2023 (8) TMI 1654 - AT - Income Tax

Foreign Tax Credit Allowed Under Section 90 Despite No Form 67 Filed with Income Return

Mrs. Venkatraman Lakshmi   Versus ITO Non –Corporate Circle-7 (1), Chennai.

ITAT Chennai allowed the foreign tax credit claimed under section 90 despite the assessee not filing Form 67 with the return of income as mandated by rule ... Denying Foreign Tax Credit claimed u/s 90 - Claim was denied for want of filing of requisite Form 67 along with return of income - mandatory v/s directory provision - HELD THAT:- We find that this issue has been adjudicated by us in assessee’s favor in the decision of Shri Prakash Varadarajulu [2023 (2) TMI 1413 - ITAT CHENNAI] to hold the assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income-tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Accordingly, ground of the appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the filing of Form 67 under Rule 128(9) of the Income Tax Rules is mandatory and a pre-condition for claiming Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act, or whether it is directory in nature, allowing FTC claim even if Form 67 is filed after the due date of filing the return of income but before completion of assessment proceedings. Whether the denial of FTC on the ground of non-filing of Form 67 along with the return of income under Section 139(1) is justified. The applicability and interpretation of Rule 128(9) of the Income Tax Rules in the context of claiming FTC and the consequences of delay in filing Form 67. Whether any adverse consequence or mandatory bar arises under the Income Tax Act or Rules for late filing of Form 67. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Mandatory vs. Directory Nature of Filing Form 67 for Claiming Foreign Tax Credit Relevant Legal Framework and Precedents: Section 90 of the Income Tax Act provides for relief by way of Foreign Tax Credit to avoid double taxation. Rule 128(9) of the Income Tax Rules mandates that Form 67, which is a declaration and certificate required for claiming FTC, shall be furnished on or before the due date specified for furnishing the return of income under Section 139(1). Several Tribunal decisions, including those from coordinate benches, have held that the requirement to file Form 67 on or before the due date of filing the return is directory and not mandatory. Notably, the Mumbai Tribunal in Sonakshi Sinha vs. CIT held that failure to file Form 67 before the due date does not disentitle the assessee from claiming FTC if the form is filed before completion of assessment proceedings. The Tribunal in 42 Hertz Software India (P.) Ltd. and Ms. Brinda Rama Krishna cases emphasized that Rule 128(9) does not prescribe disallowance of FTC for delayed filing of Form 67. Similarly, the coordinate bench in Vinodkumar Lakshmipathi v. CIT(A) supported this view. Court's Interpretation and Reasoning: The Tribunal reasoned that procedural requirements which do not stipulate negative consequences for non-compliance are generally directory. Rule 128(9) does not explicitly prescribe denial of FTC for late filing of Form 67. Furthermore, Section 90 and Section 91 of the Act do not specify any timeline for filing such declarations. The Tribunal also noted that Rule 128(4) specifies conditions under which FTC shall not be allowed, but delay in filing Form 67 is not among them. The amendment to Rule 128 effective from 1 April 2022 further extended the time for filing Form 67 till the end of the assessment year, evidencing legislative intent to relax the timeline. The Tribunal distinguished the present facts from Supreme Court precedents (e.g., Wipro Ltd.) where violation of statutory provisions had adverse consequences. Here, only a procedural rule was not complied with, which does not entail disallowance of FTC. Key Evidence and Findings: The assessee filed the return of income under Section 139(1) claiming FTC but did not file Form 67 along with the return. Form 67 was filed during appellate proceedings before completion of assessment. The lower authorities denied FTC solely on the ground of non-filing of Form 67 with the return. Application of Law to Facts: Applying the above legal position, the Tribunal found no justification to deny FTC merely because Form 67 was filed after the due date but before completion of assessment. The procedural lapse was not a ground for denial under the Act or Rules. Treatment of Competing Arguments: The Revenue argued that Rule 128(9) mandates filing Form 67 along with return and it is mandatory. The Tribunal rejected this, holding the provision directory, relying on consistent coordinate bench decisions and legislative amendments. Conclusion: The Tribunal held that filing of Form 67 is directory and not mandatory for claiming FTC. The assessee is entitled to FTC even if Form 67 is filed after the due date but before completion of assessment proceedings. Issue 2: Legitimacy of Denial of Foreign Tax Credit on Grounds of Non-Filing of Form 67 with Return Relevant Legal Framework and Precedents: Section 90 of the Income Tax Act allows FTC to avoid double taxation. Rule 128(9) requires Form 67 to be filed on or before the due date of filing return. However, no provision prescribes automatic denial of FTC for non-compliance with this timeline. Court's Interpretation and Reasoning: The Tribunal found that the denial of FTC by the CIT(A) and CPC on the ground of non-filing of Form 67 with the return was not sustainable. The condition under Rule 128(9) was procedural and directory. The Tribunal emphasized that no adverse consequence is prescribed for late filing, and the assessee had filed Form 67 during appellate proceedings. Key Evidence and Findings: The CIT(A) upheld the intimation denying FTC for want of Form 67 filed with the return. The assessee filed Form 67 subsequently and relied on Tribunal precedents allowing FTC in such circumstances. Application of Law to Facts: Given the procedural nature of Rule 128(9), the Tribunal directed the lower authorities to grant FTC as claimed by the assessee. The denial was contrary to established Tribunal rulings and legislative amendments. Treatment of Competing Arguments: The Revenue's insistence on mandatory compliance was rejected based on the absence of statutory or rule-based consequences for delay and the consistent Tribunal jurisprudence. Conclusion: The Tribunal set aside the denial of FTC and directed grant of credit as claimed by the assessee.