Filing of Form No. 67 is a procedural directory requirement in nature

Satreena Consultants Pvt. Limited Vs ITO (ITAT Kolkata)

ITAT Kolkata held that filing of Form 67 is directory in nature. Accordingly, benefit of relief of withholding tax credit in Tanzania against the tax liability arising in India allowed.

Facts- The assessee-company is engaged in providing Tea Consultancy Services in Tanzania. The payment for providing Tea Consultancy Services for F.Y. 2015-16 from Tanzania was received after deduction of withholding taxes of Rs.21,24,975/-. Income of Rs.24,72,879/- declared in the income tax return filed in India. Relief under section 90 of the Act was claimed towards withholding taxes paid in Tanzania against the tax liability in India at Rs.7,38,649/-. However, this claim of the assessee was denied for not filing Form 67, which as per the Central Processing Centre was mandatory to claim relief under section 90 of the Act. Thereafter the assessee filed a revised return on 20.09.2018 and also filed Form 67 alongwith it. The assessee failed to get any relief. Again the assessee filed rectification application under section 154 of the Act, but the relief under section 90 was denied on the ground of alleged delay in filing Form No. 67.

Aggrieved, the assessee preferred appeal before the ld. CIT (Appeals), however, the assessee was not granted foreign tax credit. Aggrieved, the assessee is now in appeal before the Tribunal.

Conclusion- I am of the considered view that the claim of the assessee towards withholding taxes paid in Tanzania is to be given against the tax liability on the income declared in India. Even otherwise filing of Form 67 has been held to be directory in nature by the Coordinate Bench, Mumbai in the case of Sonakshi Sinha –vs.- CIT(A) [ITA No.1704/MUM/2022] (Mumbai Tribunal).

Accordingly, direct the ld. Assessing Officer to allow the claim of the assesee made in From No. 67 and give benefit of relief of withholding tax credit in Tanzania against the tax liability arising in India. Accordingly all the effective grounds raised by the assessee in the instant appeal are allowed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The appeal at the instance of assessee for assessment year 2017-18 is directed against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 25.08.2022, which is arising out of the order under section 154 read with section 143(1) of the Act on 23.02.2021 framed by DCIT, CPC, Bengaluru.

2. The grounds of appeal raised by the assessee are as under:-

(1) That the Ld. lower authorities erred in not giving the benefit of foreign tax credit under section 90 to the extent of INR 7,38,649/-.

(2) That the entire adjustment under 143(1) is null and void as the same was issued without a notice under 143(1)(a).

(3) That Ld. Lower authorities erred in denying the foreign tax credit and sustaining the same beyond the scope and mechanism of section 143(1).

(4) That the Ld. Lower authorities erred in denying the benefits of DTAA which being more beneficial had an over-riding effect on all other provisions of the Act.

(5) The Ld. Lower authorities erred in invoking Rule 128 read with requirement of filing Form 67 which was never in place at the time of filing of return.

(6) The Ld. Lower authorities erred in ignoring the revised returns which is held to substitute the original return.

3. Brief facts of the case are that the assessee is a Private Limited Company and filed its return of income on 06.07.2017 for A.Y. 2017-18. The assessee-company is engaged in providing Tea Consultancy Services in Tanzania. The payment for providing Tea Consultancy Services for F.Y. 2015-16 from Tanzania was received after deduction of withholding taxes of Rs.21,24,975/-. Income of Rs.24,72,879/- declared in the income tax return filed in India. Relief under section 90 of the Act was claimed towards withholding taxes paid in Tanzania against the tax liability in India at Rs.7,38,649/-. However, this claim of the assessee was denied for not filing Form 67, which as per the Central Processing Centre was mandatory to claim relief under section 90 of the Act. Thereafter the assessee filed a revised return on 20.09.2018 and also filed Form 67 alongwith it. The assessee failed to get any relief. Again the assessee filed rectification application under section 154 of the Act, but the relief under section 90 was denied on the ground of alleged delay in filing Form No. 67.

