2025 (11) TMI 30 - AT - Income Tax

Denial of foreign tax credit for delayed Form 67 was improper where only Sec.143(1) intimation issued; Rule 128(9) directory

ITAT MUMBAI held that denial of foreign tax credit (FTC) solely for delayed filing of Form 67 was improper where only an intimation under Sec. 143(1) was ... Disallowing Foreign Tax Credit (‘FTC’) - delay in filing Form 67 - HELD THAT:- It is admitted position that for the relevant assessment year only intimation was issued u/s 143(1) of the Act and no assessment was framed on the Assessee. Form 67 was filed by the Assessee on 13/09/2024 (i.e. before the expiry of time specified under Second Proviso to Section 143(1) of the Act). Assessee was also not put to notice about the proposed variation in terms of first proviso to Section 143(1) of the Act. We find that in the case of Ms. Brinda RamaKrishna [2022 (2) TMI 752 - ITAT BANGALORE] held non-furnishing of Form No. 67 before the due date under Section 139(1) of the Act is not fatal to the claim for foreign tax credit. The Tribunal observed that Rule 128(9) of the Income-Tax Rules, 1962 does not provide for disallowance of foreign tax credit in case of delay in filing Form No. 67; (ii) filing of Form No. 67 is not mandatory but a directory requirement and (iii) the provisions of double taxation avoidance agreements override the provisions of the Act and the Rules cannot be contrary to the Act. Mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as they stood during the year under consideration, will not preclude the Assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. Since in the present case, the claim of the Assessee was denied on this technical aspect without going into the merits and without putting the Assessee to notice in violation of the provisions contained in Second Proviso to Section 143(1)(a) of the Act, we deem it appropriate to direct the jurisdictional Assessing Officer to decide the claim of the foreign tax credit on merits, after accepting the Form No. 67 ISSUES PRESENTED AND CONSIDERED 1. Whether denial of foreign tax credit (FTC) solely because Form No. 67 was not filed by the due date under section 139(1) / Rule 128(9) is permissible where the taxpayer files Form No. 67 before the completion of assessment proceedings. 2. Whether an intimation under section 143(1) which denies FTC without issuing notice as required by the first proviso to section 143(1)(a) is valid. 3. Whether the tribunal below was obliged to follow coordinate bench decisions relied upon by the assessee and, more generally, the extent to which appellate authority must follow or distinguish precedents relied upon in appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of denying FTC for delay in filing Form No. 67 Legal framework: Section 90 read with Article 25 of the relevant DTAA provides for relief from double taxation by allowing FTC; Section 139(1) prescribes time for filing return; Rule 128(9) of the Income-tax Rules prescribes filing of Form No. 67 on or before the due date for furnishing the return under section 139(1); second proviso to section 143(1) prescribes completion timelines for processing and assessment. Precedent treatment: Coordinate bench decisions (e.g., Brinda Rama Krishna; 42 Hertz; Sonakshi Sinha; Anuj Bhagwati and other similar Tribunal orders) have held that filing Form No. 67 after the due date but before completion of assessment proceedings is not fatal to claim of FTC and that Rule 128(9) is directory rather than mandatory. The Tribunal relied on these coordinate precedents and recognized a consistent line of decisions treating the rule as directory. No high-court or Supreme Court authority in the record was held to have mandated denial of FTC for delayed Form 67 in these facts. Interpretation and reasoning: The Tribunal reasoned that (i) Rule 128(9) does not itself prescribe a consequence of denial for delay; (ii) statutory provisions (Section 90/91 and the DTAA) govern entitlement to FTC and cannot be overridden by rules; (iii) where a procedure is laid down without an expressed adverse consequence for non-adherence, the requirement is ordinarily directory; (iv) the legislature's amendment extending the deadline for filing Form 67 in subsequent rule changes demonstrates recognition that filing deadlines are procedural and not substantive; and (v) here Form No. 67 was filed before expiry of the time provided under the second proviso to section 143(1) and before completion of assessment proceedings, and the tax was actually paid abroad. Ratio vs. Obiter: Ratio - Where FTC is claimed and supporting Form No. 67 is filed before completion of assessment proceedings (even if after the due date for filing return under section 139(1)), the delay under Rule 128(9) is