Appellate Tribunal grants Foreign Tax Credit, emphasizes tax paid by employer as part of taxable income.

The Appellate Tribunal partially allowed the appeal in a case concerning the denial of Foreign Tax Credit (FTC) of Rs. 12,03,837 to the appellant by the Centralized Processing Center. The Tribunal held that the appellant, despite the foreign tax being paid by the employer, should be granted the credit as the tax paid was part of the income subject to taxation in India. It emphasized the availability of the credit once the income, including the foreign tax paid, was offered for taxation in India. Additionally, the Tribunal considered the belated filing of Form 67 for claiming FTC as a directory requirement rather than mandatory, directing the Assessing Officer to verify and allow the tax credit if found in order.

---

---

Issues:
1. Non-grant of Foreign Tax Credit (&39;FTC&39;) of Rs. 12,03,837
2. Non-grant of FTC is not a permissible adjustment under Section 143(1) of the Act

Analysis:
1. The appeal involved a dispute regarding the non-grant of Foreign Tax Credit (FTC) of Rs. 12,03,837 by the Assessing Officer under Section 143(1) of the Income-tax Act, 1961. The appellant contended that the FTC should have been allowed as per Section 90 of the Act and the India-South Africa Double Taxation Avoidance Agreement (DTAA). The Appellate Tribunal noted that the income of the assessee was determined at Rs. 56.40 Lacs, and a demand was created due to the denial of the FTC claimed by the assessee. The Tribunal observed that the FTC was claimed for taxes paid in South Africa, which was part of the global income of the assessee taxable in India. The Tribunal found that the credit of FTC was denied to the assessee by the Centralized Processing Center (CPC), leading to the appeal.

2. The Appellate Tribunal analyzed the facts of the case and considered the submissions made by the appellant. It was noted that the appellant, while being resident and ordinarily resident in India, had received income in both India and South Africa during a specific period. The income earned in South Africa was also taxed in that country. The appellant claimed FTC for the tax paid in South Africa, which was included in the global income taxed in India. However, the CPC did not allow the FTC claimed by the appellant. The Tribunal held that since the foreign tax was paid by the appellant's employer and not by the appellant directly, the appellant was not eligible to claim the credit of the tax paid by the employer. Additionally, the Tribunal pointed out that the Form 67, required for claiming FTC, was filed belatedly, which further led to the disallowance of the FTC claim.

3. The Appellate Tribunal further considered the legal aspects of the case, emphasizing that the payment of foreign taxes by the employer did not entitle the appellant to claim the credit of such taxes unless specifically allowed by the law. However, the Tribunal noted that the appellant had included the foreign tax paid by the employer as part of the income, which was subjected to tax in India. Therefore, the Tribunal held that the appellant should be granted the credit for the foreign tax paid by the employer, as it was considered part of the income offered for taxation in India. Additionally, the Tribunal cited precedents where the filing of Form 67 was considered a directory requirement rather than mandatory, and directed the Assessing Officer to verify the form and allow the tax credit to the appellant if found in order.

4. In conclusion, the Appellate Tribunal partly allowed the appeal, directing the granting of Foreign Tax Credit to the appellant for the taxes paid by the employer in South Africa. The Tribunal emphasized that once the income including the foreign tax paid was offered for taxation in India, the corresponding credit should be available to the assessee. The Tribunal also highlighted the non-mandatory nature of filing Form 67 for claiming FTC, following legal precedents supporting this interpretation.

---