Case Law Details
Subhankar Chakraborty Vs ITO (ITAT Bangalore)
Assessee filed ROI claiming relief u/s 90 but did not file Form No.67. Form was subsequently filed beyond the due date as per under Rule. CPC did not give credit for foreign tax. On appeal, CIT(A) held that as per Rules 128(8) and 128(9), relief u/s 90 cannot be allowed to the assessee as Form No.67 was filed beyond the due date as prescribed under Rule and dismissed the appeal
On further appeal before the ITAT, assessee submitted that filing of Form No.67 was a procedural mistake but it was filed on 02.04.2021. If the CPC has not allowed relief in his order u/s 143(1) , the CIT(A) could accept the claim . Assesee also relied CBDT Circular No. XIV/1955 dated 11.04.1956
Tribunal noted that a similar issue has been decided by the Co-ordinate Bench of the Tribunal in the case of Vinodkumar Lakshmipathi Vs. CIT(A), NFAC, Delhi in ITA No. 680/Bang/2022 which held as under:
– Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67
– filing of Form No. 67 is not mandatory but a directory requirement
– DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act.
In the said decision of the Tribunal in Vinodkumar Lakshmipathi (supra) it was also held that issue was not debatable and there was only one view possible on the issue even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s. 154 of the Act, can be resorted to.
The Tribunal finally directed the AO to give credit for foreign tax as per Form No.67 filed on 02.04.2021 after due verification as per law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi, ( DIN & Order No. ITBA/NFAC/S/250/2022-23/1045892809(1)) under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’), order dated 29.09.2022, on the following grounds of appeal:
1. For that the intimation u/s 143(1) is bad in law as well as on facts.
2. For that the Ld. ADIT (CPC) Bengaluru erred in not allowing relief u/s 90 for non-filing of Form No. 67 which is merely a procedural error.
3. For that Ld. CIT(A) erred in affirming the action of the Ld. ADIT (CPC) Bengaluru in spite of the fact that the Form No. 67 was filed by the assessee upon receipt of Intimation u/s 143(1).
4. For that under the facts and circumstances of the case, the assessee be allowed relief claimed u/s 90.
5. For that the appellant craves leave to add, alter or withdraw any ground(s) of appeal on or before hearing of the appeal.
2. The brief facts of the case are that the assessee filed return of income n 13.07.2019 claiming relief of Rs.4,98,221/- under section 90 of the Act but during the course of processing of return under section 143(1) of the Act, Form No.67 was not filed by the assessee which was filed on 02.04.2021 which is beyond the due date as per under rule 128(8) & (9)9(1) of the Act. Therefore, while processing the return, the relief was not allowed.
3. Aggrieved from the order of the CPC, the assessee filed an appeal before CIT(A). The CIT(A) observed that as per Rules 128(8) and 128(9) of the Income Tax Rules, 1962 (hereinafter called ‘the Rule’), relief under section 90 of the Act cannot be allowed to the assessee as Form No.67 was filed beyond the due date as prescribed under Rule 128(9) of the Rules which is end of the Assessment Year 1919-20. The CIT(A) also considered the written submissions and case laws fled before him and dismissed the appeal of the assessee.
4. Aggrieved from the above order, the assessee filed appeal before the Tribunal. The learned AR submitted that filing of Form No.67 was a procedural mistake on the part of the assessee but it was filed on 02.04.2021. If the CPC has not allowed relief in his order under section 143(1) of the Act, the CIT(A) can accept the claim of the assessee. He also relied on many judgments as submitted before the CIT(A) as well as Circular No. XIV/1955 dated 11.04.1956 issued by the CBDT.
5. The learned DR relied on the order of the lower authorities and he submitted that there are specific Rules 128(8) and 128(9) of the Rules for filing which governs for claiming relief under section 90 of the Act. The assessee filed Form No.67 within the end of the relevant Assessment Year whereas the assessee has not filed the same within the due time specified. Therefore he is not eligible for getting relief.
6. After hearing both the sides and perusal of the records and orders of the authorities below I noted that during the impugned Assessment Year the assessee is a resident and he is a software professional and earned salary and professional income from India and Germany and covered under DTAA on these overseas income. The assessee filed return of income but did not file Form No.67 within due date as per the Rules. The assessee filed Form No. 67 on 02.04.2021 which is much before the CIT (A)’s order.
7. I further observed that before the CIT(A), the assessee has relied on many judgments but he did not accept. On my observation a similar issue has been decided by the Co-ordinate Bench of the Tribunal in the case of Vinodkumar Lakshmipathi Vs. CIT(A), NFAC, Delhi in ITA No. 680/Bang/2022 reported in [2022] 145 com 235 (Bangalore Trib.) is as under:
“4. We have heard the rival submissions and perused the materials available on record. The claim of the assessee has been denied while processing return of the assessee u/s 143(1) of the Income-tax Act, 1961 [‘the Act’ for short] dated 11-6-2020 on the reason that assessee has not filed the Form No. 67 along with return of income so as to claim the foreign tax credit. However, the same has been filed before the Ld. CIT(A) on 22-9-2018. The assessee has made the contention before Ld. CIT(A) that assessee has offered the foreign income of Rs. 2,01,024/-and also paid tax on it at Rs. 63,342/- and levying of additional tax of Rs. 28,431/- is amounting to double taxation. In our opinion, the plea of the assessee is justified. The assessee has filed the copy of Form No. 67 before Ld. CIT(A). He ought to have given direction to give credit for foreign tax which has been paid as per Form 67.”
