Foreign tax credit allowed despite Form 67 filed after return deadline but before assessment order

ITAT Hyderabad allowed the assessee's appeal for foreign tax credit despite belated filing of Form 67. The appellant filed Form 67 after the due date for income tax return filing under section 139(1) but before the AO passed the assessment order under section 143(1). The Tribunal held that since Form 67 was filed before the assessment order, the AO should have granted credit for taxes paid outside India when global income was taxed in India. The AO was directed to verify Form 67 and allow foreign tax credit, following precedent in similar cases.

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Issues involved:
1. Denial of Foreign Tax Credit for belated filing of Form 67.
2. Interpretation of Rule 128(9) of the I.T. Rules, 1962 regarding the mandatory nature of filing Form 67.
3. Application of Double Taxation Avoidance Agreement (DTAA) provisions.
4. Judicial precedent regarding the allowance of Foreign Tax Credit.

Issue 1: Denial of Foreign Tax Credit for belated filing of Form 67

In the case, the appellant, a salaried individual, was on assignment in the USA and declared his global income in India for A.Y 2020-21. The Assessing Officer denied Foreign Tax Credit due to belated filing of Form 67. The appellant's rectification petition was rejected by the Assessing Officer and the first appellate authority upheld the denial. The appellant contended that filing Form 67 is directory, not mandatory, citing a favorable ITAT Hyderabad decision. The ITAT held that since Form 67 was filed before the assessment order, credit for taxes paid outside India should be allowed, following the precedent set by the ITAT in similar cases.

Issue 2: Interpretation of Rule 128(9) of the I.T. Rules, 1962

The ITAT analyzed Rule 128(9) which mandates filing Form 67 before the due date for filing the return of income. The appellant filed Form 67 after the due date but before the assessment order. The ITAT considered the timing of filing in relation to the assessment order, emphasizing that the Assessing Officer should have allowed the credit since Form 67 was filed before the assessment order, as per the provisions of the Rule. The ITAT relied on previous decisions to support the view that the requirement of filing Form 67 is not absolute and should be considered in light of the specific circumstances.

Issue 3: Application of Double Taxation Avoidance Agreement (DTAA) provisions

The ITAT highlighted that DTAA provisions override domestic laws and rules. The ITAT referred to the decision in Engineering Analysis Centre of Excellence (P.) Ltd. to emphasize that DTAA prevails over domestic regulations. This principle was crucial in determining the applicability of Foreign Tax Credit in the case, reinforcing the importance of adhering to international agreements in tax matters.

Issue 4: Judicial precedent regarding the allowance of Foreign Tax Credit

The ITAT extensively referenced previous ITAT decisions to support its ruling on allowing Foreign Tax Credit despite the belated filing of Form 67. Notably, the ITAT cited cases like Govinda Rajulu Dhondu and M/s. 42 Hertz Software India Pvt. Ltd. where similar issues were addressed, and credit for taxes paid outside India was allowed even with delayed submission of Form 67. The ITAT emphasized following decisions favorable to the assessee when multiple interpretations exist, as established by the Supreme Court in CIT vs. Vegetable Products Ltd., ensuring a fair application of tax laws.

In conclusion, the ITAT allowed both appeals filed by the assessee, directing the Assessing Officer to verify Form 67 and permit the credit for taxes paid outside India. The judgment underscored the importance of considering the specific circumstances, judicial precedents, and international agreements in tax matters to ensure a fair and just application of tax laws.

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