Case Law Details
Manoj Kumar Srivastava Vs ACIT (ITAT Delhi)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Delhi held that the filing of Form 67 is not mandatory for claiming Foreign Tax Credit (FTC). The case, Manoj Kumar Srivastava Vs Assistant Commissioner of Income Tax (ACIT), revolved around the procedural aspects of claiming FTC for taxes paid in the United States on salary income. The Tribunal ruled in favor of the assessee, asserting that procedural violations, such as late filing of Form 67, should not prevent the right to claim FTC.
Case Background
The appeal was filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated August 28, 2023. The main contention was the rejection of the assessee’s FTC claim due to issues with the filing of Form 67.
The assessee, an individual earning salary and interest income, received salary from a U.S.-based company. The company deducted taxes at source under U.S. tax laws, and the assessee claimed FTC for the taxes paid. The original Income Tax Return (ITR) for Assessment Year (A.Y.) 2020-21 was filed on January 10, 2021, without Form 67. Form 67 was subsequently filed on March 31, 2021, and the return was revised the same day. However, the tax department did not allow the FTC claim when processing the revised return under Section 143(1).
Key Grounds of Appeal
- Form 67 Filing Issue: The assessee argued that Form 67 was filed before the end of the assessment year, and procedural issues with the filing should not disqualify him from FTC entitlement. It was further contended that the provisions under Section 90(2) of the Income Tax Act, 1961, allow for the application of more beneficial provisions in Double Taxation Avoidance Agreements (DTAA). As such, the requirement of filing Form 67 should be treated as procedural, not mandatory.
- Revised Return Right: The assessee also cited Section 139(5) of the Income Tax Act, which provides the statutory right to file a revised return. The original return was filed within the prescribed time, and the revised return, which included Form 67, should have been accepted by the department.
- Substantive Right to FTC: The assessee contended that the right to claim FTC should not be denied due to non-compliance with procedural norms, as there is no specific condition in the DTAA for disallowing FTC for such reasons.
Tribunal’s Observations and Ruling
The ITAT Delhi examined the arguments of both parties and relevant case law. The Tribunal noted that Rule 128(9) of the Income Tax Rules provides the procedure for filing Form 67 but does not explicitly mandate that the FTC claim must be denied if Form 67 is filed after the due date or filed incorrectly and rectified later.
The Tribunal observed that the legislative intent behind Rule 128(9) was not to deny FTC on procedural grounds, and the right to FTC is a substantive right. Denying the claim based on late filing of Form 67 would be unjust and contrary to the principles of the DTAA between India and the U.S.
In support of this view, the ITAT cited several judicial precedents, including:
- Brinda Ramakrishna vs. ITO (Bangalore ITAT)
- Sonakshi Sinha vs. CIT (Appeals) (Mumbai ITAT)
- Bhaskar Dutta vs. ACIT (Delhi ITAT)
These cases established that procedural non-compliance should not result in the denial of FTC, as long as the substantive right exists under the law.
Conclusion
The ITAT Delhi ruled in favor of the assessee, directing the Assessing Officer to allow the FTC claim in proportion to the Indian tax liability. The ruling clarifies that the filing of Form 67 is procedural, not mandatory, and procedural lapses should not prevent a taxpayer from claiming FTC. The decision provides relief to taxpayers who may have faced difficulties due to similar procedural issues.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi dated 28.08.2023.
2. Following grounds have been raised by the assessee:
“Ground No. 1: That the order of Ld Commissioner of Income tax (Appeal Unit)-1, NATIONAL FACELESS APPEAL CENTRE (NFAC) is erroneous while confirming the order of section 154 owing to the fact that the Claim of Foreign Tax Credit (FTC was allowable as Form No. 67 was on record at the time of passing of Rectification Order and that the provisions of section 90(2) of the Act empowers provisions of the Act to be applied to the extent they are more beneficial to a taxpayer in case of DTAA covered cases and that the fling of Form 67 as per the provisions of section 90 read with Rule 128(9) is a procedural law and should not control the claim of FTC.
Ground No. 2: That the Right to file a Revised Return is a statutory right u/s 139(5) and the Original Return, which was filed u/s 139(1), stood withdrawn once the ITR was Revised within the time allowed as such the ITR which was processed for the first time on 25.11.2021 had Form No.67 on record.
Ground No. 3: That Section 139(5) of the Income-Tax Act, 1961 allows taxpayers to rectify their mistakes in their original tax returns by filing a revised return. Deductions or exemptions wrongly claimed and incorrect disclosure of income can be fixed by fling this return.
Ground No. 4: That there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance with any procedural provision.”
3. Heard the arguments of both the parties and perused the material available on record.
4. The Assessee is an individual and earned income from salary and interest. The salary derived by him is from a company based in U.S.A, which credits his salary after withholding tax as per the tax laws of U.S. Therefore, the Assessee claims the benefit of Foreign Tax Credit for the taxes withheld in by the U.S. Tax Authorities.
5. In the case under consideration, the assesse filed the original ITR for A.Y. 2020-21 vide Acknowledgement No. 192466970100121 claiming benefit of foreign tax credit amounting to Rs. 10,58,483/- on 10.01.2021 but did not file Form 67. The assessee later on filed Form 67 on 31.03.2021 vide receipt No. 330987350310321 and then filed the revised return on 31.03.2021 vide Acknowledgement No. 33107029031032021. The revised return was processed u/s 143(1) vide order No. CPC/2021/A2/163137704 dated 25.11.2021 and benefit of foreign tax credit was not allowed. The assessee moved for rectification u/s 154 against 143(1) for claiming the benefit of foreign tax credit. The AO/CPC rejected
6. Aggrieved, the assessee filed appeal before the ld. CIT (A).
7. The ld. CIT (A)-NFAC dismissed the appeal of the assessee on ground that the assessee inadvertently filed the Form 67 of different year than the year under consideration.
8. Aggrieved, the assessee filed appeal before the Tribunal.
9. The assessee is in appeal before the Tribunal prayed for allowing the relief to the assessee as per Section 90 of the Act and as per Article 25 of India USA DTAA provides for credit for foreign taxes. It was submitted that section 90 of the Act read with Article 25(2)(a) provides that USA tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax.
10. Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act, which is recently amended and provided for filling before the end of assessment year. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame or incorrectly filed within time frame and rectified later on, the relief as sought by the assessee u/s 90 of the Act would be denied. It was not the legislative intention to deny the FTC, either under the Act or Rules. Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC.
11. Reliance is placed on the following judgments:
> Brinda Ramakrishna vs. ITO (135 com 358) (Bangalore ITAT)
> Sonakshi Sinha vs. CIT (Appeals) (142 com 414) (Mumbai ITAT)
> Bhaskar Dutta vs. ACIT (Int. Taxation) (147 com 481) (Delhi ITAT)
12. Hence, keeping in view the entire facts narrated above, the JAO is directed to allow the foreign tax credit limited to proportion of Indian tax payable.
13. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 24/05/2024.
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