Case Law Details
Ashish Agrawal Vs ITO (ITAT Hyderabad)
The Income Tax Appellate Tribunal (ITAT), Hyderabad, allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), for Assessment Year 2019-20. The appeal involved three issues: refusal to condone a delay of 710 days in filing the appeal against an intimation under Section 143(1) of the Income-tax Act, delay of 604 days in filing a rectification application, and denial of Foreign Tax Credit (FTC) of ₹1,94,384.
The assessee, an Indian national employed with Emerson Electric Company (India) Private Limited, had been on assignment in the United States from 30 May 2017 to 8 June 2018. Being a resident and ordinarily resident in India for the relevant assessment year, his global income, including salary earned for services rendered in the United States, was taxable in India. The assessee filed his return under Section 139(4) on 15 November 2019 declaring total income of ₹38,32,940 and claimed FTC of ₹1,94,384 under Section 90 of the Act read with Article 25(2)(a) of the India–USA Double Taxation Avoidance Agreement (DTAA) and CBDT Circular No. 333 dated 2 April 1982. However, the Assessing Officer, while processing the return under Section 143(1), denied the FTC claim.
The assessee filed an appeal before the CIT(A), relying on the Supreme Court’s directions regarding extension of limitation during the COVID-19 pandemic. The CIT(A), however, refused to condone the delay of 710 days, observing that no sufficient cause had been demonstrated for the delayed filing. The CIT(A) also noted that the rectification application under Section 154 had been filed after 604 days and dismissed the appeal without examining the issue on merits.
Before the Tribunal, the assessee submitted that Rule 128(9) of the Income-tax Rules does not provide for disallowance of FTC merely because Form 67 is filed belatedly and argued that the requirement is directory rather than mandatory. It was also contended that the Supreme Court, in its suo motu proceedings concerning limitation, had directed that where the limitation expired between 15 March 2020 and 28 February 2022, a fresh period of 90 days from 1 March 2022 would be available. The assessee relied on several Tribunal decisions supporting condonation of delay and allowance of FTC.
The Tribunal observed that the Revenue did not dispute the applicability of the Supreme Court’s order extending limitation. Following those directions, the Tribunal condoned the delay in filing the appeal before the CIT(A). It also noted that the assessee had filed a rectification application before the Central Processing Centre (CPC), which was decided on 9 January 2023, and held that the rectification application had been filed within the permissible period under Section 154(7). Since the CIT(A) had dismissed the appeal solely on the ground of delay without adjudicating the issue on merits, the Tribunal considered whether to remand the matter. However, considering the limited nature of the dispute and that the issue was already covered by earlier decisions, it proceeded to decide the matter itself.
On the issue of FTC, the Tribunal relied on earlier decisions, including Ms. Brinda Rama Krishna and Purushothama Reddy Vankireddy, which held that Rule 128(9) does not prescribe denial of FTC for delayed filing of Form 67. Referring to Article 25(2)(a) of the India–USA DTAA, the Tribunal observed that India is required to allow credit for taxes paid in the United States where the income is taxable in both countries. It held that Rule 128(9) must be read in conformity with the Act and the DTAA and cannot be interpreted in isolation to defeat the substantive right available under the treaty.
Following the earlier coordinate bench decisions, the Tribunal held that delayed filing of Form 67 could not be the basis for denying FTC. It accordingly allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the order dated 28/04/2023 passed by the learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Ashish Agrawal (“the assessee”) for the assessment year 2019-20, assessee preferred this appeal.
2. The main issues involved in this appeal are about not condoning the delay of 710 days in filing of the appeal by the assessee against the intimation under section 143(1) of the of the Income Tax Act, 1961 (for short “the Act”). Secondly, delay of 604 days in filing of the rectification application and disallowance of Foreign Tax Credit (FTC) of Rs. 1,94,384/-paid by the assessee.
3. Brief facts of the case are that the assessee is an Indian National. He is a salaried individual employed with Emerson Electric Company (India) Private Limited (‘Emerson India’) and was on an assignment to United States of America (USA) for the period 30th May, 2017 to 8th June, 2018. As the assessee was a resident and ordinarily resident in India for the assessment year 2019-20, his global income was taxable in India. Accordingly, salary for the services rendered outside India (30th May, 2017 to 8th June, 2018) was also taxable in India.
4. During the year under consideration, assessee filed the return of income on 15/11/2019 under section 139(4) of the Act, declaring total income of Rs. 38,32,940/- and claiming FTC of Rs. 1,94,384/- on salary income earned in the USA for the period of services in the USA amounting to Rs. 11,80,021/- was taxed in the USA as well as in India. In order to avoid double taxation of salary income amounting to Rs. 11,80,021/- in India as well as in USA, the assessee had claimed FTC as per section 90 of the Act read with Article 25(2)(a) of the India-USA Double Taxation Avoidance Agreement (DTAA) read with CBDT Circular No. 333, dated 02/04/1982. In the intimation passed under section 143(1) of the Act, the learned Assessing Officer denied FTC of Rs. 1,94,384/-, claimed in the return of income filed by the assessee. Aggrieved by such a finding of the learned Assessing Officer, assessee preferred appeal before the CIT(A) belatedly, duly quoting the Hon’ble Apex Court’s directions in respect of the condonation of delay in filing the appeal.
