2023 (3) TMI 662 - AT - Income Tax

Tribunal Grants Foreign Tax Credit Appeal

The Tribunal allowed the appeal, directing the AO to grant the Foreign Tax Credit (FTC) claimed by the assessee. The Tribunal held that the denial of FTC ... Foreign Tax Credit - Form No.67 filing requirement under Rule 128(9) - Directory versus mandatory procedural requirement - DTAA / Section 90 overriding domestic rules - Claim of FTC notwithstanding delayed filing of supporting formForeign Tax Credit - Form No.67 filing requirement under Rule 128(9) - Directory versus mandatory procedural requirement - DTAA / Section 90 overriding domestic rules - Whether denial of Foreign Tax Credit on the ground that Form No.67 was filed after the due date under section 139(1) was justified. - HELD THAT: - The Tribunal accepted the assessee's contention and that of coordinate benches that Rule 128(9) does not prescribe disallowance of FTC for delayed filing of Form No.67. The requirement to furnish Form No.67 is procedural and directory in nature and non-compliance of this procedural requirement is not fatal to the substantive right to claim FTC under Section 90 read with the applicable DTAA. The Tribunal applied the principle that where a tax treaty provision (Article 24 read with Section 90) confers a beneficial right, the domestic rules cannot operate to deny that right; accordingly the Rules framed under Section 295 cannot be read to extinguish the treaty-based entitlement by creating a substantive bar. The Tribunal relied on its coordinate bench decisions (including Shashidhar Seetharam Sharma and Brinda Rama Krishna) and subsequent followings, and concluded there was a single legally correct view available on the issue. In consequence, the AO's and CIT(A)'s refusal to grant FTC solely on the ground of delay in filing Form No.67 was held to be incorrect and the matter was remanded to the AO for grant of the credit in accordance with law. [Paras 7, 8]Denial of FTC for late filing of Form No.67 was set aside; the AO directed to allow the Foreign Tax Credit.Final Conclusion: The appeal is allowed: the Tribunal held that delayed filing of Form No.67 is not a valid ground to deny Foreign Tax Credit, that Rule 128(9) is directory and cannot override the assessee's treaty right under Section 90/DTAA, and directed the Assessing Officer to allow the FTC for AY 2018-19. Issues Involved:1. Whether the CIT(A) was justified in confirming the AO's denial of Foreign Tax Credit (FTC) due to the late filing of Form 67.Issue-wise Detailed Analysis:1. Confirmation of AO's Denial of FTC by CIT(A):The solitary issue raised in this appeal is whether the CIT(A) was justified in confirming the AO's order, which denied the Foreign Tax Credit (FTC) to the assessee. The denial was based on the late submission of Form 67, which was not furnished on or before the due date prescribed under Section 139(1) of the Income Tax Act, 1961, as required under Rule 128 of the Income Tax Rules.Facts of the Case:The assessee, an employee of HP India, filed a return of income for AY 2018-19 on 27.08.2018, declaring income under 'Salary', 'House Property', and 'Other Sources'. During limited scrutiny, it was found that the assessee did not declare foreign dividend income of USD 2720 in the return nor filed a revised return. The assessee claimed FTC by filing Form 67 on 23.01.2021 during the assessment proceedings. The AO denied the FTC because Form 67 was not filed within the due date under Section 139(1).CIT(A)'s Findings:The CIT(A) upheld the AO's decision, stating that the mandatory requirements under Rule 128 were not met, and the delay in filing Form 67 could not be condoned. The CIT(A) emphasized that the primary onus was on the assessee to comply with statutory requirements, citing the case of Commissioner of Income-tax v. Shivanand Electronics, which held that failure to comply with mandatory requirements precludes the benefit of the claim.Tribunal's Analysis:The Tribunal examined whether the denial of FTC solely due to the late filing of Form 67 was justified. The Tribunal referred to the coordinate bench's decision in Shashidhar Seetharam Sharma vs. ITO, which held that:(i) Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form 67.(ii) Filing Form 67 is a directory, not a mandatory requirement.(iii) DTAA overrides the provisions of the Act, and the rules cannot contradict the Act.The Tribunal also considered the decision in Brinda Rama Krishna's case, which reiterated that non-furnishing of Form 67 before the due date under Section 139(1) is not fatal to the FTC claim. The Tribunal noted that the assessee had already paid taxes on the foreign dividend income and filed Form 67 during the assessment proceedings, albeit late.Conclusion:The Tribunal concluded that the assessee's claim for FTC should not be denied solely due to the late filing of Form 67. The Tribunal directed the AO to allow the FTC claim, following the principles laid down in the coordinate bench decisions.Result:The appeal filed by the assessee was allowed, and the AO was directed to grant the FTC as claimed.Order Pronouncement:The order was pronounced in the open court on 23rd February 2023.