4. Aggrieved, the assessee preferred appeal before the ld. CIT(Appeals) and reiterated the submissions made before the ld. Assessing Officer but the delay in submission of Form No. 67 was not condoned and the assessee was not granted foreign tax credit. Aggrieved, the assessee is now in appeal before the Tribunal.

5. Counsel for the assessee has filed a written submission, which reads as under:-

The assessee is a Private Limited Company and had earned all its income from Tanzania which was received by the assessee after payment of withholding tax of INR 21,24,975/-. Subsequently tax returns were filed in India with tax liability of INR 7,38,649/- against which relief under section 90 with respect to taxes paid at Tanzania was claimed. The assessee filed his return of income under section 139(1) on 06.07.2017 and Notification 9 was issued in the prescribed form 67 duly filled in on 19.09.2017. Revised return was filed in Form No. 67 on 20.09.2018 and issuance of 143(1) denying the relief on 05,04.2019. ld. CIT(Appeals) dismissed the appeal of assessee on the ground that filing Form 67 was mandatory and delay cannot be condoned. Aggrieved by such order of ld. CIT(Appeals), the assessee has moved the appeal before the Tribunal. According to assessee, the return under section 139(1) was already filed on 06.07.2017 while method of filing Form 67 was prescribed only on 19.09.2017. Thus it was beyond the control of assessee to file Form 67 before filing return under section 139(1). Ld. Counsel submitted that CBDT vide Notification No. 11/2022 dated 18.08.2022 has amended Rule 128(9) allowing to file Form 67 before the last date of filing of filing return under 139(4). It was also pleaded by the ld. Counsel for the assessee that for A.Y. 2017-18, the last date under section 139(4) was 31.03.2019 and the assessee had filed Form 67 on 20.09.2018 itself. Thus considering the curative nature of the amendment, it should be given retrospective application as per citation reported in 224 ITR 677 in the case of Allied Motors (P) Limited. In the third limb of this submission regarding filing Form 67 is that filing of Form 67 is only directive in nature and cannot over DTAA provisions and contended that provision of DTAA overrides the provisions of the Acts and Rules as held by Hon’ble Supreme Court in the case of Engineering Analysis Centre Excellence Pvt. Limited reported in 432 ITR 471 (2021), thus it cannot deny tax credit under DTAA with Tanzania (Article 25 of DTAA). Even otherwise, various Tribunals have held that filing of Form 67 is a procedural directory requirement and not a mandatory requirement. This is because Rule 128(9) does not provide for disallowance of foreign tax credit in case of delay in filing Form No. 67. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provisions is normally not taken to be mandatory and is considered to be purely directory as in the case of Sonakshi Sinha  –vs.- CIT(A) [ITA No.1 704/MUM/2022] (Mumbai Tribunal). In the 4th limb of legal grounds, he contended that 143(1)(a) issued intimating assessee of such adjustment, therefore, in violation of provision of section 143(1), rendering the adjustment is bad in law. He further contended that return under section 139(5) substitutes return under section 139(1) and thus, the same having complied to Rule 128 should not result in denial of foreign tax credit.

6. On the other hand, ld. Departmental Representative supported the order of lower authorities.

7. We have heard the rival contentions and gone through the relevant records placed before us. The only issue for our consideration is regarding relief under section 90 of the Act at Rs.7,38,649/- claimed by the assessee but denied by both the lower authorities for delay in filing Form No. 67. We observe that it is not in dispute that the assessee earned income from Tanzania and Rs.21,24,975/- was deducted as withholding tax and the credit for the same was claimed as relief under section 90 of the Act against the tax liability arising in India at Rs.7,38,649/-. We notice that for the purpose of foreign tax credit, Rule 128(8) of the Income Tax Rules provides the procedure wherein for the purpose of credit of any foreign tax shall be allowed on furnishing various documents, which includes Form No. 67, which is a statement of income from the country or specified territory outside India offered for tax for the previous year of foreign tax deducted or paid on such income and the same needs to be verified in the specified manner, which includes any one of the three, namely, tax authority of the country, or specified territory outside India or from the person responsible for deduction of such tax or signed by the assessee. There are certain other requirements, which need to be fulfilled for the purpose of filing Form No. 67.

