Foreign tax credit cannot be denied solely for late filing of Form-67 under India-Indonesia DTAA Article 23

ITAT Kolkata ruled in favor of the assessee regarding disallowance of foreign tax credit under section 90 read with Article 23 of India-Indonesia DTAA due to late filing of Form-67. The tribunal held that filing Form-67 is directive in nature, not mandatory, and delay in filing should not result in denial of foreign tax credit claim. Following precedents from ITAT Kolkata and Madras HC, the tribunal determined that when all substantive conditions are fulfilled, the assessee deserves foreign tax credit despite procedural delay. Appeal allowed.

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Issues Involved:

1. Disallowance of Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act, 1961, read with Article 23 of the India-Indonesia Double Taxation Avoidance Agreement (DTAA) due to late filing of Form No. 67.
2. Determination of whether filing Form No. 67 within the due date is a mandatory pre-condition for claiming FTC.

Detailed Analysis:

1. Disallowance of Foreign Tax Credit (FTC):

The primary issue in both assessment years 2019-20 and 2020-21 revolves around the disallowance of FTC claimed by the assessee under Section 90 of the Income Tax Act, read with Article 23 of the India-Indonesia DTAA. The disallowance was based solely on the late filing of Form No. 67. The assessee contended that all conditions for claiming FTC were met except for the delayed submission of Form No. 67. The Tribunal noted that the Revenue authorities had not identified any other discrepancies in the claim for FTC, apart from the delay in filing the form.

The Tribunal referenced several judicial precedents, including decisions from the Hon'ble Madras High Court and various Tribunal benches, which consistently held that the filing of Form No. 67 is directive rather than mandatory. These precedents emphasized that the absence of adverse consequences for late filing in Rule 128 of the Income Tax Rules indicates that the rule is directory. The Tribunal concluded that the mere delay in filing Form No. 67 should not result in the denial of FTC.

2. Filing of Form No. 67 as a Pre-condition:

The Tribunal examined whether the timely filing of Form No. 67 is a mandatory pre-condition for claiming FTC. The assessee argued that the requirement to file Form No. 67 is not stipulated in the Income Tax Act itself but is instead a procedural requirement under Rule 128 of the Income Tax Rules. The Tribunal observed that Rule 128(9) does not prescribe disallowance of FTC for delayed filing of Form No. 67. Furthermore, the Tribunal noted amendments allowing the filing of Form No. 67 until the end of the assessment year, reflecting the legislature's intent to treat the requirement as directory.

The Tribunal also considered the decision of the Hon'ble Madras High Court in a similar case, where it was held that procedural rules are generally directory unless adverse consequences are specified. The High Court emphasized that the rule's purpose is to facilitate the implementation of the Act, and compliance before the completion of the assessment should suffice.

Conclusion:

The Tribunal, following the consistent judicial view, held that the assessee should not be denied FTC due to the late filing of Form No. 67, as the requirement is directory. The Tribunal reversed the findings of the CIT(A), allowing the assessee's appeals for both assessment years. The decision underscores the principle that procedural requirements should not impede substantive rights unless explicitly mandated by law.

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