Foreign tax credit allowed despite late Form 67 filing as procedural requirement is directory not mandatory

The ITAT Bangalore allowed the assessee's appeal regarding disallowance of foreign tax credit for taxes paid in Norway. The AO had disallowed the credit because Form 67 was not filed within the statutory time limit. The ITAT held that filing Form 67 is directory, not mandatory, and the assessee cannot be denied foreign tax credit due to procedural lapse when the revised return with Form 67 was filed before assessment completion.

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ISSUES PRESENTED and CONSIDERED

The core legal issue in this case was whether the failure to file Form 67 before the due date specified under Section 139(1) of the Income Tax Act should result in the denial of Foreign Tax Credit (FTC) under Section 90, despite the form being submitted before the completion of assessment. This involved examining the procedural requirements under Rule 128 of the Income Tax Rules, 1962, and the interplay between domestic tax laws and the Double Taxation Avoidance Agreement (DTAA) between India and Norway.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The relevant legal framework includes Section 90 of the Income Tax Act, which allows for FTC to avoid double taxation, and Rule 128 of the Income Tax Rules, which outlines the procedural requirements for claiming FTC, including the submission of Form 67. The provisions of the India-Norway DTAA also play a crucial role, as they provide the basis for claiming FTC. The Tribunal considered precedents from various judicial decisions, including rulings from the ITAT Bangalore in similar cases, which held that the filing of Form 67 is a directory requirement, not a mandatory one.

Court's Interpretation and Reasoning

The Tribunal interpreted Rule 128 as procedural rather than substantive, noting that the rule does not specify any penal consequences for the delayed filing of Form 67. The Tribunal emphasized that the intent of the legislature, as reflected in Section 90, is to provide relief from double taxation, and denying FTC solely on procedural grounds would defeat this purpose. The Tribunal also recognized the supremacy of DTAA provisions over domestic tax laws, asserting that substantive conditions for FTC under the DTAA and the Income Tax Act had been met.

Key Evidence and Findings

The key evidence included the appellant's revised tax return, which included income earned in Norway and claimed FTC. The Tribunal found that the appellant had filed Form 67 along with the revised return before the completion of assessment, thus meeting the substantive requirements for claiming FTC. The Tribunal also noted the lack of any express provisions in the Act or Rules allowing for the condonation of delay in filing Form 67.

Application of Law to Facts

Applying the law to the facts, the Tribunal concluded that the appellant's failure to file Form 67 before the due date under Section 139(1) should not result in the denial of FTC. The Tribunal emphasized that the substantive right to FTC under the DTAA and Section 90 should not be negated by a procedural lapse, especially when the form was submitted before the completion of assessment.

Treatment of Competing Arguments

The Tribunal considered the Revenue's argument that Rule 128(9) mandates the filing of Form 67 before the due date, supporting the disallowance of FTC. However, the Tribunal found this interpretation overly rigid and contrary to the purpose of providing relief from double taxation. The Tribunal also addressed the appellant's argument that the DTAA provisions should prevail over domestic law, agreeing that international treaties take precedence.

Conclusions

The Tribunal concluded that the requirement to file Form 67 is directory, not mandatory, and that the appellant should not be deprived of FTC due to a procedural lapse. The Tribunal directed the Assessing Officer to allow the FTC claim of 2,34,743 as claimed by the appellant.

SIGNIFICANT HOLDINGS

The Tribunal established several core principles in this judgment:

• "Rule 128(9) of the 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."
• "DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act."
• "The denial of FTC solely on account of a procedural lapse would defeat the purpose of providing relief from double taxation."

Final Determinations on Each Issue

The Tribunal set aside the order of the learned CIT(A) and directed the Assessing Officer to allow the claim of FTC amounting to 2,34,743 as claimed by the appellant, thereby allowing the appeal.

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