Neetu Agarwal Vs ITO (ITAT Kolkata)
Conclusion: Denying of FTC claim due to procedural delay in filing Form 67 was not justified as the objective of the Article 23 of the DTAA and section 90 to mitigate double taxation which should not be compromised by procedural technicalities when substantive compliance was evident.
Held: Assessee was a resident individual who filed her income tax return for the financial year 2020-2021. She discharged her tax liability by virtue of tax deducted at source (TDS), self-assessment tax, and Foreign Tax Credit of Rs. 2,25,936. Assessee belatedly filed form 67 for FTC. AO disallowed the FTC claim of assessee stating that it was not filed with her Income Tax Return. Aggrieved by the order, she filed an application for rectification. The rectification order was passed without granting FTC. Aggrieved by the order, she filed an appeal before CIT(A). The appeal was dismissed so she approached ITAT. Assessee argued that assessee had already paid the tax on foreign income in Sri Lanka and contended that AO should have granted FTC under section 90 of the Income Tax Act and Article 23 of the Double Taxation Avoidance Agreement ( DTAA ) between India and Sri Lanka. It was held that Article 23 of the India-Sri Lanka DTAA mandates that reliefs should be provided to avoid double taxation and FTCs should be granted when tax is paid in both the countries. Denying of FTC due to procedural delay in filing Form 67 went against the DTAA’s objectives. Section 90 allows relief in cases of double taxation. Although Rule 128(9) requires Form 67, assessee’s compliance within this rule during the rectification stage demonstrated a good faith or effort to fulfil procedural requirement. Hon’ble Courts and Tribunal had often held that procedural delay should not be hindered substantive relief when the claimant had made all other substantive requirement. As in the similar case of the assessee, Tribunal had favoured a liberal interpretation of procedural requirement when do not make the substantive aspect of the claim as in assessee’s own case for the assessment year 2020-21 in ITA No.67/Kol/2024. Based on the above analysis, assessee fulfilled the substantive requirement of paying taxes in Sri Lanka and subsequently claimed FTC as per DTAA u/s 90 and filing of the Form 67 during rectification process suffices as a procedural compliance to the claim of FTC. Moreover, the objective of the Article 23 of the DTAA and section 90 to mitigate double taxation which should not be compromised by procedural technicalities when substantive compliance was evident. Considering of these aspects and judicial precedents and in the interest of fair application of tax provision, assessee was entitled to FTC on foreign tax paid. Thus, the denial of FTC by the authority below was not sustainable.
