2025 (1) TMI 572 - AT - Income Tax

Late filing of Form 67 cannot deny foreign tax credit under Section 90 Double Tax Agreement

The ITAT Ahmedabad allowed the assessee's appeal regarding foreign tax credit claimed under Section 90. The Revenue denied the claim due to late filing of ... Foreign Tax credit claimed u/s. 90 - denial of claim as assessee has failed to adhere to the mandatory condition of filing of Form No.67 within due date of filing of return of income as per Section 139(1) - HELD THAT:- CIT(A) has correctly held that Foreign Tax Credit cannot be denied to the assessee on account of delay in filing of Form No. 67 after the due date specified for furnishing return of income u/s 139(1) of the Act. Delay in filing of Form No. 67 cannot take away the vested right of the assessee to claim credit of taxes paid in overseas jurisdiction in terms of Double Tax Agreement with the relevant country. As decided in Chiragkumar Nandalal Makadia [2024 (8) TMI 751 - ITAT AHMEDABAD] held that where assessee was on deputation to Netherlands by his employer and salary earned in Netherlands and tax thereof was paid in said foreign country as per provisions of article 23 of DTAA between India and Netherlands, late filing of Form No. 67 could not be reason for denying benefit of foreign tax credit to assessee. CIT(A) has correctly held that Rule 128 of the Income Tax Rules which obliges tax payers to submit Form 67 before filing their Income Tax Return to claim Foreign Tax Credit is a procedural requirement and filing of Form 67 should not result in denial of Foreign Tax Credit to the tax payer. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:i. Whether the Ld. Addl./JCIT(A) was justified in directing the Assessing Officer to allow Foreign Tax Credit (FTC) claimed under Section 90 of the Income Tax Act, despite the assessee not filing Form No. 67 within the due date of filing the return of income as per Section 139(1) of the Act.ii. Whether the procedural requirement of filing Form No. 67 by the due date is mandatory or directory in nature, and whether non-compliance with this requirement can lead to the denial of FTC.2. ISSUE-WISE DETAILED ANALYSISIssue i: Justification of Allowing FTC Despite Late Filing of Form No. 67Relevant Legal Framework and Precedents:The relevant legal provisions include Section 90 of the Income Tax Act, which deals with agreements with foreign countries or specified territories for the avoidance of double taxation, and Rule 128 of the Income Tax Rules, which requires the submission of Form No. 67 to claim FTC. The case also refers to precedents set by various tribunals regarding the nature of Rule 128.Court's Interpretation and Reasoning:The court interpreted Rule 128 as a procedural guideline rather than a mandatory requirement. It emphasized that the primary objective of the rule is to facilitate the claiming of FTC and not to create an impediment to it. The court relied on previous tribunal decisions which held that the late filing of Form No. 67 should not be a ground for denying FTC.Key Evidence and Findings:The assessee had filed the US tax return and provided all necessary documentation regarding taxes paid in the USA. The only issue was the late submission of Form No. 67, which was filed after the due date for filing the return of income under Section 139(1).Application of Law to Facts:The court applied the principle that procedural delays should not override substantive rights, especially in cases where the assessee has complied with the substantive requirements of tax payment and documentation. The court found that the assessee's right to claim FTC was a vested right, not to be denied due to procedural lapses.Treatment of Competing Arguments:The Department argued that the late filing of Form No. 67 should result in the denial of FTC. However, the court dismissed this argument, emphasizing the directory nature of Rule 128 and the precedence of substantive compliance over procedural formalities.Conclusions:The court concluded that the Ld. CIT(A) was justified in allowing the FTC despite the late filing of Form No. 67, as the rule is directory and not mandatory.Issue ii: Nature of Rule 128 - Mandatory or DirectoryRelevant Legal Framework and Precedents:Rule 128(9) of the Income Tax Rules requires the filing of Form No. 67 to claim FTC. Precedents from other tribunal decisions were considered, which have interpreted this rule as directory.Court's Interpretation and Reasoning:The court interpreted Rule 128 as a procedural requirement intended to aid in the processing of FTC claims, rather than a mandatory condition that could nullify the claim if not complied with by the due date.Key Evidence and Findings:The court noted that the assessee had fulfilled all substantive requirements for claiming FTC, including the payment of taxes in the USA and the filing of the US tax return. The delay in filing Form No. 67 was procedural.Application of Law to Facts:The court applied the principle that procedural requirements should not impede the exercise of substantive rights, especially when compliance with the substantive provisions is evident.Treatment of Competing Arguments:The Department's argument that Rule 128 should be strictly enforced was countered by the court's reliance on tribunal decisions that have consistently held the rule to be directory.Conclusions:The court concluded that Rule 128 is directory, and non-compliance with its procedural requirements should not result in the denial of FTC.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The belated filing of Form 67 for claiming relief under Section 90 is not explicitly provided for in the Income Tax Act and that Rule 128 of the Income Tax Rules, which obliges taxpayers to submit Form 67 before filing their income tax return to claim Foreign Tax Credit (FTC), is not a strict requirement but just a guideline.'Core principles established:The judgment establishes that procedural requirements, such as the filing of Form No. 67, are directory and not mandatory. Substantive compliance with tax payment and documentation requirements takes precedence over procedural delays.Final determinations on each issue:The court determined that the Ld. CIT(A) correctly allowed the FTC despite the late filing of Form No. 67, affirming the directory nature of Rule 128. The appeals filed by the Department were dismissed, and the cross-objection of the assessee was dismissed as not pressed.