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2022 (3) TMI 834 - AT - Income TaxForeign Tax Credit (FTC) for default in filling Form 67 under Rule 128 - delay in compliance of a procedural provision - denial of claim as Assessee failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to Rule 128(9) - As submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision - HELD THAT - There is no dispute that the Assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) (9) it is clear that one of the requirements of Rule 128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns. In our view this requirement cannot be treated as mandatory rather it is directory in nature. This is because Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67. This view is fortified by the decision of coordinate bench of this Tribunal in case of Ms.Brinda Kumar Krishna 2022 (2) TMI 752 - ITAT BANGALORE It s a trite law that DTAA overrides the provisions of the Act and the Rules as held by various High Courts which has also been approved by Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT . We accordingly hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law based on the verification carried out in respect of the supporting documents filed by assessee. Appeal of assessee stands allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Denial of FTC for non-filing of Form 67 before filing the return of income Relevant legal framework and precedents: Section 90 of the Income Tax Act provides for relief in respect of taxes paid in a foreign country, allowing the assessee to claim FTC. Rule 128(8) and (9) of the Income Tax Rules prescribe procedural requirements for claiming FTC, including the mandatory filing of Form 67 before the due date of filing the return under section 139(1). The DTAA between India and Japan governs substantive rights regarding double taxation relief. The Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. held that DTAA provisions override domestic law and subordinate legislation. Court's interpretation and reasoning: The Tribunal observed that while Rule 128(9) requires filing Form 67 before filing the return, this requirement is procedural and directory rather than mandatory. The Rule itself does not prescribe disallowance of FTC for delay in filing Form 67. The Tribunal relied on a coordinate bench decision in Ms. Brinda Kumar Krishna vs. ITO, which held similarly that non-filing of Form 67 before the return is not a ground to deny FTC. Key evidence and findings: The assessee had filed Form 67 belatedly during the assessment proceedings, which was rejected by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) (CIT(A)). The Tribunal found no statutory bar to accept the belated Form 67 and considered the procedural lapse as minor. Application of law to facts: Since the assessee was entitled to FTC under the DTAA and had paid foreign tax, the procedural lapse of late filing of Form 67 could not justify denial of FTC. The Tribunal emphasized that the substantive right under the DTAA cannot be defeated by procedural non-compliance. Treatment of competing arguments: The Revenue contended that Rule 128(9) is mandatory and the non-filing of Form 67 before filing the return disentitles the assessee from FTC. The Tribunal rejected this, holding that the Rule is procedural and does not override the substantive right under the DTAA and section 90. Conclusions: The Tribunal concluded that FTC cannot be denied solely on the ground of delayed filing of Form 67 and directed the AO to consider the claim on merits after verifying supporting documents. Issue 2: Whether DTAA provisions override procedural requirements under the Income Tax Rules Relevant legal framework and precedents: Section 90 of the Income Tax Act empowers the Central Government to enter into DTAA with foreign countries, which have the force of law. The Supreme Court has held that DTAA provisions prevail over conflicting domestic law or rules. Article 23 of the India-Japan DTAA provides for elimination of double taxation by allowing FTC. Court's interpretation and reasoning: The Tribunal reiterated the well-settled principle that DTAA provisions override the domestic Act and subordinate legislation. It held that procedural requirements under Rule 128 cannot override the substantive right to claim FTC under the DTAA. Key evidence and findings: The assessee's entitlement to FTC arises from the DTAA and section 90, which cannot be curtailed by procedural lapses. The Tribunal found no provision in the DTAA disallowing FTC for procedural non-compliance. Application of law to facts: The Tribunal applied this principle to the facts, holding that denial of FTC on the ground of non-compliance with Rule 128 procedural requirements is impermissible. Treatment of competing arguments: The Revenue's reliance on Rule 128 was rejected in light of the overriding effect of the DTAA and Supreme Court rulings. Conclusions: The Tribunal held that the assessee's right to claim FTC under the DTAA cannot be overridden by Rule 128 or procedural formalities. Issue 3: Limitation period for filing appeal before the Tribunal in context of COVID-19 pandemic Relevant legal framework and precedents: The limitation period for filing appeals is governed by the Limitation Act and relevant Supreme Court orders relating to extension or exclusion of limitation periods during the COVID-19 pandemic. Court's interpretation and reasoning: The Tribunal noted the Supreme Court order dated 23.09.2021 which excluded the limitation period expiring between 15.03.2021 and 02.10.2021. The appeal was filed on 29.01.2021, and the Tribunal held that the appeal could not be treated as belated. Key evidence and findings: The assessee filed an application for condonation of delay of 257 days. The Revenue did not controvert the submissions. Application of law to facts: The Tribunal held that the appeal was within limitation considering the exclusion period. Treatment of competing arguments: No substantive opposition from Revenue. Conclusions: The appeal was held to be within limitation and admitted. 3. SIGNIFICANT HOLDINGS "In our view, this requirement [filing of Form 67 before filing return] cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67." "It's a trite law that DTAA overrides the provisions of the Act and the Rules, as held by various High Courts, which has also been approved by Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd." "Accordingly, we hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee." Core principles established include:
Final determinations on each issue were that the denial of FTC on the ground of non-filing of Form 67 before filing the return was unjustified; the procedural rules cannot override the DTAA; the appeal was within limitation; and the matter was remanded to the AO for fresh consideration of the FTC claim on merits.
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