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2022 (9) TMI 926 - AT - Income TaxForeign tax credit u/s 90 denied - non compliance of procedural requirement - Disallowance of claim as relevant form 67 prescribed under section 128(8) was not filed within the time stipulated under sub rule 9 of Rule 128 - HELD THAT - It is important to mention here that section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. In this regard Article 22 of India Finland DTAA provides for credit for foreign taxes. Since as per section 90 of the Act read with Article 22 sub clause (2) provides that Finland Income Tax paid shall be allowed as a credit against the Indian Tax but limited to proportion of Indian tax. In my view neither section 90 nor DTAA provides that FTC shall be disallowed for non compliance with any procedural requirements. Since FTC is assessee s vested right as per Article 22(2) of the DTAA read with section 90 and thus same cannot be disallowed for non compliance of procedural requirement that is prescribed in the Rules. The procedural law is always subservient to and is in aid to justice. Even otherwise since there are no conditions prescribed in DTAA that FTC can be disallowed for non compliance of any procedural provision therefore the provisions of DTAA override the provisions of the Act. As the assessee has vested right to claim the FTC under the tax treaty and the same cannot be disallowed for mere delay in compliance of a procedural provision. See Sambhaji Ors. vs. Gangabai Ors. 2008 (11) TMI 393 - SUPREME COURT Even otherwise the said Form 67 filed by the assessee before the tax authorities was available before the AO when the intimation under section 143(1) of the Act dated 25.11.2021 was passed. Therefore in such circumstances in my view there were no reasons with the tax authorities for making disallowance when the said Form 67 was very much available with the AO at the time of framing the assessment order. Thus assessee is entitled for the credit of FTC under section 90 - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Foreign Tax Credit (FTC) under section 90 of the Income Tax Act, 1961. 2. Procedural compliance regarding the filing of Form 67 within the stipulated time. Issue-wise Detailed Analysis: 1. Disallowance of Foreign Tax Credit (FTC) under section 90 of the Income Tax Act, 1961: The main issue in this appeal is the disallowance of FTC amounting to Rs. 1,67,300/- under section 90 of the Income Tax Act, 1961. The assessee, a salaried individual employed with M/s. Infosys Limited, was posted in Finland and paid taxes there. The assessee filed Form 67 online on 01.01.2020 to claim relief under section 90, but the claim was denied by the Assessing Officer (AO) and subsequently upheld by the CIT (A) on the grounds that Form 67 was not filed within the due date stipulated under Rule 128(9). 2. Procedural compliance regarding the filing of Form 67 within the stipulated time: The CIT (A) confirmed the disallowance based on the failure to submit Form 67 within the prescribed time limit. The CIT (A) stated: "Since the appellant has failed to submit Form 67 within the stipulated time limit, the AO while passing the intimation order disallowed the claim of Foreign Tax Credit u/s. 90 of the Act." The assessee argued that the disallowance of FTC is bad in law, emphasizing that neither section 90 nor the Double Taxation Avoidance Agreement (DTAA) with Finland mandates disallowance for non-compliance with procedural requirements. The assessee cited that FTC is a vested right under Article 22(2) of the DTAA read with section 90, which cannot be disallowed for procedural lapses. Key Arguments and Legal Precedents: - The assessee contended that Rule 128 is procedural and not mandatory. The rule requires Form 67 to be filed on or before the due date of filing the return of income under section 139(1). However, the rule does not explicitly state that FTC would be denied if Form 67 is filed late. - The assessee relied on the Supreme Court decisions in Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner and Sambhaji & Ors. v. Gangabai & Ors., which held that procedural requirements should not override substantive rights. - The Bangalore Tribunal in Brinda Rama Krishna vs. ITO and 42 Hertz Software India (P) Ltd vs. ACIT allowed FTC relief even when Form 67 was filed late, emphasizing that procedural requirements should not negate substantive rights. Tribunal's Findings: The Tribunal noted that the assessee is entitled to claim relief under section 90, but the disallowance was confirmed solely due to the late filing of Form 67. The Tribunal highlighted that neither section 90 nor the DTAA specifies that FTC should be disallowed for procedural non-compliance. The Tribunal emphasized that procedural rules should aid in justice and not act as a barrier. The Tribunal also observed that Form 67 was available with the AO at the time of passing the intimation order under section 143(1). The Tribunal disagreed with the Visakhapatnam Bench's decision in Muralikrishna Vaddi vs. ACIT/DCIT, instead aligning with the Bangalore Tribunal's decisions in Brinda Rama Krishna and 42 Hertz Software India Pvt. Ltd. Conclusion: The Tribunal concluded that the assessee is entitled to FTC relief under section 90 of the Act. The AO was directed to allow the relief of Rs. 1,67,300/- towards FTC. The appeal of the assessee was allowed, and the order was pronounced in the open court on 15/09/2022.
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