5. Further, we note that on identical issue, This Tribunal in the case of Ms. Brinda Ramakrishna v. ITO [2022] 135 taxmann.com 358/193 ITD 840, (Bang. – Trib.) held that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67; (ii) filing of Form No. 67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non-furnishing of Form No. 67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. The findings of this Tribunal are reproduced below:
‘2. The Assessee is an individual and during the previous year relevant to AY 2018-19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20-11-2017 till 16-52019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit (“FTC”) for taxes paid in Australia.
3. There is no dispute that the Assessee is entitled to claim FTC. Rule 128 of the Income-tax Rules, 1962 (Rules) provides for giving FTC and reads thus:
“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:
Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.”
One of the requirements of rule 128 for claiming FTC is provided by rule 128(8) & (9) of the Rules and the same reads thus:
“(8) Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely:—
(i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No. 67 and verified in the manner specified therein;
(ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,—
(a) from the tax authority of the country or the specified territory outside India; or
(b) from the person responsible for deduction of such tax; or
(c) signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,—
(A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee;
(B) proof of deduction where the tax has been deducted.
(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 sub-section (1) of section 139, in the manner specified for furnishing such return of income.”
4. The Assessee claimed FTC of Rs. 4,73,779/- u/s. 90 of the Act read with Article 24 of India Australia tax treaty (“DTAA”) in a revised return of income filed on 31-8-2018. The Assessee had not filed the Form 67 before filing the return of income. On realising the same, the Assessee filed Form 67 in support of claim of foreign tax credit on 18-4-2020. The revised return of income was processed by Centralized Processing Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28-5-2020 was passed disallowing the claim of FTC.
5. The Assessee filed a rectification application before the AO on 15-6-2020 & 25-2-2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10-3-2021, the AO upheld the action on the ground that the Assessee has failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to rule 128(9) of the Rules.
6. On appeal by the Assessee, the CIT(A) vide Order dated 3-9-2021 confirmed the Order of AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is nonest in law. The CIT(A) also held that provisions of Rule 128 are mandatory in nature. The CIT(A)rejected the contention of the Assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC.
7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that Section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below:
“4. In the case of India, double taxation shall be avoided as follows:
(a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;”
It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for noncompliance with any procedural requirements. FTC is Assessee’s vested right as per Article 24(4)(a) of the DTAA read with section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules.
8. It was further submitted by him that section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow:
“(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:—
** ** **
(ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”
9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision.
10. It was further submitted that 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. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to sections 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in rule 128(9). Therefore, such condition cannot be read into rule 128(9).
11. It was further submitted that 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. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that:
“The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.”
Further reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Sambhaji and Others v. Gangabai and Others, reported in [2008] 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted that filing 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.
12. It was further submitted that even in the context of 80-IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases:
CIT v. Axis Computers (India) (P.) Ltd. [2009] 178 Taxman 143 (Delhi)
PCIT, Kanpur v. Surya Merchants Ltd. [2016] 72 taxmann.com 16 (Allahabad)
CIT, Central Circle v. American Data Solutions India (P.) Ltd [2014] 45 taxmann.com 379 (Karnataka)
CIT-II v. Mantec Consultants (P.) Ltd. [2009] 178 Taxman 429 (Delhi)
CIT v. ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
13. It was submitted that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer.
Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the following cases and circulars:
Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC)
CIT v. Eli Lily & Co. (India) (P.) Ltd. [2009] 178 Taxman 505 (SC)
GE India Technology Centre (P.) Ltd. v. CIT [2010] 193 Taxman 234 (SC)
Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42 (SC) (Pgs. 106-109 of PB 2-Paras 25 & 26)
CBDT Circular No. 333 dated 2/4/82 137 ITR (St.)
It was submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision.
14. The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and cannot be subject matter of decision in sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record.
15. In his rejoinder, the learned counsel for the Assessee submitted that Form No. 67 was available before the AO when the intimation u/s. 143(1) of the Act dated 28-5-2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s. 154 of the Act on the ground that the issue was debatable but rather the decision was given that the relevant rule was mandatory and hence non-furnishing of Form No. 67 before the due date u/s. 139(1) of the Act was fatal to the claim for FTC.
16. I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the learned counsel for the Assessee and hold that (i) rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67; (ii) filing of Form No. 67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above. I am also of the view that the issue in the proceedings u/s. 154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s. 154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee’s application u/s. 154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard.
17. In the result, the appeal is allowed.’
6. In view of the above order of the Tribunal, we direct the AO to give credit for foreign tax as per Form 67 filed on 22-9-2018 before Ld. CIT(A) after due verification.
8. Respectfully following the above, we direct the AO to give credit for foreign tax as per Form No.67 filed on 02.04.2021 after due verification as per law.
9. In the result, appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
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