Foreign Tax Credit Appeal Partly Allowed; Procedural Delays Shouldn't Override Rights Under Tax Treaties.

The Tribunal partly allowed the appeal, directing the AO to grant the Foreign Tax Credit (FTC) based on Form 67 filed on 22/09/2018, despite the procedural delay. It emphasized that filing Form 67 is a directory, not mandatory, requirement, and should not negate substantive rights under the Double Taxation Avoidance Agreement (DTAA). The decision highlights that procedural norms should not override substantive rights granted by tax treaties.

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Issues Involved:
1. Disallowance of Foreign Tax Credit (FTC) due to late filing of the income tax return.
2. Disallowance of FTC due to late filing of Form 67.

Issue-wise Detailed Analysis:

1. Disallowance of Foreign Tax Credit (FTC) due to late filing of the income tax return:

The assessee filed the return of income for AY 2018-19 on 22/09/2018, which was after the extended due date of 31/08/2018. Consequently, the AO, CPC disallowed the FTC claimed by the assessee under sections 90/90A of the IT Act, 1961, and raised a demand of Rs. 38,540. The CIT(A) upheld this disallowance, citing Rule 128(9) of the IT Rules, which mandates that Form 67 and the return of income must be filed on or before the due date specified under section 139(1) of the Act. The CIT(A) concluded that the AO, CPC was correct in disallowing the FTC claim as both the return and Form 67 were filed after the due date.

2. Disallowance of FTC due to late filing of Form 67:

The Tribunal considered the rival submissions and materials on record. The assessee contended that the disallowance of FTC resulted in double taxation, as the foreign income was already taxed. The Tribunal referred to its previous decision in the case of Brinda Ramakrishna (ITA No.454/Bang/2021), where it was held that Rule 128(9) does not mandate the disallowance of FTC for delayed filing of Form 67. The Tribunal emphasized that filing Form 67 is a directory requirement, not a mandatory one, and that the Double Taxation Avoidance Agreement (DTAA) overrides the provisions of the Act. Therefore, non-furnishing of Form 67 before the due date under section 139(1) is not fatal to the FTC claim.

The Tribunal further noted that the Board (CBDT) has the power to prescribe procedures for granting FTC, but not to impose conditions for its disallowance. The procedural requirement of filing Form 67 should not extinguish the substantive right to claim FTC. The Tribunal cited various judicial precedents, including the Supreme Court's decisions in Mangalore Chemicals & Fertilizers Ltd. and Sambhaji & Others v. Gangabai & Others, which support the view that procedural norms should not obstruct substantive rights.

The Tribunal directed the AO to grant FTC as per Form 67 filed on 22/09/2018 after due verification. The appeal was partly allowed for statistical purposes.

Conclusion:

The appeal was partly allowed, with the Tribunal directing the AO to grant FTC based on Form 67 filed on 22/09/2018, recognizing that procedural delays should not negate substantive rights under the DTAA. The Tribunal emphasized that filing Form 67 is a directory requirement and not mandatory for claiming FTC. The decision underscores the principle that procedural requirements should not override substantive rights granted under tax treaties.

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