Foreign tax credit allowed despite late Form No. 67 filing under Rule 128(9) being directory not mandatory

ITAT Jaipur allowed the assessee's appeal for foreign tax credit despite non-filing of Form No. 67 within the prescribed timeline. The tribunal held that Rule 128(9) is directory, not mandatory, as it doesn't prescribe denial of credit for non-compliance. The rule doesn't specify consequences for late filing, and the 2022 amendment extended the filing deadline beyond the return due date. Since Form No. 67 was filed before assessment completion and Rule 128 doesn't provide adverse consequences for procedural non-adherence, the AO was directed to allow the foreign tax credit.

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Issues involved:
The judgment addresses the denial of foreign tax credit claimed by the assessee in the return of income for assessment year 2018-19. The issues include the eligibility for tax relief under section 90 of the Income Tax Act, the requirement to file Form 67 before the due date specified for filing the return of income, the potential for double taxation of income earned in the United States of America, the procedural aspects of claiming credit for taxes paid in a treaty country, and the levying of interest under sections 234A, 234B, and 234C of the Act.

Issue 1 - Denial of Foreign Tax Credit:
The assessee filed an appeal challenging the rectification order disallowing foreign tax credit of Rs. 15,53,686 claimed in the return of income. The National Faceless Appeal Centre upheld the order, citing non-compliance with the requirement to file Form 67 before the due date specified for filing the return of income under section 139(1) of the Act. The denial was based on procedural grounds, leading to the dismissal of the appeal.

Issue 2 - Double Taxation Concerns:
The appellant argued that taxing salary income received in the USA would result in double taxation, contrary to the provisions of the Act and the treaty. The contention was that the tax liability for salary income earned in the USA during a secondment period was discharged in the USA and should not be taxable in India under the India-US Double Taxation Avoidance Agreement. However, the NFAC and CIT(A) did not find merit in this argument.

Issue 3 - Procedural Compliance and Eligibility for Relief:
The dispute also revolved around the requirement to file Form 67 under Rule 128 of the Income Tax Rules before the due date specified for filing the return of income. The authorities held that failure to meet this procedural requirement rendered the assessee ineligible for relief under section 90/90A of the Income Tax Act, leading to the dismissal of the appeal.

Issue 4 - Interest Levied under Sections 234A, 234B, 234C:
The appellate tribunal addressed the issue of levying interest under sections 234A, 234B, and 234C of the Act, noting that it was a consequential matter that did not require specific adjudication. The grounds related to the charging of interest were dismissed without further elaboration.

Separate Judgment by the Tribunal:
The judgment delivered by the appellate tribunal allowed the appeal of the assessee, emphasizing that the failure to file Form 67 before the due date specified for filing the return of income did not automatically disqualify the assessee from claiming foreign tax credit. The tribunal considered the procedural nature of the requirement and cited precedents to support the view that the filing deadline for Form 67 was directory rather than mandatory. As a result, the tribunal directed the Assessing Officer to allow the foreign tax credit based on the belated filing of Form 67 by the assessee, ultimately allowing the appeal.

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