2024 (12) TMI 1624 - AT - Income Tax

Denial of foreign tax credit for late Form 67 unjustified where Form 67 available before processing; section 139(1) noted

ITAT PUNE held that denial of foreign tax credit solely because Form 67 was filed after the section 139(1) return due date was not justified. Since Form ... Denial of claim of credit for Foreign Tax paid - Form No.67 was filed belatedly, i.e., beyond the due date for filing of the return of income - HELD THAT:- Admittedly, in the present case, Form No.67 was not filed within the due date for filing of the return of income under the provisions of section 139(1), but Form No.67 was filed on 30.03.2021. The CPC, Bangalore had processed the return of income as on 24.12.2021, which means that Form No.67 was very much available with the CPC, Bangalore. Therefore, the CPC, Bangalore cannot deny the claim for credit for foreign tax paid merely because Form No.67 was not filed within the due date specified for filing the return of income under the provisions of section 139(1) of the Act, as it is merely directory in nature. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether denial of foreign tax credit (FTC) by the tax-processing centre on the ground that Form No.67 was not filed by the due date under section 139(1) is legally sustainable. 2. Whether the requirement to file Form No.67 (Rule 128/related Rules) is mandatory (jurisdictional) or directory in nature for claiming FTC under section 90 read with the applicable DTAA. 3. Whether the tax-processing authority/ CPC is obliged to consider a belatedly filed Form No.67 that was available on record at the time of intimation under section 143(1). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of denying FTC where Form No.67 was not filed by the due date under section 139(1) Legal framework: Section 90 read with the applicable DTAA permits relief for foreign tax paid; procedural rules (Rule 128 or corresponding Rules) and Form No.67 regulate the claim for FTC. Section 139(1) prescribes the due date for filing the income-tax return. Precedent Treatment: The Tribunal relied on a High Court decision holding filing of FTC form to be directory and on a prior Tribunal decision where FTC was allowed despite belated filing of Form No.67. Interpretation and reasoning: The Court finds that mere non-filing of Form No.67 by the due date for filing the return under section 139(1) does not justify automatic denial of FTC where the form was subsequently filed and was physically available to the CPC before processing the intimation. The rule governing Form No.67 is characterized as procedural and for implementation of the Act rather than creating a substantive bar to relief. Ratio vs. Obiter: Ratio - Denial of FTC solely on the ground of belated filing of Form No.67 is not justified where the form was available to the tax authority at the time of processing; the filing requirement is directory. Obiter - Reference to other decisions supporting the view that the rule is only for implementation and is directory in nature. Conclusions: The CPC's denial of FTC on the ground that Form No.67 was not filed within the due date under section 139(1) is not sustainable in the facts where the form was filed before processing and available on record. Issue 2 - Directory versus mandatory character of Form No.67 filing requirement Legal framework: Procedural rules require the submission of prescribed form/documentation to claim FTC; the distinction between directory and mandatory provisions affects consequences of non-compliance. Precedent Treatment: The Court follows the reasoning of a High Court decision and a prior Tribunal decision holding that the filing of FTC form in terms of the Rule is directory and intended for implementation of statutory provisions rather than to defeat substantive rights. Interpretation and reasoning: The Tribunal reasons that Rule-based/formal requirements for implementation do not automatically defeat an assessee's substantive entitlement to FTC when the necessary information is ultimately available to the tax authority. Where the procedural form is intended to assist processing and is present before or at the time of assessment/intimation, strict temporal non-compliance does not extinguish the right to credit. Ratio vs. Obiter: Ratio - Filing of Form No.67 is directory in nature; non-filing within the return due date is not a jurisdictional defect that bars FTC if the form is later filed and available to the authority. Obiter - Observations on policy and object of the rule as being for implementation. Conclusions: The requirement to file Form No.67 is directory; consequential denial of FTC for belated filing is not warranted where the information is available to the authority. Issue 3 - Obligation of CPC/tax authorities to consider belatedly filed Form No.67 available on record at time of processing Legal framework: The authority's intimation under section 143(1) must reflect correct computation of income and credits; administrative processing should take into account materials placed on record before or at processing. Precedent Treatment: The Tribunal applied its prior decision allowing FTC where Form No.67 was belatedly filed but available to CPC at time of processing, and cited High Court authority to treat the filing requirement as directory. Interpretation and reasoning: Where Form No.67 was submitted before the CPC processed the return/intimation, the CPC had actual possession of the requisite documentation. Denying credit on mere technical non-adherence to the time specified in section 139(1) would frustrate the substantive relief granted by the Act and DTAA. The Tribunal directs the CPC to amend its intimation under section 143(1) to give effect to the FTC claim based on the filed form. Ratio vs. Obiter: Ratio - Tax-processing authorities are required to take into consideration Form No.67 filed before processing; they must amend intimation under section 143(1) where necessary to reflect entitlement to FTC. Obiter - Comments on administrative fairness and purposive construction of procedural rules. Conclusions: The CPC is directed to amend the intimation under section 143(1) to allow FTC by considering the Form No.67 filed on record prior to processing; denial solely on timing is improper. Cross-references and Consolidated Conclusion 1. Issues 1-3 are interrelated: the determination that Form No.67 filing is directory (Issue 2) underpins the conclusion that denial of FTC for belated filing (Issue 1) is unsustainable and that the CPC must consider a belatedly filed form when it is available at processing (Issue 3). 2. The Tribunal's order applies the directory/mandatory distinction in favour of the assessee, directs administrative amendment of the intimation under section 143(1) to reflect FTC, and follows earlier tribunal and High Court reasoning on the non-jurisdictional character of the filing requirement.