2025 (6) TMI 1644 - HC - Income Tax

Application u/s 119(2)(b) - condonation of delay in respect of filing of Form no. 67 under Rule 128 of the Rules - petitioner had received the salary income from Bangladesh on which tax was duly paid - only fault on the part of the petitioner was that Form no. 67 as required as per Rule 128 of the Rules was not submitted before the due date of filing of the return - as per DR no genuine hardship shown by the petitioner for not filing the Form no. 67 along with Return of Income as the petitioner has simply stated that he missed to file Form no. 67 before filing the Return of Income. HELD THAT - As held by this Court in various judgments while considering the late filing Form 10IC Form 10B as required under various provisions of the Act for claiming deduction under Chapter-VI that the filing of form for claiming benefit under the provisions of the Act is procedural the case of Sitaldas K. Motwani 2009 (12) TMI 36 - BOMBAY HIGH COURT as well as the case of Bombay Mercantile Co-op. Bank Ltd. 2010 (9) TMI 23 - BOMBAY HIGH COURT were followed. Assessee appeal allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether the delay in filing Form No. 67, which is mandatory under Rule 128(1) of the Income Tax Rules, 1962 for claiming foreign tax credit under Section 19(1) of the Income Tax Act, 1961, can be condoned under Section 119(2)(b) of the Act.

2. What constitutes "genuine hardship" for the purpose of condoning delay under Section 119(2)(b) of the Act, particularly in the context of procedural non-compliance affecting substantive rights such as foreign tax credit under a Double Taxation Avoidance Agreement (DTAA).

3. The extent of discretion vested in the tax authorities to condone delay and the principles guiding such discretion, including the balance between technical compliance and substantial justice.

4. The procedural requirements and consequences of non-filing of Form No. 67 within the due date of filing the return of income under Section 139(1) of the Act.

5. The appropriate approach to be adopted by authorities when rejecting applications for condonation of delay, including the necessity of reasoned orders and consideration of all relevant factors.

Issue-wise Detailed Analysis

Issue 1: Condonation of Delay in Filing Form No. 67 under Section 119(2)(b) of the Act

The legal framework governing this issue includes Section 119(2)(b) of the Income Tax Act, which empowers the tax authorities to condone delay in certain cases, and Rule 128(1) of the Income Tax Rules, which mandates filing of Form No. 67 for claiming foreign tax credit under DTAA provisions.

The petitioner failed to file Form No. 67 along with the return for Assessment Year 2020-21, submitting it belatedly after issuance of intimation under Section 143(1). The respondent rejected the application for condonation of delay on the ground that no genuine hardship was shown, and the explanation for delay was general and insufficient.

The Court examined the statutory provisions, noting that Rule 128(9) (as applicable for AY 2020-21) clearly required filing Form No. 67 on or before the due date of filing the return of income under Section 139(1). However, the Court emphasized that the filing of Form No. 67 is procedural in nature and that the power under Section 119(2)(b) is intended to enable substantive justice rather than to enforce hyper-technical compliance.

Precedents such as Sitaldas K. Motwani v. Director General of Income Tax and Bombay Mercantile Co-op. Bank Ltd. v. CBDT were relied upon to establish that procedural lapses should be viewed liberally, especially when the delay does not cause prejudice or confer undue advantage. The Court also referred to recent High Court decisions emphasizing a justice-oriented approach to condonation of delay.

The Court held that the petitioner's failure to file Form No. 67 within the due date did not justify outright rejection of the claim for foreign tax credit, especially when the tax was duly paid in Bangladesh and disclosed in the return.

Issue 2: Meaning and Application of "Genuine Hardship" in Condonation of Delay

The Court undertook a detailed examination of the phrase "genuine hardship" as used in Section 119(2)(b), drawing on dictionary meanings and judicial interpretations, including the Apex Court's explanation in B.M. Malani v. CIT.

The Court observed that "genuine hardship" should be construed liberally and not be confined to narrow or rigid interpretations. It emphasized that the power to condone delay is conferred to do substantial justice by disposing of matters on merits rather than on technical grounds.

