounting to Rs. 2,32,870/-, as per Rule 128 of the Income Tax Rules, 1962, Form 67 was 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 MANDATORY FOR CLAIMING FOREIGN TAX CREDIT
2.1 There is no dispute as regards the amount of FTC claimed by the assessee. Sole reason for rejecting the FTC 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. However, it is undisputed that Form 67 was filed by the assessee 02.11 .2019.
2.2 The entitlement for claiming FTC, of the taxes having paid outside India emerges from Double Taxation Avoidance Agreement (“DTAA”) entered by India with different countries.
2.3 In the present case, assessee had offered his income earned in UK, while filing return of income in India and accordingly had claimed the credit of taxes paid in UK. The same was in accordance with Article 24 of the DTAA between India and UK. Relevant extract of the same are reproduced hereunder for the sake of our ready reference.
“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 respect of income from sources within the United Kingdom which has been subjected to tax both in India and the United Kingdom 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”.
2.4 As per Article 24, assessee having paid taxes in UK was entitled to claim credit of such taxes, without even fulfilling any procedural requirement, such as filing of any form or otherwise. Thus, as long as the assessee paid taxes in UK and offered the income earned in UK to tax in India the assessee was entitled to claim credit of such taxes paid in UK.
2.5 The requirement for filing Form 67, for availing FTC, is prescribed under Rule 128 of Income Tax Rules, 1962. As per Rule 128(8), credit of any Foreign Tax shall be allowed on furnishing, amongst other documents as specified therein, Form 67.
2.6 As per Sub-Rule (9) of Rule 128, Form 67, as specified in Sub-Rule (8), has to be furnished on or before the due date of furnishing 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 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 sub-section (1) of section 139, in the manner specified for furnishing such return of income…”
2.7 Attention is 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 ITA 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 subsection (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 override provision set out in Section 90(2).
2.8 Accordingly, when the provisions of DTAA are juxtaposed alongside the provisions of the ITA, then the provisions of DTAA shall always override the provisions of ITA.
2.9 However, in a scenario, wherein, if the provisions of the ITA are more beneficial in comparison to the DTAA then only to that extent the beneficial provisions as contained in the ITA shall have to be made applicable on the assessee. In other words, only to the extent of the beneficial provisions, will the provisions of the ITA supersede the provisions of DTAA, otherwise, DTAA shall always have an overriding effect on the provisions of the ITA.
2.10 Rule 128 was inserted by Income Tax (1 8th Amendment) Rules, 2016, w.e.f 1.04.2017. The requirement for filing Form 67 is prescribed under Rule 128 only and the same does not emerge out of any of the provisions contained in the ITA.
2.11 It is reiterated that there is no requirement of filing any form, be it Form 67 or otherwise, for claiming FTC as per Article 24 of the DTAA between India 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
