2022 (9) TMI 1397 - AT - Income Tax

Tribunal grants appeal on Foreign Tax Credit denial, emphasizes DTAA provisions

Anuj Bhagwati Versus Deputy Commissioner of Income Tax-Circle – 1 (1) (1), Mumbai

The Tribunal allowed the appeals filed by the assessee, directing the Assessing Officer to reconsider the denial of Foreign Tax Credit under Section 90 of ... Denial of foreign tax credit u/s 91 - delay in filing Form no.67 - Rule procedures directory or mandatory - inadvertent mistake in complying with the procedural requirement of filing of Form No. 67 with the Return of Income - HELD THAT:- We find under Section 90 of the income tax Act allows double taxation relief in respect of agreements with foreign countries or specified territories and also Section 91 deals with the taxability of income where the countries which don’t have agreements. Further there is no amendment in the Section 90 of the Act with regard to claim of FTC and in such cases Rule procedures are directory and not mandatory. As in the case of Ms. Brindra Rama Krishna, [2022 (2) TMI 752 - ITAT BANGALORE] for assessment year 2018-19 has observed that the filling of FormNo.67 is not mandatory but directory. As there is no amendment on these aspects in the Section 90 of the Act and the Rules cannot override the Act and therefore the filing of Form.No 67 is not mandatory but it is directory. Accordingly, We restore the disputed issue to the file of the CIT(A) to adjudicate afresh on merits considering the observations in above paragraphs and the ratio of judicial decisions. Further the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information for early disposal of appeal and allow the grounds of appeal of the assessee for statistical purposes. Issues involved:Appeal against denial of Foreign Tax Credit under Section 90 of the Income Tax Act due to procedural non-compliance.Detailed Analysis:Issue 1: Denial of Foreign Tax Credit under Section 90The appellant raised grounds challenging the denial of relief under Section 90 of the Act amounting to Rs. 14,22,129 due to a procedural error in filing Form No. 67. The Assessing Officer (A.O.) and CIT(A) upheld the denial citing non-compliance with Rule 128 of the Income Tax Rules. The appellant contended that the DTAA should take precedence over domestic laws and that the delay in filing Form No. 67 should not result in denial of Foreign Tax Credit. The Tribunal referred to a previous decision where it was held that the requirement of filing Form No. 67 is directory, not mandatory, and that the DTAA overrides domestic laws. The Tribunal directed the AO to reconsider the claim based on supporting documents filed by the appellant.Issue 2: Application of Judicial PrecedentsThe Tribunal cited judicial precedents where it was established that the provisions of DTAA override domestic laws, emphasizing the right of the assessee to claim Foreign Tax Credit under the tax treaty. The Tribunal further clarified that the filing of Form No. 67 is not mandatory but a directory requirement. It rejected the Revenue's argument that the issue was debatable and confirmed that the DTAA prevails over domestic rules. The Tribunal allowed the appeal based on these interpretations and directed the CIT(A) to re-examine the issue.Issue 3: Restoration of Disputed IssueConsidering the facts, circumstances, and legal principles, the Tribunal concluded that there is no amendment in Section 90 of the Act regarding the claim of Foreign Tax Credit. It emphasized that the Rules cannot override the Act and reinstated the disputed issue to the CIT(A) for fresh adjudication. The Tribunal instructed the CIT(A) to consider the observations and judicial decisions, providing the appellant with a fair hearing and an opportunity to submit necessary information for the timely resolution of the appeal.Conclusion:The Tribunal allowed the appeals filed by the assessee for statistical purposes, emphasizing the importance of adhering to DTAA provisions and considering the procedural requirements for claiming Foreign Tax Credit under Section 90 of the Income Tax Act. The judgments highlighted the primacy of international agreements in tax matters and clarified the nature of procedural rules in such cases.