2023 (11) TMI 1000 - HC - Income Tax

Rule 128 requiring Form-67 for Foreign Tax Credit is directory, not mandatory for compliance

Duraiswamy Kumaraswamy Versus The Principal Commissioner of Income Tax - 8, The Assistant Director of Income Tax, CPC, Bangalore., The Deputy Commissioner of Income Tax, Non Corporate Circle - 11 (1), Chennai.

HC held that Rule 128 requiring Form-67 for Foreign Tax Credit is directory, not mandatory. Petitioner, a Kenya resident who became Indian resident in AY ... Benefit of Foreign Tax Credit (FTC) u/s 90/91 - delay in filing Form-67 - Scope of procedure under Rule 128 - mandatory or directory - petitioner initially worked at Kenya and subsequently, he became the resident of Indian from the assessment year 2018-2019 and 2019-2020 - HELD THAT:- The petitioner has filed his return including his Kenya income along with his Indian Income tax and claimed the benefits of FTC. However, the petitioner would submit that it is not mandatory. The Rule cannot make anything mandatory and it can be directory in nature, that too before the Assessment, the claim to avail the benefits of FTC is filed. Therefore, it would be the amounts to due compliance under the Act. As decided in the case of Commissioner of Income-Tax, Maharashtra v. G.M.Knitting Industries (P) Limited in Civil [2015 (11) TMI 397 - SC ORDER] wherein it was held that Form 3AA is required to be filed along with the return of income to avail the benefit and even if it is not filed, but the same is filed during assessment proceedings but before the final order of assessment is made that would amount to sufficient compliance. The law laid down by the Hon'ble Apex Court in Commissioner of Income-Tax, Maharashtra v. G.M.Knitting Industries (P) Limited. [2015 (11) TMI 397 - SC ORDER] would be squarely applicable to the present case. In the present case, the returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of the Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature. When the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of assessment order. Further, in the present case, the intimation under Section 143(1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore the impugned order is liable to be set aside. Accordingly the impugned order is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the FTC filed by the petitioner on 02.02.2021. The respondent is directed to give due credit to the Kenya income of the petitioner and pass the final assessment order. Issues involved:The issues involved in the judgment are the quashing of the order of the 1st respondent in DIN and order No.ITBA/REV/ F/ REV7/ 2021- 22/1039075246(1) dated 25.01.2022 for the Assessment year 2019- 2020 and the direction to condone the delay in filing Form-67 and grant the Foreign Tax Credit claim of Rs. 23,23,484.Details of the Judgment:Issue 1: Compliance with Rule 128 for claiming Foreign Tax Credit (FTC)The petitioner, who was employed in Kenya and later became a resident of India, filed his Indian Income Tax return for the assessment year 2019-2020 claiming the benefit of Foreign Tax Credit (FTC) under Section 90/91 of the Income Tax Act, 1961. However, the Form-67 required for claiming FTC was inadvertently not uploaded along with the Indian ITR. Despite subsequent attempts to rectify this, the Centralized Processing Centre did not grant the FTC, leading to the petitioner approaching the 1st respondent under Section 264 of the Act.Issue 2: Interpretation of Rule 128 and mandatory nature of Form-67The petitioner argued that the procedure under Rule 128 is directory and not mandatory, citing relevant judgments. On the other hand, the Department contended that Rule 128 is mandatory and Form-67 should be filed before the due date of filing the return of income tax. The Department rejected the FTC claim as Form-67 was not filed along with the return, maintaining that the rule is mandatory and compliance was necessary.Judgment and Decision:The Court held that the filing of Form-67 for claiming FTC is directory in nature, following the precedent set by the Hon'ble Supreme Court in previous cases. The Court found that the petitioner had filed the FTC well before the completion of the assessment proceedings, and thus, the rejection of the FTC claim by the respondent was not in accordance with law. The impugned order was set aside, and the matter was remitted back to the respondent for reassessment, directing the consideration of the FTC filed by the petitioner. The respondent was instructed to provide due credit to the Kenya income of the petitioner and pass the final assessment order within a specified period.In conclusion, the Writ Petition was disposed of with no costs, and connected miscellaneous petitions were closed accordingly.