directory and does not by itself disentitle the taxpayer to FTC. Obiter - Observations about the legislature's subsequent amendment to the Rule are explanatory and contextual rather than necessary to the decision. Conclusion: Denial of FTC solely on account of delayed filing of Form No. 67 (after the due date under section 139(1) but before completion of assessment proceedings) is not justified. The matter must be decided on merits after acceptance of Form No. 67 and related documents. Issue 2 - Validity of section 143(1) intimation issued without giving opportunity under first proviso to section 143(1)(a) Legal framework: First proviso to section 143(1)(a) requires that where the return is processed resulting in variation, the assessee be given an opportunity of being heard before issuance of intimation reflecting variation. The second proviso prescribes timelines for completion of processing. Precedent treatment: Coordinate tribunal decisions relied upon by the assessee (including Anuj Bhagwati and others) have emphasised the requirement of giving opportunity under the proviso before effecting adverse variation in an intimation and have set aside intimation-based denials where no such opportunity was afforded. Interpretation and reasoning: The Tribunal noted that for the year under consideration only an intimation under section 143(1) was issued and no assessment was framed; it was not disputed that taxes were paid abroad and that Form No. 67 was subsequently filed before expiry of time under the second proviso to section 143(1). The Tribunal found that the claim for FTC was denied without putting the assessee to notice as required by the first proviso, and that denial on that procedural ground without affording opportunity violated the statutory proviso. Ratio vs. Obiter: Ratio - An intimation under section 143(1) that proposes adverse variation by denying FTC cannot be sustained where the assessee was not given the opportunity contemplated by the first proviso to section 143(1)(a); in such circumstances the matter must be remanded for consideration on merits after affording opportunity. Conclusion: The intimation denying FTC without giving the statutory opportunity was procedurally infirm; the Tribunal directed the Assessing Officer to accept Form No. 67 and decide the FTC claim on merits after providing proper opportunity. Issue 3 - Obligation to follow coordinate bench precedents and appellate treatment of relied authorities Legal framework: Principles of precedent in tribunal practice require respect for coordinate bench decisions unless distinguishable; appellate adjudicators must consider and, if not following, distinguish or explain departure from such decisions. Precedent treatment: The Tribunal considered multiple coordinate bench decisions uniformly holding that Rule 128(9) is directory and that delayed Form 67 filed before completion of assessment proceedings does not automatically disentitle an assessee to FTC. The lower appellate authority had declined to follow those decisions. Interpretation and reasoning: The Tribunal observed that the lower authority's confirmation of denial was contrary to the consistent line of tribunal decisions and did not properly address the distinguishing features (if any). Given the uniformity of the coordinate bench jurisprudence on the specific issue, the Tribunal followed those decisions and restored the matter to the file of the jurisdictional Assessing Officer to decide on merits after accepting Form No. 67. Ratio vs. Obiter: Ratio - Where a consistent line of coordinate tribunal decisions addresses a specific legal question (here, directory nature of Rule 128(9)), an appellate authority should follow such decisions unless distinguishing reasons are recorded; absent such distinguishing reasons, the tribunal will follow coordinate bench precedents. Obiter - General remarks on the hierarchy between rules and the Act are explanatory. Conclusion: The Tribunal treated the lower authority's failure to follow coordinate bench precedents as erroneous and directed remand for merits adjudication consistent with the established line of tribunal decisions. Overall Disposition The Tribunal allowed the grounds raised for statistical purposes, held that mere delay in filing Form No. 67 (as per Rule 128(9) as it stood during the relevant year) does not bar FTC where Form No. 67 was filed before completion of assessment proceedings and tax was paid abroad, and found the intimation under section 143(1) invalid insofar as it denied FTC without giving opportunity under the first proviso to section 143(1)(a). The Tribunal directed the jurisdictional Assessing Officer to accept Form No. 67 and decide the FTC claim on merits after affording opportunity to the assessee.