Tribunal allows foreign tax credit appeals, deems Form No.67 deadline directory, not mandatory

The Tribunal allowed the appeals filed by the assessee, overturning the disallowance of foreign tax credit (FTC) for the assessment years 2019-2020 and 2020-2021. The Tribunal held that the requirement to file Form No.67 within the specified due date under Rule 128(9) of the Income Tax Rules is directory, not mandatory. Emphasizing that DTAA provisions prevail over domestic laws, the Tribunal ruled that denial of FTC solely based on the timing of filing Form No.67 was unjustified. The judgment was issued on December 13, 2022.

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Issues:
Appeal against disallowance of foreign tax credit due to non-filing of Form 67 within the specified due date.

Analysis:
The appeals were filed by the assessee against two orders of the CIT(A) regarding the disallowance of foreign tax credit (FTC) for the assessment years 2019-2020 and 2020-2021. The primary issue raised in these appeals was the denial of FTC on the grounds that Form No.67 was not filed within the due date specified under section 139(1) of the Income Tax Act. The assessee claimed FTC based on income earned in the USA while employed with LSI India Research and Development Private Limited. The CIT(A) upheld the disallowance, citing Rule 128(9) of the Income Tax Rules, 1962, which mandates the filing of Form No.67 within the due date for filing the return of income. The CIT(A) dismissed the appeal, emphasizing the failure to submit Form 67 within the stipulated time limit.

In response to the CIT(A)'s decision, the assessee approached the Tribunal, arguing that the issue was covered in their favor by a previous order in the case of Ms. Brinda Ramakrishna. The Tribunal examined the matter and referred to the Bangalore Bench's judgment in the case of Ms. Brinda Ramakrishna v. ITO, where it was held that the filing of Form No.67 is a directory requirement and not mandatory. The Tribunal further emphasized that Rule 128(9) of the IT Rules does not provide for the disallowance of FTC in case of a delay in filing Form No.67. Additionally, the Tribunal highlighted that Double Taxation Avoidance Agreement (DTAA) provisions override the Act, and the Rules cannot be contrary to the Act.

Moreover, the Tribunal also cited a similar decision by the Bangalore Bench in the case of 42 Hertz Software India (P) Ltd. v. ACIT, supporting the view that the assessee cannot be denied FTC solely on the grounds of non-filing of Form No.67 within the specified due date. Therefore, the Tribunal allowed the appeals filed by the assessee, concluding that the denial of FTC based on the timing of filing Form No.67 was not justified. The judgment was pronounced on December 13, 2022.

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