2024 (12) TMI 636 - AT - Income Tax

Foreign tax credit allowed under Section 90 despite delayed return filing as DTAA provisions override when beneficial

Debanjan Chatterjee Versus Deputy Director of Income Tax, CPC, Bengluru

Debanjan Chatterjee Versus Deputy Director of Income Tax, CPC, Bengluru - TMI Issues Involved:1. Confirmation of the order passed under section 154 of the Income Tax Act by CPC, Bengaluru, denying the credit of foreign tax under section 90.2. Interpretation of Rule 128 of the Income Tax Rules, 1962, regarding the filing of Form 67 and its impact on the claim for Foreign Tax Credit (FTC).3. The applicability of Double Taxation Avoidance Agreement (DTAA) provisions over the Income Tax Act and Rules.Detailed Analysis:1. Confirmation of Order under Section 154:The primary issue in the appeal was the denial of foreign tax credit by the CPC, Bengaluru, under Section 154 of the Income Tax Act. The assessee, a non-resident, filed a belated return for the Assessment Year 2021-22, declaring income earned from employment in the United Kingdom. The assessee claimed a foreign tax credit of Rs. 37,79,568/- under Section 90 of the Act, which was denied by the CPC due to the late filing of Form 67. The assessee's rectification application was also rejected, leading to an appeal before the Commissioner of Income Tax (Appeals), who upheld the denial of the credit, citing non-compliance with procedural requirements.2. Interpretation of Rule 128 and Filing of Form 67:Rule 128 of the Income Tax Rules mandates that Form 67 must be filed on or before the due date for furnishing the return of income under Section 139(1). The assessee filed Form 67 on the same day as the belated return, which was after the due date. The CIT(A) held that the filing of Form 67 is mandatory and not merely procedural, thus justifying the denial of FTC. However, the Tribunal found that Rule 128 does not explicitly provide for the disallowance of FTC due to delayed filing of Form 67. The Tribunal referenced several judicial precedents, including decisions from ITAT Bangalore and Mumbai, which held that the filing of Form 67 is a procedural requirement and should not bar the substantive right to claim FTC. The Tribunal emphasized that the vested right of the assessee to claim FTC should not be denied for procedural lapses.3. Applicability of DTAA Provisions:The Tribunal highlighted that the provisions of the DTAA override the Income Tax Act when they are more beneficial to the assessee. In this case, the DTAA between India and the United Kingdom provided for the allowance of FTC, and the Tribunal noted that the DTAA provisions should prevail over the procedural requirements of Rule 128. The Tribunal cited various cases where it was held that the DTAA provisions take precedence and that procedural requirements should not negate the substantive rights provided under the DTAA.Conclusion:The Tribunal concluded that the denial of FTC due to the late filing of Form 67 was not justified. It held that the filing of Form 67 is a directory requirement and not mandatory, and that the DTAA provisions override the procedural rules. The Tribunal directed the Assessing Officer to allow the foreign tax credit to the assessee, thereby allowing the appeal. The judgment underscores the principle that procedural lapses should not impede the substantive rights of taxpayers, especially when international agreements like the DTAA provide for such rights.