8. Now our attention was drawn towards the Notification issued by the Central Board of Direct Taxes on 18t^h August, 2022. The time limit for filing the Form 67 was before the last date of filing the return under section 139(4) of the Act and the method of filing Form 67 was prescribed on 19.09.2017. Further we find that the method of filing Form no. 67 was prescribed on 19.09.2017 i.e. after the date of filing the return of income by the assessee. It is also not in dispute that the last date for filing the return under section 139(4) of the Act for A.Y. 2017-18 was 31.03.2019 and the assessee filed Form 67 on 28.09.2018 alongwith revised return. Under these given facts and circumstances, where the assessee filed the original return on 06.07.2017 when there was no mechanism for filing Form No. 67, as it came into effect on 19.09.2017 and thereafter before the expiry of the due date prescribed under section 139(4) of the Act, the assessee furnished Form 67 and also filed the revised return. I am of the considered view that the claim of the assessee towards withholding taxes paid in Tanzania is to be given against the tax liability on the income declared in India. Even otherwise filing of Form 67 has been held to be directory in nature by the Coordinate Bench, Mumbai in the case of Sonakshi Sinha  –vs.- CIT(A) [ITA No.1 704/MUM/2022] (Mumbai Tribunal). and the relevant finding of this Tribunal is reproduced below:

“12. We have carefully considered the rival contention and perused the orders of the lower authorities. Short question in this appeal is whether assessee is entitled to foreign tax credit even when form number 67 required to be filed according to the provisions of rule 128 (9) of the Income Tax Rules on or before the due date of filing of the return of income, not complied by the assessee, but same was filed before the completion of the assessment proceedings. Precisely, the fact shows that assessee filed return of income u/s 139 (1) of the income tax act. In such a return of income, she claimed the foreign tax credit. However, form number 67 was filed during the course of assessment proceedings and not before the due date of filing return. Rule 128 (9) of the Income Tax Rules 1962 provides that 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. We find that coordinate bench in 42 Hertz Software India (P.) Ltd v. ACIT [2022] 139 taxmann.com 448 (Bangalore – Trib.) wherein following its earlier order in the case of Ms. Brinda Rama Krishna v.ITO [2022] 135 taxmann.com 358 (Bang – Trib) it was held that

“one of the requirements of Rule128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns and that this requirement cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No. 67. Same view is also taken by a coordinate division bench in Vinodkumar Lakshmipathi V CIT(A) NFAC ITA No.680/Bang/2022 06.09.2022. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Admittedly, Rule 128 does not prescribe denial of credit of FTC. Further the Act i.e. section 90 or 91 also do not prescribe timeline for filing of such declaration on or before due date of filing of ROI. Further rule 128 (4) clearly provides the condition where the foreign tax credit would not be allowed. Rule 128 (9) does not say that if prescribed form would not be filed on or before the due date of filing of the return no such credit would be allowed. Further by the amendment to the rule with effect from 1 April 2022, the assessee can file such form number 67 on or before the end of the assessment year. Therefore, legislature in its own wisdom has extended such date which is beyond the due date of filing of the return of income. Further , the fact in the present case is quite distinct then the issue involved in the decision of the honourable Supreme Court in case of Wipro Ltd (supra). Here it is not the case of violation of any of the provisions of the act but of the rule, which does not provide for any consequence, if not complied with. Therefore, respectfully following the decisions of the coordinate bench on this issue, we hold the assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income Tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Accordingly, ground number 2 of the appeal of the assessee is allowed”.

9. I, therefore, respectfully following the decision referred to hereinabove and the discussion made supra, direct the ld. Assessing Officer to allow the claim of the assesee made in From No. 67 and give benefit of relief of withholding tax credit in Tanzania against the tax liability arising in India. Accordingly all the effective grounds raised by the assessee in the instant appeal are allowed.

10. In the result, the appeal of the assessee is allowed

Order pronounced in the open Court on 22nd February, 2023.