2025 (4) TMI 856 - AT - Income Tax

Rule 128 Filing: Procedural Technicality Can't Deny Foreign Tax Credit When Substantive Merits Are Clear

DCIT, Circle -19 (1), Delhi. Versus RST Mining and Logistics Pvt. Ltd.

DCIT, Circle -19 (1), Delhi. Versus RST Mining and Logistics Pvt. Ltd. - TMI ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the filing requirement of Form No. 67 under Rule 128 of the Income Tax Rules, 1962, is mandatory or directory for claiming Foreign Tax Credit (FTC) under Sections 90/91 of the Income Tax Act, 1961.2. Whether the denial of the FTC claim due to the belated filing of Form No. 67 is justified under the law.ISSUE-WISE DETAILED ANALYSIS1. Nature of Rule 128 Filing RequirementRelevant Legal Framework and Precedents: Rule 128 of the Income Tax Rules, 1962, mandates that Form No. 67, along with a certificate or statement, must be furnished on or before the due date specified for filing the return of income under Section 139(1) of the Act. The Supreme Court's decision in Mangalore Chemicals & Fertilizers Ltd. was cited, emphasizing that procedural law should aid substantive rights rather than obstruct them.Court's Interpretation and Reasoning: The Tribunal interpreted Rule 128 as directory rather than mandatory, emphasizing that the primary purpose of the rule is to verify the merit of the FTC claim. The use of the word 'shall' in the rule was considered in this context, and the Tribunal concluded that the procedural requirement should not impede the substantive right to claim FTC.Key Evidence and Findings: The Tribunal noted that Form No. 67 was available with the Central Processing Centre (CPC) when the rectification application was decided, supporting the view that the procedural lapse did not affect the substantive claim's merit.Application of Law to Facts: The Tribunal applied the principle that procedural requirements should not defeat substantive rights, particularly when the foreign income was considered for taxation. The Tribunal found that the belated filing of Form No. 67 did not justify denying the FTC claim.Treatment of Competing Arguments: The Revenue argued that the filing requirement was mandatory, but the Tribunal, supported by various ITAT decisions, found that the procedural requirement should not override the substantive right to claim FTC.Conclusions: The Tribunal concluded that Rule 128 is directory, allowing the assessee's claim for FTC despite the belated filing of Form No. 67.2. Justification for Denial of FTC ClaimRelevant Legal Framework and Precedents: Sections 90/91 of the Income Tax Act, 1961, provide relief from double taxation through FTC. The denial was based on non-compliance with Rule 128's procedural requirement.Court's Interpretation and Reasoning: The Tribunal found that denying the FTC claim solely due to procedural non-compliance was unjustified, especially when the substantive right to relief under Sections 90/91 was not in dispute.Key Evidence and Findings: The Tribunal noted that the CIT(A) had directed the Assessing Officer to entertain the FTC claim on merits, considering that Form No. 67 was available at the time of the rectification application.Application of Law to Facts: The Tribunal applied the principle that procedural requirements should facilitate, not hinder, substantive rights, particularly when the claim's merit was not in question.Treatment of Competing Arguments: The Revenue's argument for mandatory compliance was countered by the Tribunal's reliance on ITAT precedents, which consistently held Rule 128 as directory.Conclusions: The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the FTC claim despite the procedural lapse.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The Hon'ble Supreme Court in the case of Mangalore Chemicals & Fertilizers Ltd. laid down the proposition that procedural law should not be construed as mandatory and should only aid the claim of substantive right.'Core Principles Established: The judgment reinforces the principle that procedural requirements should not obstruct substantive rights, particularly in the context of claiming FTC under Sections 90/91 of the Income Tax Act, 1961.Final Determinations on Each Issue: The Tribunal determined that Rule 128 is directory in nature, allowing the assessee's FTC claim despite the belated filing of Form No. 67. The appeal by the Revenue was dismissed, affirming the CIT(A)'s decision to allow the FTC claim on merits.