2025 (7) TMI 126 - AT - Income Tax

Disallowance of Foreign Tax Credit - filing of Form 67 beyond the due date specified u/s 139(1) - Scope of amended rule - HELD THAT - In the present case the dispute is also for the A.Y 2022-23. As per the amended rule the assessee can file Form 67 before the end of the A.Y relevant to the previous year. In the present case the assessment year involved is A.Y 2022-23 and end of the A.Y is 31/03/2023. The assessee has filed Form 67 on 15/12/2022 which is well before the due date for furnishing the relevant form. Although these facts have been brought to the notice of the learned CIT (A) but the CIT (A) rejected the claim of the assessee by considering the pre-amended rules. Therefore CIT (A) is erred in upholding the reasons given by the AO to deny credit for Foreign Tax Credit. Thus we set aside the order of the learned CIT (A) and direct the AO to allow credit for Foreign Tax Credit as claimed by the assessee in the return of income by considering the relevant form 67 filed on 15/12/2022 indicating the details of income and taxes paid outside India and delete the demand raised - Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the filing of Form No. 67 for claiming Foreign Tax Credit (FTC) is mandatory on or before the due date for filing the return of income under section 139(1) of the Income Tax Act, 1961, as per Rule 128(9) of the Income Tax Rules, 1962.
• Whether the amended Rule 128(9), notified by the CBDT on 18/08/2022 and applicable from Assessment Year (A.Y.) 2022-23 onwards, alters the timeline for filing Form 67, permitting filing up to the end of the relevant Assessment Year instead of the due date of filing the return.
• Whether denial of Foreign Tax Credit on the ground of late filing of Form 67 (filed after the return but before the end of the Assessment Year) is justified in light of the amended Rule 128(9).
• Whether the Assessing Officer and the CIT(A) erred in rejecting the claim of Foreign Tax Credit by applying the pre-amended rule instead of the amended rule applicable for the relevant assessment year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Mandatory Filing of Form 67 on or before the Due Date of Return under Section 139(1) as per Pre-Amended Rule 128(9)

Legal Framework and Precedents: Prior to amendment, Rule 128(9) of the Income Tax Rules, 1962 mandated that Form 67, which contains details of foreign income and taxes paid abroad, must be furnished on or before the due date for filing the return of income under section 139(1) of the Income Tax Act. This requirement was strictly enforced by the Assessing Officer in the instant case, leading to denial of Foreign Tax Credit due to non-filing of Form 67 within the prescribed timeline.

Court's Interpretation and Reasoning: The Assessing Officer and the CIT(A) relied on the pre-amended Rule 128(9) to hold that filing Form 67 beyond the due date for filing the return results in forfeiture of the right to claim Foreign Tax Credit. They reasoned that since the Form 67 was filed on 15/12/2022, after the return filed on 30/07/2022 but after the order under section 143(1) dated 26/10/2022, the claim was invalid.

Application of Law to Facts: The Assessing Officer's denial was based on the strict interpretation of the pre-amended rule, emphasizing procedural compliance over substantive entitlement.

Treatment of Competing Arguments: The assessee contended that the amended rule should apply and that the late filing was within the permissible timeline under the new rule. However, the lower authorities did not consider this argument.

Conclusion: The pre-amended rule mandated filing of Form 67 on or before the due date of the return, but this rule was superseded by the amended provision applicable to the relevant assessment year.

Issue 2: Effect of Amended Rule 128(9) (with effect from A.Y. 2022-23) on the Timeline for Filing Form 67

Legal Framework and Precedents: The Central Board of Direct Taxes (CBDT) issued a notification dated 18/08/2022 amending Rule 128(9) of the Income Tax Rules, 1962. The amended rule provides that the statement in Form 67 shall be furnished on or before the end of the Assessment Year relevant to the previous year in which the income has been offered to tax or assessed to tax in India, provided the return of income for that Assessment Year has been furnished within the due date specified under section 139(1) or 139(4) of the Act.

Court's Interpretation and Reasoning: The Tribunal observed that the amended rule is applicable from A.Y. 2022-23, which is the year under consideration. The Tribunal interpreted the amended rule to mean that the assessee is entitled to file Form 67 up to 31/03/2023 (end of the relevant Assessment Year), rather than strictly on or before the due date of filing the return.

