Foreign tax credit eligible as form no. 67 filed before processing return

Yogesh Dnyandeo Kinage Vs ADIT (ITAT Mumbai)      

ITAT Mumbai held that as Form No. 67 has been filed by the Appellant before the processing the return of income under Section 143(1) of the Income Tax Act, foreign tax credit is duly eligible.

Facts- The Appellant filed return of income for the Assessment Year 2018-­19 on 28/08/2018, which was revised on 29/03/2019. In the revised return of income, the Appellant declared total income of INR 13,45,280/- (including salary and perquisite received in Netherland) and claimed a relief of INR 1,72,390/- u/s. 90 of the Act. Prior to filing revised return of income as aforesaid, the Appellant also filed Form 67 on 27/03/2019 for claiming relief u/s. 90 of the Act.

The revised return filed by the Appellant was processed u/s. 143(1) of the Act and intimation, dated 28/03/2020, was issued to the Appellant raising a demand of INR 2,18,280/- as opposed to refund of INR 3,230/- claimed by the Appellant. As per the intimation issued under Section 143(1) of the Act relief u/s. 90 of the Act amounting to INR 1,72,390/- claimed by the Appellant was denied.

CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.

Conclusion- Held that the Appellant would be eligible to foreign tax credit where Form No. 67 is filed before the completion of assessment for the relevant assessment year. In the present case also Form No. 67 has been filed by the Appellant before the processing the return of income under Section 143(1) of the Act.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. By way of the present appeal the Appellant has challenged the order, dated 10/03/2023, passed by the Ld. Commissioner of Income Tax (Appeals) 57, Mumbai [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2018-19, whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Rectification Order, dated 07/01/2021, passed by Assistant Director of Income Tax, CPC under Section 154 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The Appellant has raised the following grounds of appeal:

“1. Re.: Relief u/s 90 of the Act denied:

1.1 The learned CIT(A) has erred in confirming the Order of Centralized Processing Center (“CPC”), Bengaluru by denying the relief claimed under section 90 of the Act of INR 1,72,390, in the revised return of income.

1.2 The learned CIT(A) has erred in denying the relief on the ground that the Appellant has not filed Form-67 within the due date of filing of return of income prescribed under section 139(1) of the Act without appreciating the fact that the same was furnished alongwith the revised return of income wherein the foreign tax credit was claimed as prescribed under Rule 128 of the Income-tax Rules, 1962.

1.3 The learned CIT(A) has erred in not appreciating that the Appellant had filed original return of income under section 139(1) of the Act well within the due date and the revised return under section 139(5) of the Act within the due date as applicable for the captioned assessment year.

1.4. Without prejudice to the above, the learned CIT(A) erred in not appreciating that submission of Form 67 is a procedural requirement and based on the Registrar substantive provisions of the Act read with the DTAA, the appellant should be eligible to claim relief of tax paid in Netherlands.

1.5.Without further prejudice, the appellant submits that he has complied with the procedural requirement and if there is any defect therein, the appellant should be provided an opportunity to remedy the defect.

2. Re: Consequential levy of interest u/s 234B and 234C of the Act:

2.1. The learned CIT(A) erred in confirming the levy of interest u/s 234B and 234C of the Act.

3. Re: General

3.1. Each one of the above grounds of appeal is without prejudice to the other.

3.2 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever the foregoing grounds of appeal at or before the hearing of the appeal.”

3. The relevant facts, in brief, are that the Appellant is an individual resident. During the previous year relevant to the Assessment Year 2018-19, the Appellant was deputed to Netherland till 11/11/2017. The Appellant stayed in India for 140 days. During four year preceding the relevant previous year 2017-18, the Appellant’s stay in India was more than 365 days. Further, during 7 years preceding the relevant previous year 2017-18, stay of the Appellant in India exceed 729 days. The Appellant qualified as a resident and ordinarily resident in India as per the provision of Section 6(1) of the Act.

4. The Appellant filed return of income for the Assessment Year 2018­19 on 28/08/2018, which was revised on 29/03/2019. In the revised return of income, the Appellant declared total income of INR 13,45,280/- (including salary and perquisite received in Netherland) and claimed a relief of INR 1,72,390/- under Section 90 of the Act. Prior to filing revised return of income as aforesaid, the Appellant also filed Form 67 on 27/03/2019 for claiming relief under Section 90 of the Act.

5. The revised return filed by the Appellant was processed under Section 143(1) of the Act and intimation, dated 28/03/2020, was issued to the Appellant raising a demand of INR 2,18,280/- as opposed to refund of INR 3,230/- claimed by the Appellant. As per the intimation issued under Section 143(1) of the Act relief under Section 90 of the Act amounting to INR 1,72,390/- claimed by the Appellant was denied.

6. The Appellant filed first rectification application on 09/04/2020 requesting for grant of credit of taxes paid in Netherlands. The aforesaid application was rejected vide order, dated 25/06/2020, passed under Section 154 of the Act. Thereafter, the Appellant filed second rectification application on 24/07/2020 which was also rejected vide order dated 25/08/2020. The credit for foreign taxes paid in Netherland was not granted. In the interim the Appellant became aware that the tax paid outside India was INR 3,81,585 and not INR 3,75,655/- as reported in Form 67 by the Appellant. Therefore, the Appellant filed revised Form 67 on 27/12/2020 disclosing the figure of tax paid outside India as INR 3,81,585/-while claiming foreign tax credit of INR 1,72,390/- as claimed in the original Form 67. The Appellant filed third rectification application requesting for grant of credit for tax paid in Netherland as per Form 67 filed by the Appellant. Vide rectification order, dated 07/01/2021, passed under Section 154 of the Act, the rectification application was rejected giving the following reason:

“As seen from the e-filed return of income and rectification filed by you the Relief u/s. 90/90A has not been allowed in your case and as the online Form 67 has not been filled / incorrectly filled by you. The furnishing of Online Form 67 is required as per sec.90/90A of the Income Tax Act 1961 read with Rule 21AA of the Income Tax Rules 1962 Please ensure that Form 67 is filed correctly by online in the e-filing website and then apply for Online Rectification.”

