2024 (6) TMI 1282 - AT - Income Tax

Delay in Filing Form No.67 After Return Due Date Does Not Deny Foreign Tax Credit Under Rule 128(9)

ITAT Bangalore held that delay in filing Form No.67 after the due date of filing the return under section 139(1) does not warrant denial of foreign tax ... Denial of foreign tax credit (FTC) - delay in filing Form No.67 as filled after the due date of filing the return of income - HELD THAT:- We note from the Form No.35 that the appeal was filed by the assessee before the CIT(A) against 143(1) of the intimation. As decided in VINODKUMAR LAKSHMIPATHI [2022 (10) TMI 87 - ITAT BANGALORE] wherein as held Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. Respectfully following the above judgment, we direct the AO to give credit for foreign tax credit as per Form No.67 filed on 22/10/2022 after due verification. Appeal of the assessee is allowed for statistical purposes. ISSUES: Whether foreign tax credit (FTC) can be denied solely on the ground of delay in filing Form No.67 beyond the due date of filing the return of income under section 139(1) of the Income-tax Act, 1961.Whether filing of Form No.67 is a mandatory requirement or a directory/procedural requirement for claiming FTC under Rule 128 of the Income-tax Rules, 1962.Whether provisions of Double Taxation Avoidance Agreement (DTAA) override the provisions of the Income-tax Act and Rules with respect to entitlement and claim of FTC.Whether the Assessing Officer's rejection of FTC claim on the basis of non-compliance with procedural requirements can be sustained in rectification proceedings under section 154 of the Income-tax Act. RULINGS / HOLDINGS: The Court held that Rule 128(9) of the Income-tax Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; filing of Form No.67 is not mandatory but a directory requirement.The Court ruled that the DTAA provisions override the provisions of the Income-tax Act and the Rules, and since DTAA does not prescribe disallowance of FTC for non-compliance with procedural requirements, the FTC cannot be denied on such grounds.The Court found that the procedural requirement of filing Form No.67 within the due date is not a condition precedent for claiming FTC and non-compliance thereof does not extinguish the substantive right to claim FTC.The Court held that the issue was not debatable and that rectification proceedings under section 154 can be resorted to when there is only one possible view on the matter, rejecting the Revenue's contention otherwise.Accordingly, the Court directed the Assessing Officer to grant foreign tax credit as per Form No.67 filed after the due date, upon due verification. RATIONALE: The Court applied the legal framework under section 90 of the Income-tax Act, 1961, which allows the Government of India to enter into DTAA for relief from double taxation, and Rule 128 of the Income-tax Rules, 1962, which prescribes the procedure for claiming FTC.The Court emphasized that Rule 128(9) requires Form No.67 to be furnished on or before the due date of filing the return but does not specify disallowance of FTC for delay, thereby interpreting the Rule as procedural rather than mandatory.The Court relied on precedents from coordinate benches holding that filing of Form No.67 is directory and that DTAA provisions override conflicting provisions of the Act and Rules to the extent beneficial to the taxpayer.The Court referred to authoritative Supreme Court decisions establishing that procedural requirements should not be construed as mandatory when they impede substantive rights, highlighting that 'procedure cannot be a tyrant but only a servant.'The Court noted that the CBDT's power under section 295(1) and (2)(ha) to prescribe rules for FTC is limited to procedure and does not extend to creating substantive conditions for denial of FTC.The Court distinguished the instant case from other provisions where denial of benefits is explicitly conditioned on compliance, noting absence of such language in Rule 128(9).The Court rejected the Revenue's argument that the issue was debatable and not suitable for rectification proceedings, holding that where only one view is possible, section 154 can be invoked.