Belated filing of Foreign Tax Credit claim Form 67 allowed under Rule 128(9) as time limit is directory not mandatory

The ITAT PUNE ruled that belated filing of Foreign Tax Credit (FTC) claim Form No. 67 with supporting certificates after the prescribed time limit under section 139(1) is allowable. The tribunal held that while filing the form and certificates is mandatory for substance, the time limit is directory rather than mandatory since Rule 128(9) prescribes no consequences for delayed compliance. The court emphasized that DTAA provisions do not override procedural requirements of the Income Tax Act, but belated compliance before final assessment processing is sufficient. The primary purpose is verifying genuineness of FTC claims, which belated filing can still achieve. Assessee's appeal was allowed.

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Issues Involved:
1. Denial of Foreign Tax Credit (FTC) due to delayed filing of Form No. 67.
2. Interpretation of procedural compliance under Rule 128 of IT Rules, 1962.
3. Supremacy of Double Tax Avoidance Agreement (DTAA) over domestic tax laws.

Summary:

1. Denial of Foreign Tax Credit (FTC) due to delayed filing of Form No. 67:
The appellant, an individual resident in India, filed his income tax return (ITR) belatedly on 28/02/2020 for AY 2019-20, claiming FTC of Rs. 11,11,174/- for taxes paid in the USA. The Centralised Processing Centre (CPC) denied the FTC claim because Form No. 67 was not filed within the prescribed time limit under section 139(1) of the Act. The First Appellate Authority (FAA) upheld this decision, leading the assessee to appeal before the ITAT.

2. Interpretation of procedural compliance under Rule 128 of IT Rules, 1962:
The appellant argued that the DTAA does not prescribe a filing requirement for FTC and that Rule 128(9) of IT Rules, 1962, which mandates filing Form No. 67 by the due date under section 139(1), is procedural and not mandatory. The Revenue contended that timely filing is mandatory, citing the Supreme Court decision in 'PCIT Vs WIPRO Ltd'. The ITAT noted that Rule 128(1) mandates FTC allowance, and Rule 128(9) prescribes a time limit for filing Form No. 67. The ITAT concluded that while filing the form is mandatory for verifying the FTC claim, the time limit is directory, not mandatory, as no consequences for delayed compliance are prescribed.

3. Supremacy of Double Tax Avoidance Agreement (DTAA) over domestic tax laws:
The ITAT examined the provisions of the INDO-USA DTAA and concluded that the DTAA does not override the procedural requirements of domestic tax laws unless there is a specific conflict. The DTAA entitles the resident assessee to FTC but does not nullify the filing requirements under Rule 128 of IT Rules, 1962. The ITAT held that the DTAA does not provide specific compliance requirements, and thus, the general provisions of the Act and IT Rules govern the matter.

Conclusion:
The ITAT allowed the appeal, holding that belated filing of Form No. 67 and accompanying certificates before the final assessment is sufficient compliance with Rule 128(9) of IT Rules, entitling the assessee to FTC. The decision emphasizes that procedural rules should not defeat the substantive right to FTC. The appeal was allowed in favor of the assessee.

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