Case Law Details
Rameshwar Prasad Shrivastava Vs ITO (ITAT Delhi)
In the case of Rameshwar Prasad Shrivastava vs. ITO (Income Tax Appellate Tribunal, Delhi), the central issue revolved around the disallowance of foreign tax credit (FTC) by the Centralized Processing Centre (CPC) due to the assessee’s failure to file Form 67 along with the income tax return (ITR) within the prescribed time. This appeal for the Assessment Year 2020-21 challenged the order of the ld. CIT(A) at the National Faceless Appeal Centre, Delhi, dated 27th April 2023, which upheld the disallowance.
Factual Background:
The assessee, in this case, had filed the income tax return declaring a total income of Rs. 42,25,040/-. However, the CPC disallowed the claim of FTC amounting to Rs. 28,02,692/- on the grounds that Form 67, necessary for claiming FTC against salary income earned in Japan, was not filed along with the ITR within the due date. The CPC’s decision was later upheld by the CIT(A), leading to the present appeal before the ITAT.
Grounds of Appeal:
The assessee contested the disallowance on several grounds:
- The belated filing of Form 67 on 05/03/2022, during the pendency of the appeal, should have been considered by the CIT(A).
- Procedural non-compliance (delay in filing Form 67) should not extinguish the substantive right of claiming FTC.
- The Double Tax Avoidance Agreement (DTAA) between India and Japan provides specific provisions for claiming FTC, which should prevail over procedural rules.
- Various judicial precedents were cited where similar issues were decided in favor of the assessee, emphasizing that procedural lapses should not invalidate substantive rights under DTAA provisions.
Legal Arguments:
The crux of the assessee’s argument was based on the interpretation of Rule 128(9) of the Income-tax Rules, which does not expressly provide for disallowance of FTC in case of delay in filing Form 67. The contention was that procedural requirements should not override substantive rights granted under international tax treaties, such as the DTAA. The assessee relied on Circular No. 333 dated 02/04/1982 issued by the CBDT, which emphasizes that specific provisions of DTAA prevail over general provisions of the Income-tax Act.
Decision of the ITAT:
After hearing both parties and considering the submissions, the ITAT Delhi Bench referred to its earlier decision in the case of Vikas Daga vs. ACIT (ITA No. 2536/Del/2022), where it was held that filing of Form 67 is a procedural/directory requirement and not mandatory. The tribunal reiterated that procedural lapses should not deprive an assessee of substantive rights under DTAA provisions. Therefore, the ITAT set aside the order of the CIT(A) and directed the assessing authority to verify the correctness of the claim and allow FTC accordingly.
Conclusion:
In conclusion, the ITAT’s decision in Rameshwar Prasad Shrivastava vs. ITO underscored the principle that procedural requirements, such as timely filing of Form 67, should be viewed as directory rather than mandatory. The tribunal upheld the assessee’s right to claim FTC under the DTAA despite the procedural lapse, emphasizing the overriding importance of substantive rights granted by international tax agreements. This case reaffirms the principle that where specific provisions of DTAA are in conflict with general provisions of domestic tax law, the former should prevail, ensuring fair treatment and avoidance of double taxation for taxpayers involved in international transactions.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee pertaining to Assessment Year 2020-21 is filed against the order of the ld.CIT(A), National Faceless Appeal Centre, Delhi, dated 27th April, 2023. The assessee has raised the following grounds of appeal:-
“1. For that the ld CIT(A) was not justified in confirming the addition made vide order U/s 143(1) dated 24/12/2021 wherein an addition of Rs. 28,02,692/- was made by not allowing the exemption of salary income earned in Japan.
2. For that the above disallowance of exemption has been made on the ground that the assessee has failed to file Form 67 along with the ITR. Though it is agreed that the Form 67 was not filed along with the ITR, however the same was filed belated on 05/03/2022 and is on record. As such, the Id CIT(A) ought to have considered while adjudicating the appeal and as such, the exemption disallowed is fit to be revoked.
3. For that such disallowance by CPC is uncalled for since the same is a debatable issue and cannot be done in an order passed U/s 143(1), as such, the order passed by CPC disallowing the exemption claimed is bad in law.
4. For that the Ld CIT(A) should have considered and followed the various decisions of Tribunal and High Courts in which it has been held that Form 67 though filed belated (however during pendency of the dispute) should be considered for allowing exemption to the assessee.
5. For that other grounds in detail will be argued at the time o f hearing. ”
2. The facts, in brief, are that in this case, the assessee filed his return of income declaring total income of Rs.42,25,040/- and the same was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). The Centralized Processing Centre (CPC) did not allow the claim of foreign tax credit to the assessee. Aggrieved by this, the assessee preferred appeal before the CIT(A) who sustained the addition on the basis that requisite Form No.67 was not filed within the prescribed time.
