TaxTMI 
TaxTMI 
2023 (6) TMI 363
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. (i) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the disallowance of Rs. 35,02,850/- on account of foreign tax credit claimed by the assessee in respect of taxes paid in the USA and availed the relief from the double taxation as per the treaty between India and USA. (ii) That the above said disallowance has been made despite the submissions and explanation along with the evidences brought on record justifying the claims made by the assessee. (iii) That the above disallowance has been made ignoring the settled position of law that the foreign taxes paid by the assessee, shall be allowed as a credit against the Indian Tax, payable by a resident Indian to give him relief from double taxation on the same income. 4. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in charging the interest under section 234A, 2348 and 234C of the Income Tax Act. 5. That the appellant craves leave to add, amend or alter any of the grounds of appeal." 3. Facts giving rise to the present appeal are that in this case, the assessee filed its return of income e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,08,66,510/- as declared by him in his tax return and disallowed only the relief claimed under section 90 of the Income Tax Act, 1961 for FTC, on the ground of delay in filing of Form 67 by the assessee as required under Rule 128 of the Income Tax Rules, 1962. We would like to reproduce the Rule 128 of the Income Tax Rules, 1962 (Rules) which provides the provisions related with FTC and reads thus: "Foreign Tax Credit. 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule: Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India." One of the requirements of Rule 128 for claiming FTC is provided by Rule 128 (8) & (9) of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sal of E-filing portal, it has been found that the assessee has furnished Form 67 on 03/09/2018. Thus, it is evident that the assessee has not furnished Form 67 on or before the due date specified for furnishing the return of income under subsection (1) of section 139. The assessee has also failed to furnish the certificates of statements referred to in rules 128(8)(ii). Thus, the assessee failed to fulfill both the conditions as stated above for allowance of his foreign tax credit.". On the basis of above observation, the Ld A.O/NF AC has made decision in the impugned order at page No.10 in last para that:- "Thus, the provisions of Rule-128 of the Rule can not be ignored or relaxed in the case of the assessee relating to his claim of foreign tax credit. Since the assessee failed to fulfill the conditions as laid down in Rule-128 of I.T. Rules, 1962 for allowance of foreign tax credit, the credit of foreign tax claimed by the assessee u/s 90 of the Act of Rs. 35,02,850/- is hereby disallowed". Aggrieved by the order of Ld. A.O/NFAC, the assessee filed an appeal before Honorable NFAC/CIT(A), who upheld the order of Ld. NFAC/A.O vide their order da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules. It is further submitted that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: "(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters :- (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act; " The Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision. Further, we would like to submit that, Rule 128(9) provides that Form 67 should be filed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9). Reliance in this regard was placed on the following cases: - CIT vs Axis Computers (India) (p.) Ltd [2009] 178 Taxman 143 (Delhi) - PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 taxmann.com 16 (Allahabad) - CIT, Central Circle vs American Data Solutions India (P) Ltd [2014] 45 taxmann.com 379 (Karnataka) - CIT-II vs Mantee Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi) - CIT vs ACE Multitaxes Systems (p.) Ltd [2009] 317 ITR 207 (Karnataka). We submit that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer. Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the followi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e right of claiming the credit of FTC". iii) Brinda Rama Krishna Vs ITO (2022) (Hon'ble ITAT Bangalore):- "It was held that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No. 67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. In the result, the appeal is allowed and benefit of FTC is allowed" iv) Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner (1992 Supp (1) Supreme Court 21) & Sambhaji and Others vs. Gangabai and others [2008] 17 SCC 117 (SC):- "The Hon'ble Apex Court had laid down the proposition that procedural law should not be construed as mandatory and should only aid the claim of substantive right". Prayer:- Therefore, when once the authenticity, veracity and genuineness of the claim of the assessee, in respect of his foreign tax credit, has been established by him, by production of the corresponding documentary evidences in the form of tax payment certificates, and Articles 25 in the applicable DTAA between India and USA, read....