Case Law Details
Ashish Agrawal Vs ITO (ITAT Hyderabad)
Summary: The appeal before the Income Tax Appellate Tribunal (ITAT), Hyderabad, arose from the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), for the assessment year 2019-20. The principal issues were whether the delay of 710 days in filing the appeal before the CIT(A), the delay of 604 days in filing a rectification application under Section 154, and the denial of Foreign Tax Credit (FTC) of ₹1,94,384 were justified.
The assessee, an Indian national employed with Emerson Electric Company (India) Private Limited, had been deputed to the United State
s from 30 May 2017 to 8 June 2018. Being a resident and ordinarily resident in India for AY 2019-20, his global income, including salary earned for services rendered in the United States, was taxable in India.
The assessee filed his return of income under Section 139(4) on 15 November 2019, declaring total income of ₹38,32,940 and claiming Foreign Tax Credit of ₹1,94,384 in respect of salary income of ₹11,80,021 that had been taxed both in India and the United States. The FTC claim was made under Section 90 of the Income-tax 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, while processing the return under Section 143(1), the Assessing Officer denied the FTC claim.
The assessee challenged the intimation before the CIT(A), relying upon the Supreme Court’s directions regarding extension of limitation during the COVID-19 pandemic. However, the CIT(A) refused to condone the 710-day delay in filing the appeal, observing that the assessee had failed to establish sufficient cause for not filing the appeal within the prescribed period. The CIT(A) also noted that the rectification application had been filed after 604 days and dismissed the appeal without examining the merits of the FTC claim.
Before the Tribunal, the assessee submitted that Rule 128(9) of the Income-tax Rules does not provide for disallowance of Foreign Tax Credit merely because Form No. 67 was filed belatedly. It was argued that filing Form No. 67 is a directory requirement and not a mandatory condition, particularly since Article 25(2)(a) of the India-USA DTAA grants a substantive right to claim Foreign Tax Credit. The assessee also relied on the Supreme Court’s order in the suo motu proceedings extending limitation during the pandemic, contending that the appeal before the CIT(A) was entitled to the benefit of the extended limitation period. Several judicial precedents were cited in support of condonation of delay and allowance of FTC.
The Departmental Representative relied upon the orders of the lower authorities and the provisions of Rule 128(9) of the Income-tax Rules.
After considering the submissions, the Tribunal noted that the delay in filing the appeal fell within the period covered by the Supreme Court’s order dated 10 January 2022 extending limitation for proceedings affected by the COVID-19 pandemic. Following those directions, the Tribunal held that the delay before the CIT(A) deserved to be condoned. It also observed that the assessee had filed a rectification application before the Centralised Processing Centre (CPC), which was disposed of on 9 January 2023, and that the rectification application itself had been filed within the permissible period under Section 154(7) of the Act.
The Tribunal further observed that the CIT(A) had dismissed the appeal solely on the ground of limitation without adjudicating the issue on merits. Although such matters are generally remanded, the Tribunal considered it appropriate to decide the issue itself because the dispute was limited in nature and covered by earlier judicial decisions.
On the merits of the FTC claim, the Tribunal relied upon the decision in Ms. Brinda Rama Krishna, wherein it had been held that Rule 128(9) does not provide for denial of Foreign Tax Credit merely because Form No. 67 was filed after the due date. It observed that Article 25(2)(a) of the India-USA DTAA requires India to grant credit for taxes paid in the United States on income taxable in both countries. According to the Tribunal, the provisions of the DTAA override the Act, and Rule 128(9) cannot be interpreted in isolation or in a manner inconsistent with the Act and the DTAA.
The Tribunal also noted that a coordinate bench had allowed a similar FTC claim in Purushothama Reddy Vankireddy. Following those decisions, it held that the precedents relied upon by the assessee were applicable to the facts of the present case. Accordingly, the Tribunal allowed the assessee’s grounds and allowed the 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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