3. Apropos the grounds of appeal, the ld. Counsel for the assessee vehemently argued that the lower authorities failed to appreciate the fact that the requisite Form No.67 was filed by the assessee and the assessee is entitled for grant of foreign tax credit. The ld. Counsel further reiterated his submissions as made in the written submissions. For the sake of convenience, the submissions of the assessee are extracted below:-
“Points in Dispute:-
1. That the sole issue involved in this impugned appeal is with respect to Ld. CIT(A) confirming the disallowance of the claim of Foreign Tax Credit (FTC) against salary income of Rs. 28,02,692/- made by CPC while processing the ITR of the assessee vide its intimation order dated 24/12/2021.
2. That the CPC disallowed the claim of FTC against salary earned from Japan on the ground that Form 67 was not filed along with the ITR before the due date and that the same was belated.
3. That the assessee filed his ITR on 03/01/2021 which was been processed by CPC vide its intimation order dated 24/12/2021 disallowing the claim of FTC and raising demand to that extent. However the assessee, during the pendency of the dispute before ld CIT(A), on 05/02/2022 submitted the Form 67 read with rule 128. The sole reason for disallowance of FTC by both the lower authorities is that the assessee failed to file Form 67 along with the ITR before the due date.
4. That we would like to submit that filing of Form 67 before the due date is a procedural/directory requirement and is not a mandatory requirement. Violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Further the claim of FTC was made by the assessee under the provisions of the Double Tax Avoidance Agreement (DTAA) which was signed between India and Japan in 1990 under which Article 2(1) covers Income Tax. Further Article 23(2) with respect to elimination of double taxation reads as below:-
“2. Double taxation shall be avoided in the case of India as follows :
(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction. Such deduction in either case shall not, however, exceed that part of the income-tax (ascomputed before the deduction is given) which is attributable, as the case may be, to the income which may be taxed in Japan. Further, where such resident is a company by which surtax is payable in India, the deduction in respect of income-tax paid in Japan shall be allowed in the first instance from income-tax payable by the company in India and as to the balance, if any, from surtax payable by it in India.
(b) Where a resident of India derives income which, in accordance with the provisions of this Convention, shall be taxable only in Japan, India may include this income in the tax base but shall allow as a deduction from the income-tax that part of the income- tax which is attributable, as the case may be, to the income derived from Japan.
5. That the claim of FTC was made by the assessee in terms of section 90 of the Income Tax Act. It is a settled principle that where is there is special agreement/ DTAA signed by the government, the specific provisions made in such agreement shall prevail over the general provisions contained in the Income Tax Act. The CBDT vide its Circular No. 333 dated 02/04/1982 has held that:-
SECTION 90 AGREEMENT WITH FOREIGN COUNTRIES [CORRESPONDING TO SECTION 40A OF THE 1922 ACT]
627. Specific provisions made in double taxation avoidance agreement – Whether it would prevail over general provisions contained in Income- tax Act
1. It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.
2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.
3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.
Circular : No. 333 [F. No. 506/42/81-FTD] dated 2-4-1982.
6. 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 overrides the provisions of the Act, the assessee has vested right to claim the FTC under the tax treaty, and the same cannot be disallowed for mere delay in compliance of a procedural provision. In other words, we would like to submit 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 only 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.
7. That the lower authorities intends to disallow the claim of the assessee in terms of Rule 128(9), however as stated above, the provisions laid down in the Income Tax Rules shall stand to be overridden by the specific provisions mentioned in the DTAA more so to the extent that the same is beneficial to the tax payer. And as such, since the DTAA does not specifically state to disallow the claim of FTC on mere delay in filing of Form 67, we would submit that the disallowance made by the CPC and further confirmed by the CIT(A) is arbitrary, unjustified and fit to be deleted.
8. That lastly, we would like to contend that this being a debatable issue, the disallowance made by CPC was uncalled as the same cannot be termed as an adjustment in terms of section 143(1). In a similar matter before the Hon’ble ITAT Kolkata Bench in the case of M/s Surendra steel Pvt Ltd Vs CPC in ITA No. 78/Kol/2022 dated 20/05/2022, it was held as below:-
We have duly considered rival contentions and perused the material available on record. To our mind there are two issues involved. First being the procedural irregularity and second the legitimate quantification for disallowance. If the adjustment has been made on the basis of first defect i.e., for procedura l irregularity then according to the decisions referred by the Id. Counsel for the assessee, this irregularity is not fatal enough to deny the claim of deduction u/s 80IC of the Act. More so, when in response to the first proposed adjustment, the assessee has reiterated submission of Form 10CCB. As far as the arguments raised by the Id. D/R is concerned, if a disallowance is to be made after filing of Form 10CCB, then it is a debatable issue and the same is not permissible u/s 143(1) in a prima facie adjustment and the assessee should have been given a notice for that. In other words, if a disallowance is required to be established by arguments and long drawn process of reasoning on points, which there may conceivably be two opinions about, then the case should have been selected for scrutiny assessment. In view of the above discussion, we delete the disallowance of deduction u/s 80IC of the Act, made by the Assessing Officer and upheld by the Id. CIT(A) and allow the appeal of the assessee.
