Foreign Tax Credit under DTAA cannot be denied for Delay in filing Form 67

Rohan Hattangadi Vs CIT (A) (ITAT Mumbai)

From Rule 128, it is evident that the assessee has to file Form 67 on or before the due date of furnishing the return of income as per section 139(1) of the Act, which the statement specifies as mandatory and not directory as per the word ‘shall’ used in the said provisions. It is evident that the assessee has filed Form 67 belatedly after the due date for filing of return u/s. 139(1) and, hence, the lower authority have rejected the claim of the assessee. Though the decision cited by the ld. Departmental Representative (ld. DR for short) in Muralikrishna Vaddi, Visakhapatnam (supra) by the co-ordinate bench has held that delay in filing of Form 67 disentitles the assessee to claim FTC as the said procedure is mandatory, we are inclined to peruse the decisions of the tribunal cited by the assessee in the case of Ms. Brinda Ramakrishna (supra). On similar facts, the co-ordinate bench has considered the delay in filing of Form No. 67 as only a procedural defects and has also considered the decision of the Hon’ble Supreme Court in Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner (1992 Supp (1) Supreme Court Cases21) and Sambhaji and Others vs. Gangabai and others [2008] 17 SCC 117 (SC), which laid down the proposition that procedural law should not be construed as mandatory and should only aid the claim of substantive right.

Furthermore, the said decision of the tribunal has also relied on various decisions, which held that provisions of DTAA override the provisions of the Act, as far as it is beneficial to the assessee. The Tribunal has held that delay in filing Form No. 67 should not by, in anyway, deny the claim of FTC enumerated in the DTAA and the intention of the legislation in the said case has to be construed in a manner which benefits the assessee. The A.O. is hereby directed to allow the FTC claim of the assessee and to grant refund in accordance with the law.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2020-21.

2. The grounds raised by the assessee are as follows:

1. The learned NFAC erred in passing the order dated 26 May 2022 based on surmise and conjecture without appreciating the facts in the matter.

2.Non-grant of Foreign tax relief

2.1 The learned NFAC has erred in not granting of foreign tax relief amounting to Rs.26, 718 as claimed by the appellant in the revised Return of Income.

2.2 The learned NFAC ought to have appreciated that income of Rs.4,12,835 is doubly and the appellant being resident of India, taxes suffered in Sri Lanka on such doubly taxed income ought to be allowed as relief in terms of Article 23(2) of India-Sri Lanka Tax Treaty.

2.3 The learned NFAC has erred in not considering the Form 67 and other document, submitted before filing revised return, for claiming foreign tax relief by the appellant.

2.4 The learned NFAC erred in upholding the action of learned AO in not allowing foreign tax relief of Rs 26,718 as the Form 67 of Rs 26,718 has been filed on or before the revised return but not with the original return.

2.5 The learned NFAC ought to have appreciated the fact that in the revised return of income perquisite value of Rs. 37,774 relating to employment exercised in Sri Lanka was offered to tax and also claimed foreign tax relief of Rs 26,718 in respect of taxes paid in Sri Lanka on doubly taxed income. The Learned AO has taxed the perquisite but not allowed the foreign tax relief claimed in terms of Section 90 of the Income Tax Act, 1961.

2.6 The learned NFAC ought to have appreciated that as per Section 90 the appellant is eligible for foreign tax relief for doubly taxed income and hence relief ought to be allowed based on the documents submitted by the appellant along with the revised return.

3. Interest under section 244A and refund

3.1 The learned NFAC ought to have directed the learned AO to grant refund of Rs.21,250 as claimed in the revised return along with interest under section 244A.

4. The learned NFAC has erred in confirming the demand of Rs. 7,850 as raised by the Learned AO on processing of the revised return.

3. The brief facts are that the assessee is an individual who is a Resident and Ordinary Resident (ROR) of India during the A.Y. 2020-2 1. The assessee filed his return of income dated 31.06.2020 and filed revised return of income dated 30.03.2021, declaring revised total income of Rs.7,07,390/-, as against the income declared in the original return of income of Rs.6,69,620/-. The assessee was an employee of Deloitte India Advisory Services Private Limited (employer), a company incorporated in India. It is observed that the employer carried out a project in Sri Lanka, for which the assessee had visited Sri Lanka for a period of 159 days and the assessee was continued to be paid by the employer in India during the said period. The gross tax liability as per the revised return amounts to Rs.56,137/-. It is observed that the assessee has filed the revised return of income for the purpose of including perquisite value of Rs.37,774/-, pertaining to Sri Lanka taxes borne by the employer of the assessee and also claimed foreign tax relief.

4. During the impugned year, the salary amounting to Rs.4,12,835/-, attributable to the assessee’s stay in Sri Lanka was offered to tax in India, being a resident of India, which was included in Form No. 16 and taxes duly deducted by the employer. The assessee states that the corresponding taxes pertaining to the said income was also paid in Sri Lanka as the assessee being a ROR was subject to tax on global income for the activities carried out in Sri Lanka. The taxes paid in Sri Lanka on the said salary, was not claimed as ‘relief’ in the original returns, along with the perquisite value of the portion of tax borne by the employer was also not considered in the original returns. The assessee had to revise the return u/s. 139(5) of the Act to offer the said perquisite value of Rs.37,774/-, pertaining to Sri Lanka taxes borne by the employer as “income” and to claim FTC. As per the revised return, where tax liability of Rs.56,137/-, the assessee claimed relief of foreign taxes, amounting to Rs.26,7 18/-, and tax deducted at source (TDS) of Rs.50,673/-. A refund of Rs.21,250/- was claimed by the assessee in his revised return of income. It is also observed that the assessee has filed Form No. 67, providing details for claiming foreign tax relief (‘FTC’ for short), amounting to Rs.26,718/- as per the terms of Article 23(2) of India Sri Lanka tax treaty, for which FTC is to be allowed as per the provisions of section 90 of the Act read with Rule 128 of the Rules.