7. As per the above reasoning, the credit of foreign tax paid in Netherland was denied to the Appellant as Form 67 was considered as not been filed/incorrectly filed.

8. Being aggrieved, the Appellant has preferred appeal before CIT(A) against the order dated 07/01/2021 passed under Section 154 of the Act. The CIT(A) dismissed the appeal vide order, dated 10/03/2023, holding that the Appellant had failed to include salary income tax in Netherland in the original return of income and had also filed to furnish Form No. 67 on or before due date of filing the return under Section 139(1) of the Act. Therefore, the Appellant was not entitled to claim credit of foreign tax of INR 1,72,390/-.

9. Being aggrieved, the Appellant has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above which are taken up hereinafter in seriatim.

Ground No. 1

10. Ground No. 1 is directed against the denial of foreign tax credit of INR 1,72,390/- claimed by the Appellant. It is admitted position that the Appellant had filed original return on 28/08/2018. Thereafter, on 27/03/2019, the Appellant filed Form 67 claiming foreign tax credit of INR 1,72,390/- and thereafter, on 29/03/2019, the Appellant filed revised return. The revised return was processed under Section 143(1) of the Act on 28/03/2020. Therefore, the original Form 67 was filed by the Appellant before the processing of the revised return of income. The claim of foreign tax credit was denied to the Appellant on the ground that Form 67 was not filed correctly. In appeal the CIT(A) dismissed the appeal of the Appellant on this issue and confirmed the denial of foreign tax credit claimed by the Appellant on the ground that the Appellant had failed to comply with Rule 128 of the Income Tax Rules, 1962 by not filing the return of income on or before the due date of filing return of income under Section 139(1) of the Act.

11. We have considered the rival submissions and perused the material on record on this issue. We note that while dismissing the appeal of the Appellant herein the CIT(A) has recorded as under:

“5.4.5 The decision of the Hon’ble ITAT, Mumbai in the case of Sonakshi Sinha vis CIT is the decision of the jurisdiction ITAT and it has to be usually followed. However, taking strength from the ratio laid down by the Hon’ble Supreme Court in the case of Bharat Hari Singhania v/s CIT(supra) and Muralikrishna Vaddi v/s ACIT (Supra) and also the express provisions of Sec 90 of the I.T. Act providing for making rules for implementation of agreement between the central government and foreign government with respect to credit of foreign tax, the decision of the Hon’ble ITAT in the case of Sonakshi Sinha v/s CIT (supra) is not followed.

5.5 As discussed above, the appellant filed return of income for A.Y.2018-19 on 28.08.2018. The appellant did not include the salary income received in Netherland in the original return of income for A.Y.2018-19. The appellant filed a revised return for AY 2018-19 on 29.03.2019 in which the salary income of Rs.15,57,419/- was included. The appellant filed form no.67, as prescribed under Rule 128 of the IT Rules on, on 27.03.2019 and claimed foreign tax relief of Rs.1,72,390/-. Thus, the appellant failed to include the salary income taxed in Netherland in the original return of the income and also failed to furnish form no.67 to claim foreign tax credit on or before the due date of filing of return u/s 139(1) of the Act. Therefore, the appellant has not followed the Rule 128 in respect filing form no.67 on or before the due date of filing the return of income for relevant assessment year. Therefore, the denial of foreign tax credit of Rs.1,72,390/- by the AO, CPC in the order u/s.154 is justified.” (Emphasis Supplied)

12. We note that the CIT(A) has chosen not to follow the decision of the Mumbai Bench of the Tribunal in the case of Sonkashi Sinha Vs. Commissioner of Income Tax (Appeals): [2022] 142 taxmann.com 414 (Mumbai – Trib.) wherein it was held as under:

“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 sub-section (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. (Supra) wherein following its earlier order in the case of Ms. Brinda Rama Krishna (supra) it was held that “one of the requirements of rule 128 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) [IT Appeal No. 680/Bang/2022, 6-9-2022]. 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 Hon’ble 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.”

13. In the aforesaid case, it was held by the Tribunal that the Appellant would be eligible to foreign tax credit where Form No. 67 is filed before the completion of assessment for the relevant assessment year. In the present case also Form No. 67 has been filed by the Appellant before the processing the return of income under Section 143(1) of the Act. Therefore, respectfully following the decision of the Mumbai Bench of the Tribunal in the case of Sonakshi Sinha (supra), we remand the issue raised in present appeal back to the file of Assessing Officer with the direction to grant foreign tax credit to the Appellant as per the aforesaid decision after verification. Ground No. 1 raised by the Appellant is allowed for statistical purposes.

Ground No. 2

14. Ground No. 2 pertaining to levy of interest under Section 234B and 234C of the Act is disposed off as being consequential.

Ground No. 3

15. Ground No. 3 is disposed off as being general in nature.

In result, the present appeal preferred by the Appellant is allowed for statistical purposes.

Order pronounced on 10.08.2023.