As such, we would like to contend that the CPC was not right in disallowing the claim of FTC solely on the ground that Form 67 was filed belated.
That in support of our above contentions above, we would like to rely upon the following decisions of the coordinated Benches of ITAT:-
- Vinod Kumar Lakshmipati Vs CIT(NFAC) Delhi – 145 com 235 – ITAT Bangalore – It was held that:-
Section 90, read with section 90A, of the Income-tax Act, 1961 and ride 128 of the Income-tax Rules, 1962 – Double Taxation Relief – Where agreement exists (Foreign tax credit) – Assessment year 2018-19 – Assessee claimed foreign tax credit under section 90/90A – Assessing Officer disallowed claim, on ground that assessee had not filed Form No. 67 along with return – Assessee filed Form No. 67 before Commissioner (Appeals) – Commissioner (Appeals) held that since assessee had failed to file Form No. 67 within due date specified for filing return under section 139(1), Assessing Officer had rightly disallowed claim for foreign tax credit – It was noted that Bangalore Bench of Tribunal on identical issue in case of Ms. Brinda Ramakrishna v. ITO [2022] 135 taxmann.com 358/193 ITD 840 held that non-furnishing of Form No. 67 before due date specified for furnishing return under section 139(1) was not fatal to claim for foreign tax credit – Whether Assessing Officer was to be directed to give credit for foreign tax as per Form No. 67 filed before Commissioner (Appeals) – Held, yes [Paras 5 and 6] [In favour of assessee]
Held that filing of Form 67, in my view, is a procedural/directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. There are no conditions prescribed in DTAA that FTC can be disallowed for non compliance of any procedural provision, therefore, the provisions of DTAA override the provisions of the Act. As the assessee has vested right to claim the FTC under the tax treaty and the same cannot be disallowed for mere delay in compliance of a procedural provision.
Form 67 filed by the respective assessees, even after the end o f the relevant assessment year makes the assessee entitled to claim FTC. Therefore, considering the facts of the present case, the FTC deserves to be allowed to the assessee even if Form 67 was filed by the assessee after the due date of filing the return under section 139(1) of the IT Act, 1961, and in our view not allowing foreign tax credit by AO (CPC) was nothing, but a mistake apparent on record. Therefore, we direct the revenue to allow the claim of the assessee.
- Vikas Daga Vs ACIT in IT A No. 2536/Del/2G22 dated 14/06/2023 – The ITAT Delhi Bench has held that:-
“8. We have given a thoughtful consideration to the orders o f the authorities below. The undisputed fact is that the assessee holds a foreign tax credit certificate for Rs. 1887114/-. In our considered opinion filing of form 67 is a procedural / directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. We accordingly direct the AO to allow the credit of FTC and hold that rule 128(9) of the Rules does not provide for disallowance FTC in case of delay filing of form 67 is not mandatory but a directory requirement and DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act.
10. In the result, the appeal filed by the assessee is allowed. ”
As such, in the light of the above mentioned facts and decisions relied upon, we would like to submit that the CPC vide its intimation order dated 24/12/2021 was not justified in disallowing the claim of FTC made by the assessee solely on the ground that Form 67 was not filed by the assessee before the due date of filing the ITR and that the same was filed belated. We therefore implore that the intimation order passed by CPC and confirmed by CIT(A) be set aside allowing the claim made of the assessee.”
4. The ld. Counsel for the assessee further placed reliance on the decision of the Division Bench of this Tribunal rendered in the case of Vikas Daga vs. ACIT in ITA No.2536/Del/2022 pertaining to assessment year 2019-20.
5. On the other hand, the ld. DR opposed the submissions of the assessee and supported the orders of the authorities below.
6. I have heard the rival contentions and perused the material available on record. The Division Bench of this Tribunal in the case of Vikas Daga vs. ACIT (supra) has held as under:-
“8. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee holds a foreign tax credit certificate for Rs.1887114/-. In our considered opinion filing o f form 67 is a procedural / directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. We accordingly direct the AO to allow the credit of FTC and hold that rule 128(9) of the Rules does not provide for disallowance FTC in case of delay filing of form 67 is not mandatory but a directory requirement and DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. ”
7. In the light of the above decision, I am of the considered view that the AO ought to have granted foreign tax credit. Therefore, looking to the totality of the facts and respectfully following the decision of the coordinate Bench of the Tribunal I hereby set aside the impugned order and restore the matter to the file of the assessing authority with a direction to verify the correctness of the claim of the assessee and, after verification, the assessee may be granted foreign tax credit in accordance with the law.
8. In the result, the appeal of the assessee is allowed for statistical purposes only.
Order pronounced in the open court on 11.09.2023.
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