2022 (9) TMI 557 - AT - Income Tax

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 ... Non grant of Foreign Tax Credit ('FTC') - CIT(A) denied the credit on the ground that the tax was not paid by the assessee and secondly Form 67 was filed belatedly - assessee claimed Relief u/s 90 / 90A which was denied by CPC - HELD THAT:- FTC has been offered by the assessee as perquisites in the gross total income and taxes have been paid thereon. Once this income has been offered to tax, the corresponding credit of the same would be available to the assessee. It could be seen in another perspective. Even if it is assumed that the assessee has not paid these taxes (as pleaded by Ld. Sr. DR) then it could be viewed as excess salary received by the assessee which was not received but retained by the foreign employer for payment of foreign taxes. Therefore, once the payment has been included by the assessee in the income and taxed have been paid thereon, then this credit would certainly be available to the assessee. We order so. So far as filing of Form 67 the same has been held to be mere directory requirement by SMC bench of Bangalore Tribunal in MS. BRINDA RAMA KRISHNA [2022 (2) TMI 752 - ITAT BANGALORE] and M/S. 42 HERTZ SOFTWARE INDIA PVT. LTD. [2022 (3) TMI 834 - ITAT BANGALORE] It is the finding of Ld. CIT(A) that the assessee has already filed Form No.67 although belatedly. Therefore, we direct Ld. CIT(A) to verify the form and allow tax credit to the assessee, if found in order. Appeal partly allowed. Issues:1. Non-grant of Foreign Tax Credit (&39;FTC&39;) of Rs. 12,03,8372. Non-grant of FTC is not a permissible adjustment under Section 143(1) of the ActAnalysis: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.