Filing Form 67 after assessment during appeal not a bar to foreign tax credit; Rule 128(9) is directory
ITAT, Bangalore (AT) held that filing Form 67 after assessment but during the pendency of the appeal before CIT(A) did not bar foreign tax credit since the time limit under Rule 128(9) is directory; CIT(A) should have allowed the credit. The AO is directed to verify the claim and grant the foreign tax credit if in order. Regarding carry-forward of losses, unabsorbed depreciation is not treated as business loss for AY 2018-19; the AO must allow carry-forward losses of earlier years after giving the assessee an opportunity of hearing.
ISSUES PRESENTED AND CONSIDERED
1. Whether foreign tax credit can be allowed where Form 67 is furnished after issuance of intimation under section 143(1) and during the pendency of appeal, given Rule 128(9) requirement to submit Form 67 on or before the end of the relevant assessment year?
2. Whether carry forward of business loss and unabsorbed depreciation must be restricted to amounts as determined in assessment/rectification orders, and to what extent unabsorbed depreciation is treated for carry forward purposes?
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Allowability of foreign tax credit where Form 67 filed after section 143(1) intimation and during appeal
Legal framework: Sections 90/91 of the Income-tax Act govern relief for double taxation; Rule 128 of the Income-tax Rules requires submission of Form 67 to claim foreign tax credit, with Rule 128(8) prescribing verification requirements and Rule 128(9) stipulating that Form 67 "shall be submitted on or before the end of the assessment year" in which the relevant income is offered to tax and return filed under section 139(1) or 139(4).
Precedent treatment: High Court and Tribunal precedents have taken differing views. Certain coordinate Bench decisions and the Madras High Court have held the filing of Form 67/time limit under Rule 128(9) to be directory in nature and permitted filing during assessment or appellate proceedings, whereas the Revenue and CIT(A) have relied on the rule and CBDT circulars to treat timely filing as mandatory.
Interpretation and reasoning: Rule 128(8)-(9) require Form 67 for grant of credit but prescribe a timeline. The Tribunal notes that Rule 128(9)'s timing provision permits filing "up to the end of the assessment year," but several binding/coordinate authorities interpret that requirement as directory rather than mandatory. An appeal is a continuation of assessment proceedings; where Form 67 is filed during the pendency of the appeal, denying credit solely for non-filing in the original return or in rectification proceedings would defeat the substantive right under DTAA/Act where income has been offered to tax. The Tribunal therefore follows the line of authorities treating Rule 128(9) as directory and permits consideration of Form 67 filed during appellate proceedings, subject to verification of the factual entitlement to credit (i.e., existence of foreign tax paid and the relevant income charged to tax in India).
Ratio vs. Obiter: Ratio - The requirement of timely filing of Form 67 under Rule 128(9) is directory in nature such that Form 67 filed during the pendency of appeal may be considered for grant of foreign tax credit. Obiter - Observations on the interplay with CBDT notifications and whether all factual defects can be cured by later filing are adjunctive; the controlling reasoning emphasizes remedy if substantive entitlement is established.
Conclusions: The Tribunal allowed the issue in principle, directing the assessing authority to verify the foreign tax credit claim as supported by Form 67 filed during appeal and to grant credit if factual and legal requirements under sections 90/91 and Rule 128 are satisfied. Denial merely because the return and rectification did not claim the credit was held to be erroneous.
Issue 2 - Carry forward of business loss and treatment of unabsorbed depreciation
Legal framework: Provisions allowing carry forward and set-off of business losses and separate treatment for unabsorbed depreciation are governed by the Income-tax Act; unabsorbed depreciation is treated differently from other business losses and carries forward independently.
Precedent treatment: It is established that unabsorbed depreciation is not subject to the same conditions as business loss for carry forward and set-off; assessments and rectification orders determine quantums available for carry forward subject to verification and admissibility.
Interpretation and reasoning: The Tribunal examined amounts claimed versus amounts determined in assessment/rectification orders. For AY 2020-21 and AY 2018-19 the assessing/rectification proceedings had fixed the carry forward quantums. The Tribunal observed that a portion of the loss for AY 2018-19 comprises unabsorbed depreciation, which is not governed by the same "business loss" conditions and must be carried forward as determined. The Tribunal directed the assessing officer to allow carry forward losses as determined in the assessment/rectification orders after affording the assessee an opportunity of hearing and verifying records.
Ratio vs. Obiter: Ratio - Carry forward must be allowed in accordance with amounts determined in assessment/rectification proceedings; unabsorbed depreciation is not subject to the business loss conditions and is to be carried forward independently. Obiter - No broad rewrite of assessment quantums; factual verification remains necessary.
Conclusions: The Tribunal sustained the direction to permit carry forward of losses to the extent determined in the assessment/rectification orders and clarified that unabsorbed depreciation portion is to be carried forward irrespective of business loss conditions. The assessing officer was directed to effect carry forward consistent with law after verification and hearing.
Cross-reference
The Tribunal linked the issues by noting that both reliefs (foreign tax credit and carry forward of losses) require factual verification by the assessing officer and that procedural non-compliance (timing of Form 67 or differences between claimed and assessment-determined loss amounts) cannot defeat substantive entitlements where statutory/DTAA provisions and assessment determinations permit relief; the assessing officer must verify and grant relief if conditions are met.
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