2025 (1) TMI 1485 - AT - Income Tax

Late filing of Form 67 for foreign tax credit under s. 90: credit cannot be denied solely on delay

The dominant issue was whether foreign tax credit (FTC) under s. 90 of the Income-tax Act, 1961 read with Art. 23 of the India-Japan DTAA could be denied ... Denial Foreign Tax Credit based on TDS Certificate u/s 90 of the Income Tax Act, 1961 read with Article 23 of the Indo Japan DTAA - claim of the assessee was declined by the Ld. CIT(A) on the basis that Form No. 67 was filed after a gap of five years - HELD THAT:- As we hold that the claim of FTC does not get controlled solely by the delay in filing of Form 67 prescribed under rule 128(9) of the Income Tax Rules. Hence, we set aside the action of the Ld. CIT(A) and direct the AO to take cognizance of Form No.67 so filed and grant FTC as may be entitled to the assessee in accordance with law. Therefore, we here by direct the AO to allow benefit of Foreign Tax Credit subject to such enquiries and verifications as may be considered expedient. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in denying the Foreign Tax Credit (FTC) claimed by the assessee due to the late filing of Form No. 67, as required under Rule 128 of the Income Tax Rules.2. Whether the procedural requirement of filing Form No. 67 on or before the due date of filing the return of income is mandatory for claiming FTC under Section 90 of the Income Tax Act, 1961, and the Indo-Japan Double Tax Avoidance Agreement (DTAA).3. Whether the provisions of the DTAA override the procedural requirements of the Income Tax Act and Rules regarding FTC claims.ISSUE-WISE DETAILED ANALYSIS1. Denial of Foreign Tax Credit Due to Late Filing of Form No. 67Relevant Legal Framework and Precedents: The legal framework involves Section 90 of the Income Tax Act, 1961, which allows for relief in respect of income on which taxes have been paid in a foreign country, as well as the Indo-Japan DTAA. Rule 128 of the Income Tax Rules prescribes the procedural requirements for claiming FTC, including the filing of Form No. 67.Court's Interpretation and Reasoning: The Tribunal considered the procedural nature of filing Form No. 67. It noted that Rule 128(9) requires the form to be filed on or before the due date of filing the income tax return. However, the Tribunal found that the rule does not explicitly mandate denial of FTC for late filing.Key Evidence and Findings: The assessee had filed Form No. 67 after a delay of five years, which was the primary reason for the CIT(A) denying the FTC claim. The Tribunal considered precedents where similar delays were not deemed sufficient grounds to deny FTC.Application of Law to Facts: The Tribunal applied the principles from previous judgments, such as those in the cases of Sumedha Arora vs. ITO and others, which held that the filing of Form No. 67 is a directory requirement rather than mandatory.Treatment of Competing Arguments: The Tribunal weighed the argument that the DTAA provisions, which are more beneficial to the assessee, should override procedural lapses. The Department's argument focused on the procedural non-compliance, but the Tribunal found the assessee's reliance on DTAA provisions more compelling.Conclusions: The Tribunal concluded that the delay in filing Form No. 67 should not be a ground for denying FTC, as the DTAA provisions override the procedural requirements of the Income Tax Rules.2. Procedural vs. Substantive Compliance in FTC ClaimsRelevant Legal Framework and Precedents: The Tribunal examined the interplay between substantive rights under Section 90 of the Act and Article 23 of the Indo-Japan DTAA versus procedural requirements under Rule 128.Court's Interpretation and Reasoning: The Tribunal emphasized that procedural requirements should not defeat substantive rights, especially when the DTAA provides a clear entitlement to FTC.Key Evidence and Findings: The Tribunal referred to several precedents, including the case of Ms. Brinda Ramakrishna, which supported the view that procedural delays should not bar FTC claims.Application of Law to Facts: The Tribunal applied the principle that DTAA provisions, which are part of international agreements, have precedence over domestic procedural rules when they are more beneficial to the taxpayer.Treatment of Competing Arguments: The Tribunal considered the Department's insistence on procedural compliance but found that such compliance should not override the substantive rights accorded by the DTAA.Conclusions: The Tribunal concluded that the procedural requirement of filing Form No. 67 is directory, and the substantive right to FTC under the DTAA should not be denied due to procedural delays.SIGNIFICANT HOLDINGSThe Tribunal held that:1. 'The claim of FTC does not get controlled solely by the delay in filing of Form 67 prescribed under Rule 128(9) of the Income Tax Rules.'2. The Tribunal directed the Assessing Officer to take cognizance of Form No. 67 filed by the assessee and grant FTC as entitled under the law, subject to necessary verifications.3. The Tribunal reinforced the principle that DTAA provisions override domestic procedural requirements when they are more beneficial to the taxpayer.In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and directing the Assessing Officer to grant the FTC, thereby upholding the precedence of DTAA provisions over procedural lapses in the context of FTC claims.