5. Learned CIT(A) dismissed the appeal of assessee duly upholding the action of learned Assessing Officer on the issue of FTC and at the same time, did not condone the delay in filing the appeal belatedly, stating as under:
“In the present case, it clearly emerges that the appellant had not filed the appeal within a period of 30 days after date of the intimation u/s. 143(1) of the Act. It has chosen to file the appeal after a delay of 710 days. Even the application for rectification was filed after 604 days. Unless and until it is demonstrated that there was a sufficient cause that prevented the appellant from exercising its legal remedy of filing appeal within that prescribed period of 30 days and that such difficulty continued to exist for over 710 even thereafter, the delay cannot be condoned without there being compelling grounds as advocated by the Hon’ble Courts.
For these reasons, the appeal sought to be instituted by the appellant belatedly is not admitted since no “sufficient cause” has been shown u/s. 249(3) of the Income Tax Act, 1961 for the appellant’s failure to file the appeal within the prescribed period of limitation u/s. 249(2) of the Income Tax Act, 1961 r.w.s. 5 of Limitation Act. Hence the delay of 710 days in filing of appeal is not condoned and the appeal is accordingly dismissed”.
6. Aggrieved by the action of the learned CIT(A), assessee preferred this appeal before the Tribunal.
7. According to the learned AR, Rule 128(9) of the Rules does not provide for disallowance of Foreign Tax Credit (FTC) in case of delay in filing Form 67 and, therefore, it has consistently been held by various Benches of the Tribunal that filing of Form 67 is a directory requirement, but not a mandatory one inasmuch as Article 25(2)(a) of India-USA Double Taxation Avoidance Agreement (DTAA) vests a right in the assessee to claim the credit thereof. He prayed that asper the directions issued by the Hon’ble Supreme Court in its Suo Motu Writ Petition (C) No. 3 of 2022, dated 10/01/2022 that – in cases where the limitation would have expired during the period between 15/03/2020 till 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022. In the event, the actual balance period of limitation remaining, with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. Learned AR placed reliance on the following cases, to condone the delay in filing the appeal as well as allowing of FTC claim, in support of his arguments:
i. Collector, Land Acquisition vs. Mst. Katiji 167 ITR 471 (SC);
ii. Tejas Karshanbhai Dari vs. ITO (ITA No. 1459/Ahd/2019);
iii. Monitor Vincom Pvt. Ltd. vs. ITO (ITA No. 469/Kol/2021);
iv. Ms. Brinda Rama Krishna vs. ITO (ITA No. 454/Bang/2021);
v. Sonakshi Sinha vs. CIT(A), NFAC, Delhi (ITA No. 1704/Mum/2022);
vi. Vinodkumar Lakshmipati vs. CIT(A), NFAC, Delhi (ITA No. 680/Bang/2022);
vii. Purushothama Reddy Vankireddy vs. ADIT (INTN Taxation)-1, Hyderabad, dated 05/12/2022 (ITA No. 526/Hyd/2022).
8. Per contra, learned DR placed heavy reliance on the orders of the authorities below and Rule 128(9) of the Rules.
9. We have heard the rival submissions and perused the material placed on record. It could be seen from the record that there was a delay of 710 days in preferring the appeal before the learned CIT(A) and the reason attributed for the delay in filing the appeal to the pandemic. As a matter of fact, though the learned DR does not concede to condone the delay, there is no denial of the fact that the Hon’ble Supreme Court in the Suo Motu proceedings in the case of M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020 by order dated 10/01/2022 held that in cases, where the limitation would have expired during the period between 15/03/2020 and 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022, and in the event of actual balance period of limitation remaining with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. Since the limitation period is applicable to this appeal also, following the direction of Hon’ble Hon’ble Apex Court, we condone the delay.
10. Besides the above, the assessee after the receipt of intimation u/s. 143(1) of the Act, had filed a rectification application before the CPC on 07/11/2022 and the CPC had passed order on 09/01/2023, thereby not accepting the request of the assessee for granting the relief as claimed in the original return of income. Having heard the rival submissions, we are of the considered opinion that delay in filing the appeal before the learned CIT(A) was on account of the reasons mentioned hereinabove and more particularly for the assessee to avail the proceedings u/s. 154 of the Act before the CPC. In view of the above, the delay in filing the appeal before the learned CIT(A) is required to be condoned. We also observed from the perusal of the learned CIT(A)’s findings that the learned CIT(A) has not adjudicated the appeal of the assessee on merits and merely dismissed the same on account of delay in filing the appeal before the learned CIT(A). In our view, though invariably the issue is required to be remitted to the file of learned CIT(A), considering the smallness of the issue and the issue is covered in favour of assessee, we deem it appropriate to adjudicate the grounds on merits. Accordingly, we have also taken into account that the rectification application was also filed well within the permissible time limit i.e., upto 31st March, 2025 as per Section 154(7) of the Act.
11. As far as the issue of FTC is concerned, learned AR placed reliance on the decision in the case of Ms. Brinda Rama Krishna (supra). In the case of Ms. Brinda Rama Krishna (supra), the Bench considered the issue in the light of the provisions of DTAA, section 295(1) of the Act, the decisions of the Hon’ble Apex Court in the case of Mangalore 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 in the context of the Act and the DTAA impacting the rights, liabilities and disabilities of the parties.
13. In the case of Purushothama Reddy Vankireddy (supra) also the Co-ordinate Bench of the Tribunal, in the similar circumstances, allowed the appeal of assessee for FTC claim. Respectfully following the same, we are of the considered opinion that the decisions relied upon by the assessee are applicable to the facts of the case and the grounds raised by the assessee are accordingly allowed.
14. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 26th day of September, 2023.
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