Foreign tax credit allowed despite late Form 67 filing as it's assessee's vested right under DTAA sections 90/90A

ITAT Jaipur allowed assessee's foreign tax credit claim under sections 90/90A despite not being claimed in original return. Revenue authorities rejected the claim as Form 67 was not filed within prescribed time limits. ITAT held that foreign tax credit is assessee's vested right under DTAA provisions and cannot be denied for procedural non-compliance. Rule 128 requiring Form 67 filing is directory, not mandatory. Matter remanded to AO for fresh consideration with adequate hearing opportunity.

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Issues Involved:
1. Disallowance of Foreign Tax Credits under section 90/90A.
2. Procedural compliance and its impact on the claim for Foreign Tax Credits.
3. Jurisdiction and powers of CIT(A) in relaxing time limitations under section 139.
4. Rectification of mistakes under section 154.

Summary:

1. Disallowance of Foreign Tax Credits under section 90/90A:
The assessee filed an appeal against the order of CIT(A) dated 16-06-2023, challenging the disallowance of Foreign Tax Credits (FTC) under section 90/90A. The CIT(A) dismissed the appeal, stating that the withholding tax in Singapore was known to the appellant before filing the income tax return. The tax was not withheld on salary by the employer for the period January 2020 to March 2020 and was assessed at the time of filing the Singapore Income tax return on 14th June 2021.

2. Procedural compliance and its impact on the claim for Foreign Tax Credits:
The CIT(A) dismissed the appeal on procedural grounds, noting that the FTC was not claimed in the original return of income. The assessee had filed Form 67 on 30th December 2020, declaring the entire salary income from November 2019 to March 2020 but could not claim the FTC for January 2020 to March 2020 due to the nonavailability of tax proofs at the time of filing. The revised Form 67 was filed on 18th May 2022, but the time to file a revised Indian Income Tax Return had expired on 31 March 2021.

3. Jurisdiction and powers of CIT(A) in relaxing time limitations under section 139:
The CIT(A) noted that the appeal was against the order under section 154, and there was no mistake in the rectification order. The CIT(A) emphasized that the DTAA does not allow claims beyond the time allowed under section 139, and the CIT(A) does not have the power to relax such time limitations under section 119 of the Act.

4. Rectification of mistakes under section 154:
The CIT(A) upheld the rectification order under section 154, stating that the new claim with additional evidence could not be entertained during rectification proceedings. The CIT(A) confirmed that there was no mistake on record, and the relief claimed was not part of the original return of income.

Tribunal's Decision:
The Tribunal considered the peculiar facts of the case, noting that the assessee filed Form 67 on 30.09.2020 and there was no dispute about the eligibility for FTC. The Tribunal referenced the decision in M/s. Rajasthan State Seeds and Organic Production Certificate Agency Vs. DCIT and other similar cases, concluding that procedural non-compliance should not extinguish the substantive right to claim FTC. The Tribunal directed the AO to allow the FTC relief, setting aside the order of the CIT(A).

Conclusion:
The appeal of the assessee was allowed, and the AO was directed to provide relief for the Foreign Tax Credits. The Tribunal emphasized that procedural requirements should not override substantive rights, especially when there is no dispute about the eligibility for the credits. The decision was pronounced in the open court on 31/10/2023.

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