2023 (3) TMI 719 - AT - Income Tax

Court orders Foreign Tax Credit despite late filing, upholding taxpayer rights.

The court ruled in favor of the assessee, directing the Assessing Officer to grant the Foreign Tax Credit (FTC) amounting to Rs.1,52,602/- despite the ... Foreign tax credit - Grant of relief under Section 90 read with DTAA Article 24 - Filing of Form 67 under Rule 128 - Directory versus mandatory nature of procedural requirements - Rectification under Section 154Foreign tax credit - Filing of Form 67 under Rule 128 - Directory versus mandatory nature of procedural requirements - Grant of relief under Section 90 read with DTAA Article 24 - Rectification under Section 154 - Assessee entitled to foreign tax credit for tax paid in Italy despite belated filing of Form 67. - HELD THAT: - The Tribunal held that the entitlement to foreign tax credit under Section 90 read with Article 24(3)(a) of the India Italy DTAA is not automatically defeated by delayed compliance with the procedural requirement of filing Form 67 under Rule 128. The DTAA and Section 90 confer the substantive right to credit foreign tax against Indian tax; rules prescribing the manner of claiming that right are machinery provisions. Applying the principle that treaty provisions and the Act govern substantive relief and that subordinate rules cannot nullify that right, the Tribunal followed coordinate bench decisions which treated Rule 128's Form 67 requirement as directory where substantial compliance is shown and relief on merits is clearly available. In view of those precedents and the assessee's subsequent filing of Form 67 and rectification proceedings under Section 154, the denial of FTC solely on account of belated filing was held to be unjustified. The matter was remediable by taking cognisance of the belatedly filed Form 67 and granting credit in accordance with law.Set aside the CIT(A)'s order; directed the Assessing Officer to take cognisance of the filed Form 67 and grant foreign tax credit as entitled in law.Final Conclusion: Appeal allowed: FTC claim upheld notwithstanding belated filing of Form 67; AO directed to grant credit in accordance with law for AY 2019-20. Issues Involved:The denial of Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act due to late filing of Form 67 prescribed for eligibility of such credit under Rule 128 of the Income Tax Rules, 1962.Issue 1: Denial of Foreign Tax Credit (FTC) due to late filing of Form 67:The appeal was filed against the denial of FTC of Rs.1,52,602/- under Section 90 of the Act due to late filing of Form 67 as required by Rule 128 of the Income Tax Rules. The assessee, an individual and an ordinary resident of India, worked in Italy during the Assessment Year 2019-20. The salary earned in Italy was included in the return of income, and FTC was claimed through the Income Tax Return filed on 23.07.2019. However, Form 67 was not filed before the return of income as required. The prescribed Form 67 was later filed on 15.07.2021. Despite seeking rectification under Section 154 of the Act, the FTC was denied. The assessee argued that the denial of FTC based on non-compliance with procedural requirements is not justified as per Section 90 of the Act and Article 24 of the India-Italy Tax Treaty.Issue 2: Entitlement to Foreign Tax Credit despite belated compliance:The controversy revolved around whether the assessee is entitled to FTC against the salary earned in a foreign country even after belatedly meeting the requirements of Rule 128 of the Income Tax Rules. The assessee claimed that under Section 90 of the Act and Article 24 of the India-Italy Tax Treaty, she had a vested right to claim FTC. The provisions of the Act and the DTAA allow for credit towards foreign taxes paid on income earned abroad. The assessee contended that the denial of FTC based on procedural non-compliance is against the spirit of the tax treaty and the Act. The Tribunal, considering previous decisions, held that the delay in filing Form 67 should not solely control the claim of FTC, and directed the Assessing Officer to grant the FTC entitled to the assessee in accordance with the law.Separate Judgement:No separate judgment was delivered by the judges in this case.