5. Subsequent to this, the assessee received intimation u/s.143(1) dated 20.12.2021 from CPC, Banaglore which has accepted the total income and tax liability as per the revised return of income. The assessee contends that FTC, amounting to Rs.26,718/- claimed by the assessee was not granted on the ground that the CPC could not verify the credits for tax payments made outside India. On this basis, a demand of Rs.5,464/- including levy of interest u/s. 234B and 234C of the Act has been raised by the ADIT, CPC. As against the refund of Rs.21,250/- claimed by the assessee, a refund of Rs.2,390/- was issued to the assessee. The total demand raised amounted to Rs.7,850/- which includes the refund granted to the assessee. It is observed that the assessee has made an application for rectification dated 19.01.2021 for the mistake of non grant of FTC as per Form No. 67. The assessee also filed another Form No. 67 dated 30.01.2021, along with the copy of the certificate of taxes paid in Sri Lanka.

6. The assessee preferred an appeal before the ld. CIT(A), as against the intimation issued by the CPC u/s. 143(1) of the Act.

7. The ld. CIT(A) rejected the grounds of appeal filed by the assessee, on the ground that the assessee has filed his original return of income dated 14.12.2020 and revised return of income on 30.03.202 1, along with Form No. 67, which is mandatorily required for claiming foreign tax credit after the due date for filing of the return of income which was on 10.01.2021. On this ground, the ld. CIT(A) held that the claim was not in accordance with the provisions of Rule 128 of Income Tax Rules, 1962. The ld. CIT(A) confirmed the action of the A.O. in disallowing the foreign tax credit.

8. Aggrieved by the said order, the assessee is in appeal before us.

9. The ld. Authorized Representative (AR for short) for the assessee relied on the decision of the co-ordinate bench in the case of Brinda Ramakrishna vs. ITO (in ITA No. 454/Bang/2021 vide order dated 17.11.2021), 42 Hertz Software India (P.) Ltd. vs. Asst. CIT [2022] 139 taxmann.com 448 (Bangalore – Trib.) and Sanjay Patil vs. The Assessing Officer (in ITA No. 189/SRT/2021 vide order dated 18.05.2022). It is observed that the assessee has claimed FTC as per section 90 of the Act r.w. Article 23(2) of India-Sri Lanka Tax treaty. The ld. AR contended that the assessee is entitled to claim FTC as per Rule 128 of Income Tax Rules, 1962, which lays down the procedure for the same.

10. The ld. Departmental Representative (ld. DR for short), on the other hand, contended that the assessee is not entitled to claim FTC as Form 67 was filed belatedly after the due date of filing of return u/s.139(1) of the Act. The ld. DR relied on the decision of the Tribunal in case of Muralikrishna Vaddi, Visakhapatnam vs. ACIT/DCIT (in ITA No. 269/Viz/2021 vide order dated 14.06.2022) and the orders of the lower authorities.

11. Having heard the rival submissions and perused the material on record. It is pertinent to look into Rule 128 of the I. T. Rules for our perusal. The relevant extract is cited for ease of reference:

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.

…

(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.

12. From the above mentioned Rule 128, it is evident that the assessee has to file Form 67 on or before the due date of furnishing the return of income as per section 139(1) of the Act, which the statement specifies as mandatory and not directory as per the word ‘shall’ used in the said provisions. It is evident that the assessee has filed Form 67 belatedly after the due date for filing of return u/s. 139(1) and, hence, the lower authority have rejected the claim of the assessee. Though the decision cited by the ld. Departmental Representative (ld. DR for short) in Muralikrishna Vaddi, Visakhapatnam (supra) by the co-ordinate bench has held that delay in filing of Form 67 disentitles the assessee to claim FTC as the said procedure is mandatory, we are inclined to peruse the decisions of the tribunal cited by the assessee in the case of Ms. Brinda Ramakrishna (supra). On similar facts, the co-ordinate bench has considered the delay in filing of Form No. 67 as only a procedural defects and has also considered the decision of the Hon’ble Supreme Court in Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner (1992 Supp (1) Supreme Court Cases21) and Sambhaji and Others vs. Gangabai and others [2008] 17 SCC 117 (SC), which laid down the proposition that procedural law should not be construed as mandatory and should only aid the claim of substantive right.

13. Furthermore, the said decision of the tribunal has also relied on various decisions, which held that provisions of DTAA override the provisions of the Act, as far as it is beneficial to the assessee. The Tribunal has held that delay in filing Form No. 67 should not by, in anyway, deny the claim of FTC enumerated in the DTAA and the intention of the legislation in the said case has to be construed in a manner which benefits the assessee. The A.O. is hereby directed to allow the FTC claim of the assessee and to grant refund in accordance with the law.

14. By respectfully following the above cited decision, we hereby allow the appeal filed by the assessee.

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

Order pronounced in the open court on 02.12.2022