It was noted that ordinarily, an applicant does not benefit from filing a claim late; rather, delay often jeopardizes the applicant's position. The Court quoted extensively from judgments that refusal to condone delay can result in meritorious claims being dismissed at the threshold, defeating justice.

The Court further explained that the authorities should consider all relevant factors and not merely whether the delay was caused by a substantial cause. The absence of mala fides, deliberate delay, or culpable negligence weighs in favor of condonation.

In the instant case, the petitioner's explanation that Form No. 67 was missed was accepted as a plausible reason. The Court held that such a reason, coupled with the petitioner's entitlement to foreign tax credit, constituted genuine hardship warranting condonation.

Issue 3: Discretion of Tax Authorities and Requirement of Reasoned Orders

The Court scrutinized the impugned order rejecting the condonation application, finding it lacked proper appreciation of the petitioner's circumstances and did not apply the principles of genuine hardship liberally.

It was noted that the impugned order was passed without adequate reasoning and failed to consider the petitioner's entitlement under DTAA and the procedural nature of Form No. 67 filing.

The Court referred to precedents holding that orders rejecting condonation applications must be reasoned, consider all submissions, and be passed by the appropriate authority, especially where personal hearings have been granted.

The Court set aside the impugned order and remanded the matter for fresh consideration in accordance with law and principles of justice, directing the respondent to pass a reasoned order after hearing the petitioner.

Issue 4: Procedural Requirements under Rule 128 and Consequences of Non-Compliance

Rule 128(9) mandates filing Form No. 67 on or before the due date of filing the return of income. The respondent argued that this requirement is mandatory and failure to comply disentitles the assessee from claiming foreign tax credit.

The Court acknowledged the mandatory language of Rule 128(9) but emphasized that the power under Section 119(2)(b) exists to condone such procedural lapses when genuine hardship is shown.

The Court distinguished between procedural compliance and substantive rights, holding that procedural non-compliance should not defeat substantive claims if delay is condoned.

The Court also noted that the petitioner had disclosed the foreign tax credit in the return and paid tax abroad, underscoring the legitimacy of the claim.

Issue 5: Application of Law to Facts and Treatment of Competing Arguments

The petitioner's argument was that denial of foreign tax credit solely on account of procedural delay in filing Form No. 67 was unjust and contrary to the spirit of DTAA and the Act.

The respondent contended that strict compliance with Rule 128(9) is necessary to verify claims and prevent misuse, and that no genuine hardship was demonstrated.

The Court balanced these competing arguments by recognizing the importance of procedural safeguards but prioritizing substantial justice and the petitioner's bona fide claim.

The Court found the petitioner's explanation for delay plausible and accepted that the petitioner did not benefit from the delay, thus constituting genuine hardship.

The Court also observed that the respondent's rejection was based on a narrow and technical view, which was inconsistent with the liberal approach mandated by law.

Significant Holdings

"The phrase 'genuine hardship' used in Section 119(2)(b) of the Act should be construed liberally. The Legislature has conferred the power to condone delay to enable the authorities to do substantial justice by disposing of matters on merits. Refusing to condone delay can result in a meritorious matter being thrown out at the threshold and cause of justice being defeated. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred."

"There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or mala fides. A litigant does not stand to benefit by resorting to delay; in fact, he runs a serious risk. The approach of authorities should be justice-oriented so as to advance cause of justice."

"The filing of Form No. 67 under Rule 128(9) is procedural; failure to file within the due date does not ipso facto disentitle the assessee from claiming foreign tax credit if delay is condoned under Section 119(2)(b)."

"The authorities must pass reasoned orders considering all relevant facts and submissions, and where personal hearings are granted, the order must be authored and signed by the authority who granted the hearing."

"The petitioner had a prima facie genuine claim for foreign tax credit as tax was paid in Bangladesh and disclosed in the return. Mere procedural delay should not defeat the claim."

Final determinations:

- The impugned order rejecting condonation of delay in filing Form No. 67 was quashed and set aside.

- The matter was remanded to the respondent to reconsider the application for condonation of delay in a reasoned manner, applying the liberal principles of genuine hardship and substantial justice.

- The respondent was directed to pass a fresh order giving effect to the foreign tax credit claim and issue a fresh intimation under Section 143(1) of the Act within twelve weeks.