2024 (2) TMI 860 - AT - Income Tax

Foreign tax credit allowed under section 90 despite delayed Form 67 filing following Vinodkumar Lakshmipathi precedent

The ITAT Bangalore allowed FTC u/s 90 despite delayed filing of Form 67. The assessee filed a revised return after initially omitting Form 67 and made ... Foreign Tax Credit - Form No. 67 filing requirement - directory not mandatory - Rule 128(9) of the Income Tax Rules as a procedural requirement - Section 90 - entitlement under DTAA overrides conflicting procedural requirementsForeign Tax Credit - Form No. 67 filing requirement - directory not mandatory - Rule 128(9) of the Income Tax Rules as a procedural requirement - Section 90 - entitlement under DTAA overrides conflicting procedural requirements - Whether delay in furnishing Form No.67 in contravention of Rule 128(9) precludes grant of foreign tax credit claimed under section 90/DTAA for AY 2019-20 - HELD THAT: - The Tribunal examined whether non-filing of Form No.67 by the due date prescribed in Rule 128(9) disentitles the assessee to foreign tax credit. Relying on coordinate decisions of the Tribunal and on the principle that procedural rules which do not prescribe a negative consequence for non compliance should be treated as directory, the Court held that Rule 128(9) does not itself provide for denial of foreign tax credit. The entitlement to credit under section 90 and the DTAA cannot be nullified by a procedural omission in the Rules where no statutory consequence is prescribed. Applying these principles to the facts - the assessee claimed FTC in the timely return, filed Form No.67 belatedly before completion of assessment proceedings and sought rectification - the Tribunal found that the claim could not be rejected solely on this technical ground and directed verification and grant of credit by the Assessing Officer in accordance with law and precedents. The Tribunal therefore upheld the CIT(A)'s approach of allowing the claim for consideration on merits and directing the AO to give credit after due verification. [Paras 11, 12]Delay in filing Form No.67 did not oust the assessee's right to foreign tax credit; CIT(A)'s order sustaining that approach is upheld and the AO is directed to allow the credit after due verification.Final Conclusion: The Revenue's appeal is dismissed; the CIT(A)'s order allowing the assessee's claim for foreign tax credit (subject to verification) is upheld and the Assessing Officer is directed to grant credit as per Form No.67 after due verification. Issues Involved:1. Condonation of delay in filing the appeal.2. Allowance of Foreign Tax Credit (FTC) despite delay in filing Form 67.Condonation of Delay:The Revenue's appeal faced a delay of 36 days. The Tribunal reviewed the reasons provided in the condonation petition and found a reasonable cause for the delay. Consequently, the delay was condoned, and the appeal was admitted for disposal on merits.Allowance of Foreign Tax Credit (FTC):The core issue was whether the FTC claim could be allowed despite the delay in filing Form 67. The assessee, an individual working with IBM India Pvt. Ltd., filed the return of income for AY 2019-20 on 23.08.2019, claiming FTC of Rs.62,28,734/- u/s 90 of the Act. The return was processed u/s 143(1) on 23.03.2021, disallowing the FTC claim due to the non-filing of Form 67 within the prescribed time.Aggrieved, the assessee appealed to the CIT(A) and filed Form 67 on 22.06.2022. The CIT(A) allowed the FTC claim, stating that the filing of Form 67 is directory, not mandatory. The CIT(A) relied on various Tribunal decisions, including the case of Sonakshi Sinha vs CIT, which held that Rule 128(9) does not prescribe disallowance of FTC for delayed filing of Form 67.The Tribunal upheld the CIT(A)'s decision, emphasizing that procedural requirements should not override substantive rights. It cited precedents where the Tribunal and courts have held that procedural lapses should not result in the denial of substantive tax benefits. Specifically, Rule 128(9) was interpreted as directory, not mandatory, and the DTAA provisions, which override the Act, do not stipulate disallowance for procedural non-compliance.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that the CIT(A)'s order allowing the FTC claim was correct and in accordance with the law. The Tribunal reiterated that procedural requirements should not negate substantive entitlements, especially when the DTAA provisions are more beneficial to the taxpayer.