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TMI Blog2024 (11) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. This disallowance resulted in tax demand of Rs. 2,79,130/-. 3. Aggrieved by the above order, the assessee filed an application for rectification u/s 154 of the act on 18.04.2023, however, on 12.05.2023 a rectification order was passed without granting credit for the FTC. 4. Dissatisfied with the above order, the assessee appealed before the ld. CIT(A). Unfortunately, the ld. CIT(A) dismissed the appeal leading the assessee to file appeal before this Tribunal. 5. Before us, at the time of hearing, the primary contention raised by the ld. Counsel for the assessee before this Tribunal was that the denial of granting the FTC amounting to Rs. 2,79,130/- as claimed by the assessee in relation to tax paid on foreign income in Sri Lanka. The ld. AR argued that credit should have been granted u/s 90 of the Act and Article 23 of the Double Taxation Avoidance Agreement ('DTAA') between India and Sri Lanka. The ld. AR further contended that non-filing of Form 67 at the time of filing of original return is merely a procedural error and should not obstruct the grant of FTC specially since the Form 67 was filed before passing of intimation order u/s 143(1) and it was also available at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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" 10. We further note 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. Article 22 of DTAA between India and Bhutan provides for credit for foreign taxes. Article 22(2) is relevant in the present context same is extracted below: "ARTICLE 22 METHODS FOR ELIMINATION OF DOUBLE TAXATION 1...... 2. Double taxation shall be eliminated as follows: (i) In India: (a) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Bhutan, India shall allow as a deduction from the tax on the income of that resident, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not file Form No. 67 within the due date prescribed under section 139(1) of the Act. We further note that Filing of Form No. 67 is a procedural/directory requirement and is not a mandatory requirement and violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. The following decisions support the claim of the assessee: i. CIT vs. G.M. Knitting Industries (P) Ltd. 71 Taxmann.com 35(SC) ii. Brinda Ramakrishna vs. ITO 193 ITD 840 (Bang.) iii. 42 Hertz Software India Pvt. Ltd. vs. Asst. CIT, Ita No.29/Bang/2021 iv. Duraiswamy Kumaraswamy vs. PCIT, W.P No.5834 of 2022 13. Hon'ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) in respect of compliance with the procedural requirements have observed that: "The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification carried out in respect of the supporting documents filed by assessee. 16. In Vikash Daga Vs ACIT Circle - 3 (1) Gurgaon ITA No.2536/Del/2022, the ITAT DELHI BENCH 'H', NEW DELHI vide order dated 14/06/2023 have held that: 8. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee holds a foreign tax credit certificate for Rs. 1887114/-. In our considered opinion filing of form 67 is a procedural / directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. We accordingly direct the AO to allow the credit of FTC and hold that rule 128(9) of the Rules 3 does not provide for disallowance FTC in case of delay filing of form 67 is not mandatory but a directory requirement and DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. 9. In the result, the appeal filed by the assessee is allowed. 17. Similarly, in the case of Ashish Agrawal Vs. Income Tax Officer, Ward- 12(1), Hyderabad ITA No. 337/Hyd/2023 ITAT HYDERABAD BENCHES "B", have held vide order dated 26/09/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the case of the assessee. In that case, the petitioner was resident of India and had filed Indian ITR and claimed benefit of FTC u/s 90/91 of the Act r.w. Article 24 of the India-Kenya DTAA. During the year, he had income of both Kenya and India but while filing the Indian ITR for the impugned assessment year 2019-20, the Form No. 67 prescribed in rule 128 of the rules for claiming FTC was inadvertently not uploaded along with the ITR which was uploaded on 02.02.2021. The return was processed on 26.03.2021, however, the credit of FTC was not given effect to and the request made to the CPC to give effect to the FTC was not accepted and intimation along with notices of demand was received. The assessee also could not succeed with the rectification application filed and approached the CIT u/s 264 of the Act and at the same time filed a writ petition before the Hon'ble Madras High Court. It was stated by the respondent-department that rule 128 is mandatory and cannot be considered as directory in nature. The petitioner referred to the judgment of the Hon'ble Supreme Court in the case of CIT vs. G.M. Knitting Industries (P) Ltd. Civil Appeal Nos.10782 of 2013 and 4048 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules, 1962, as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of taxes paid outside India. Therefore, the claim of the assessee is allowed and the Assessing Officer is directed to give benefit of foreign tax credit in respect of tax paid outside India by the assessee in accordance with law and the DTAA between India and the Bhutan. Since in the instant case the assessee had filed Form No. 67 along with the return of income filed u/s. 139(4) of the Act, the foreign tax credit was allowable. The AO is directed to allow the credit in accordance with the provisions of section 90 read with DTAA. Accordingly, grounds no. 1, 2 and 3 of the appeal are allowed." 12. The relevant extract of Article 24 of India-Sri Lanka Double Taxation Avoidance Agreement (DTAA) is as under: "ARTICLE 24 - Elimination of double taxation - 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except when express provision to the contrary is made in this Convention. When income or capital is subject to tax in both Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lanka regarding the allowance as a credit against Sri Lanka tax of tax payable in a territory outside Sri Lanka (which shall not affect the general principle hereof) Indian tax payable under the law of India and in accordance with the Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within India (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) or capital in India shall be allowed as a credit against any Sri Lanka tax computed by reference to the same items of income or capital by reference to which the Sri Lanka tax is computed: Provided that such credit shall not exceed Sri Lanka tax (as computed before allowing any such credit), which is appropriate to the income derived from sources within India or to capital in India. 5. For the purpose of paragraph (4) of this article, the term "Indian tax payable" shall be deemed to include any amount which would have been payable as Indian tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under: (a) any of the following provisions, that is to say, sections 10(4), 10(4A), 10(15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... often held that procedural delay should not be hindered substantive relief when the claimant has made all other substantive requirement. As in the similar case of the assessee, the Tribunal have favoured a liberal interpretation of procedural requirement when do not make the substantive aspect of the claim as in assessee's own case for the assessment year 2020-21 in ITA No.67/Kol/2024 (supra). Based on the above analysis, we conclude that the assessee fulfils the substantive requirement of paying taxes in Sri Lanka and subsequently claimed FTC as per DTAA u/s 90 of the Act and filing of the Form 67 during rectification process suffices as a procedural compliance to the claim of FTC. Moreover, the objective of the Article 23 of the DTAA and section 90 to mitigate double taxation which should not be compromised by procedural technicalities when substantive compliance is evident. Considering of these aspects and judicial precedents and in the interest of fair application of tax provision, we find that the assessee is entitled to FTC on foreign tax paid. Thus, the denial of FTC by the authority below is not sustainable. Accordingly, the appeal of the assessee is allowed. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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