ITAT Allows Foreign Tax Credit as Delay in Form 67 Filing Is Directory, Not Mandatory

Pakala Shailendra Prasad 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), NFAC, for AY 2021-22. The Tribunal first considered a delay of 57 days in filing the appeal. The assessee explained that the appeal in Form No. 36 had been filed online on 15 February 2023, within the prescribed time, while the physical acknowledgment and enclosures were submitted to the ITAT on 12 April 2023. After considering the explanation and affidavit, the Tribunal condoned the delay and admitted the appeal for adjudication.

The dispute in the appeal related solely to the denial of Foreign Tax Credit (FTC) on the ground that Form No. 67 had been filed after the due date prescribed under Section 139(1) of the Income-tax Act.

The assessee, an individual, filed the return of income for AY 2021-22 declaring income from four sources: salary of ₹9,36,309, capital gains from trading of shares of ₹6,79,307, interest and dividend income of ₹5,01,939, and foreign income of ₹1,45,11,957. The assessee had filed a US income tax return, paid taxes in the United States, disclosed the foreign income in the Indian return, claimed Foreign Tax Credit for the taxes paid in the US, and filed Form No. 67 on 24 February 2022.

While processing the return under Section 143(1), the Centralised Processing Centre (CPC), Bengaluru, did not grant the Foreign Tax Credit. The assessee challenged the adjustment before the Commissioner (Appeals), NFAC. However, the CIT(A) dismissed the appeal, holding that the assessee had failed to comply with the mandatory requirements contained in Rule 128(8) and Rule 128(9) of the Income-tax Rules because Form No. 67 had not been filed within the prescribed time and the delay had not been condoned.

Before the Tribunal, the assessee relied upon the decision of the Hyderabad Bench in Shri Baburao Atluri v. DCIT, where Foreign Tax Credit had been allowed despite delayed filing of Form No. 67. The assessee submitted that the issue was fully covered in its favour and that the Tribunal had followed several earlier judicial precedents holding that filing Form No. 67 is directory and not mandatory.

The Departmental Representative supported the order of the CIT(A)-NFAC.

After considering the rival submissions, the Tribunal observed that the CPC had denied the Foreign Tax Credit solely because Form No. 67 was filed beyond the statutory due date for filing the return. It also noted that the CIT(A)-NFAC had affirmed the denial based on non-compliance with Rule 128(8) and Rule 128(9).

The Tribunal referred to its earlier decision in Baburao Atluri v. DCIT, which in turn relied upon the decision of the Bangalore Bench in 42 Hertz Software India Pvt. Ltd. In that decision, it was held that although Rule 128 requires submission of Form No. 67 before filing the return, the requirement is directory in nature and not mandatory, since Rule 128(9) does not provide for denial of Foreign Tax Credit merely because of delayed filing of Form No. 67. The Tribunal also noted that the Double Taxation Avoidance Agreement (DTAA) overrides the provisions of the Act and the Rules.

The Tribunal further observed that in the earlier decision, the assessee’s delayed filing of Form No. 67 had been accepted after considering the explanation for the delay, and the Assessing Officer had been directed to allow the Foreign Tax Credit after verification of the supporting documents.

Finding that the facts of the present case were identical to those decided earlier, the Tribunal followed the coordinate bench decision and directed the Assessing Officer to allow the Foreign Tax Credit after due verification. Accordingly, the grounds raised by the assessee were allowed and the appeal was allowed.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal filed by the assessee is directed against the order dated 16/12/2022 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2021-22.

2. There is a delay of 57 days in filing of this appeal by the assessee for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay. It has been explained therein that the order of the CIT (A)/NFAC was received on 16.12.2022 and the assessee filed the appeal before the Tribunal through online in prescribed Form No.36 along with all required enclosures on 15/02/2023 which is within time. However, the physical copies of acknowledgment along with all enclosures were submitted with the ITAT on 12/04/2023. The assessee requested the Bench to consider the date of filing of the appeal as 15.2.2023 and condone the delay in submission of the physical forms in the office of the ITAT. After hearing both sides and after considering the contents of the condonation petition along with affidavit, the delay in filing of this appeal is condoned and admitted for adjudication.

3. Although a number of grounds have been raised by the assessee, however, these all relate to the denial of Foreign Tax Credit (FTC) due to delay in filing of Form No.67 beyond the prescribed time limit u/s 139(1) of the I.T. Ac.t

4. Facts of the case, in brief, are that the assessee is an individual and filed his return of income for the A.Y 2021-22 on 24.02.2021. The source of income was from:

5. The assessee had filed his US Income Return and paid the taxes accordingly. While filing the Indian Income Tax Return, the assessee disclosed the above aforementioned foreign income and claimed Foreign Tax Credit which was paid in USA and accordingly filed Form No.67 on 24.2.2022. The CPC Bengaluru vide intimation u/s 143(1) dated 10.11.2022 did not consider the FTC while processing the ITR.