Key Evidence and Findings: The assessee filed the return on 30/07/2022, within the due date prescribed under section 139(1). Form 67 was filed on 15/12/2022, well before 31/03/2023. The Tribunal found that the assessee complied with the amended timeline.

Application of Law to Facts: Applying the amended Rule 128(9), the Tribunal concluded that the assessee's filing of Form 67 on 15/12/2022 was timely and valid, entitling the assessee to claim Foreign Tax Credit.

Treatment of Competing Arguments: The Revenue initially relied on the pre-amended rule but conceded that the amended rule was not considered by the Assessing Officer. The Tribunal agreed with the assessee's contention and rejected the Revenue's reliance on the earlier rule.

Conclusion: The amended Rule 128(9) permits filing of Form 67 up to the end of the relevant Assessment Year, and the assessee's filing complies with this requirement.

Issue 3: Whether Denial of Foreign Tax Credit on Grounds of Late Filing of Form 67 (Post Return but Within Assessment Year) is Justified

Legal Framework and Precedents: Foreign Tax Credit is a substantive right available to an assessee who has paid taxes abroad on income offered to tax in India. Procedural requirements like filing Form 67 are intended to facilitate verification but should not override substantive rights if complied with within the prescribed timelines.

Court's Interpretation and Reasoning: The Tribunal emphasized that the amended Rule 128(9) explicitly allows filing of Form 67 up to the end of the Assessment Year, thus extending the timeline and relaxing the procedural requirement. Denying the credit solely on the basis of late filing, when within the extended timeline, would be contrary to the amended provisions.

Application of Law to Facts: Since the assessee filed Form 67 on 15/12/2022, prior to 31/03/2023, the denial of Foreign Tax Credit was unwarranted.

Treatment of Competing Arguments: The Revenue's initial argument was based on the pre-amended rule, which the Tribunal rejected. The Tribunal directed the Assessing Officer to allow the credit considering the timely filing under the amended rule.

Conclusion: Denial of Foreign Tax Credit on the ground of late filing of Form 67 beyond the due date of return but within the Assessment Year is unjustified under the amended Rule 128(9).

Issue 4: Error of Lower Authorities in Applying Pre-Amended Rule Instead of Amended Rule

Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) and Assessing Officer failed to consider the amendment to Rule 128(9) effective from A.Y. 2022-23, which is the year under consideration. This omission led to an erroneous denial of the Foreign Tax Credit claim.

Application of Law to Facts: The Tribunal noted that the assessee had explained the amended rule and submitted evidence of filing Form 67 within the permissible timeline, but the CIT(A) rejected the claim without considering these facts.

Treatment of Competing Arguments: The Revenue conceded that the amended rule was not considered and suggested remand for verification. The Tribunal, however, directly allowed the appeal, setting aside the orders of the lower authorities.

Conclusion: The lower authorities erred in not applying the amended Rule 128(9), resulting in an incorrect denial of Foreign Tax Credit.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"As per the amended rule 128(9) w.e.f. 1/4/2022 which is applicable from A.Y 2022-23, the statement in Form 67 shall be furnished on or before the end of the A.Y relevant to the previous year... In the present case, the assessment year involved is A.Y 2022-23 and end of the A.Y is 31/03/2023. The assessee has filed Form 67 on 15/12/2022, which is well before the due date for furnishing the relevant form."

"We are of the considered view that the learned CIT (A) is erred in upholding the reasons given by the Assessing Officer to deny credit for Foreign Tax Credit."

"We set aside the order of the learned CIT (A) and direct the Assessing Officer to allow credit for Foreign Tax Credit as claimed by the assessee in the return of income by considering the relevant form 67 filed on 15/12/2022 indicating the details of income and taxes paid outside India and delete the demand raised by rejecting the credit for Foreign Tax Credit."

Core principles established include:

• The amended Rule 128(9) extends the timeline for filing Form 67 to the end of the relevant Assessment Year, relaxing the earlier strict deadline.
• Foreign Tax Credit claims should be allowed if procedural compliance is met within the timeline prescribed by the amended rule, even if Form 67 is filed after the return but before the end