6. Aggrieved with such order of the AO/CPC, the assessee filed appeal before the CIT (A) and the learned CIT (A)NFAC vide order dated 16.12.2022 dismissed the appeal filed by the assessee holding that the assessee has not complied with the mandatory condition as mentioned in sub-rules (8) & (9) of Rule 128 of the IT Rules and the delay in submission of Form 67 does not stand condoned.

7. Aggrieved with such order the learned CIT (A) NFAC, the assessee is in appeal before the Tribunal.

8. The learned Counsel for the assessee referring to various decisions including the decision of the Coordinate Bench of the Tribunal in the case of Shri Baburao Atluri vs. DCIT in ITA No.108 and 118/Hyd/2022 for the A.Ys 2018-19 and 2019-20 order dated 22.07.2022 submitted that an identical issue had come up before the Tribunal and the Tribunal has allowed FTC even though there was delay in filing of the same beyond the due date of filing of the return. He submitted that the Tribunal while allowing such FTC has relied on various other decisions. He accordingly submitted that this being a covered matter in favour of the assessee, the FTC should be allowed to the assessee.

9. The ld DR, on the other hand, relied on the order of the CIT (A)-NFAC.

10. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A)/NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO /CPC in the instant case did not allow FTC on the ground that Form 67 has been filed on 24.2.2022 which is beyond the statutory due date of filing of the return. We find the CIT(A)/NFAC upheld the action of the AO/CPC on the ground that the assessee has not complied with the mandatory condition as mentioned in sub-rule (8) and (9) of the Rule 128 of the I.T. Rules and the delay in submission of Form 67 does not stand condoned. We find an identical issue had come up before the Tribunal in the case of Baburao Atluri vs. DCIT (Supra) and the Tribunal vide order dated 22.07.2022 while deciding the issue in favour of the assessee has observed as under:

”10. We have heard the rival arguments made by both the sides, perused the orders of the AO and NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case did not allow the Foreign Tax Credit (FTC) on the ground that Form No.67 has been filed beyond the due date of filing of the return. We find the NFAC upheld the action of the AO, the reasons of which have already been reproduced in the proceeding paragraph. It is the submission of the ld.Counsel for the assessee that filing of foreign tax credit certificate in Form-67 is directory in nature Baburao Atluri and not mandatory and therefore the NFAC is not justified in denying the Foreign Tax Credit.

11. We find the Bangalore Bench of the Tribunal in the case of M/s. 42 Hertz software India Pvt.Ltd(supra) while deciding an identical issue has held that FTC cannot be denied to the assessee, where the assessee filed FTC in Form No.67, although belatedly since filing of such Form 67 is not mandatory but directory in nature. The relevant observation of the Tribunal from para 6 onwards reads as under:-

“6. There is no dispute that the Assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) & (9), it is clear 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. In our view, 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. This view is fortified by the decision of coordinate bench of this Tribunal in case of Ms.Brinda Kumar Krishna vs.ITO in ITA no.454/Bang/2021 by order dated 17/11/2021.

7. It’s a trite law that DTAA overrides the provisions of the Act and the Rules, as held by various High Courts, which has also been approved by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. reported in (2021) 432 ITR 471.

8. We accordingly, hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee. Accordingly the grounds raised by assessee stands allowed for statistical purposes.”

12. We further find, in the instant case, the delay in filing of the FTC certificate in Form-67 was explained to be due to non receipt of the tax deduction certificate form the foreign deductor from Zambia within time for which the said Form-67 was filed belatedly by 14 days. It was stated that the tax jurisdiction of the Zambian deductor follow different period for taxing the income and have different due dates for filing the return as compared to India. So Baburao Atluri far as the decision relied on by ld. DR in the case of Muralikrishna Vaddi(supra) is concerned, we find there is a delay of more than two years without any valid and reasonable cause. Therefore, the said decision in our opinion cannot be applicable to the facts of the present case. In any case, when there are two view possible, the view which is favourable to the assessee has to be followed as held by Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported in (1972) 88 ITR 192. Since, the assessee in the instant case has filed FTC certificate in Form No.67 with delay of only ’14’ days, therefore following the decision of the Bangulur Bench of the Tribunal in the case of M/s. 42 Hertz Software India Pvt.Ltd.(supra), we direct the AO to allow the FTC after due verification. The grounds raised by the assessee are accordingly allowed.”

11. Since the facts of the instant case are identical to the facts of the case already decided by the Tribunal cited (Supra), respectfully following the said decision, we direct the AO to allow the FTC after due verification. The grounds raised by the assessee are accordingly allowed.

12. In the result, appeal filed by the assessee is allowed.

Order pronounced in the Open Court on 31st May, 2023.