Bachaspatimayum Umakanta Sharma Vs Dy. CIT (ITAT Chandigarh)

In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Chandigarh held that the assessee, Bachaspatimayum Umakanta Sharma, cannot be denied the Foreign Tax Credit (FTC) merely due to a delay in submitting Form 67. This decision came in response to an appeal filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated December 8, 2022, for the assessment year 2020-21.

Background of the Case

The appellant, Bachaspatimayum Umakanta Sharma, filed his income tax return for the year 2020-21 on December 15, 2020, declaring an income of ₹79,17,730, which included ₹4,02,023 as income from shares of Becton, Dickinson (USA). The assessee claimed a tax relief of ₹1,37,974 under Section 90/90A of the Income Tax Act, in accordance with the India-US Double Tax Avoidance Agreement (DTAA).

However, the Centralized Processing Centre (CPC), Bangalore, disallowed the FTC claim while processing the return under Section 143(1) on December 24, 2021. The disallowance was based on the fact that Form 67, which is required for claiming FTC under Rule 128(9) of the Income Tax Rules, was submitted late on October 18, 2021, after the due date for filing the return.

Grounds of Appeal

The assessee contested the denial of FTC on several grounds, arguing that:

1. The disallowance of FTC solely due to the late filing of Form 67 was unjust and beyond the scope of Section 143(1).
2. The Commissioner (Appeals) erred by relying on a Visakhapatnam ITAT ruling while disregarding multiple ITAT decisions from Bangalore and Mumbai, which were in favor of the assessee.
3. The appellant argued that neither Section 90 nor the DTAA mandates the denial of FTC for late filing of Form 67. Rule 128(9) does not explicitly provide for disallowance in case of delay, unlike other provisions such as Section 80-IA(7) that impose specific conditions for such denials.

Tribunal’s Decision

After considering the arguments, the ITAT Chandigarh referred to earlier decisions from the ITAT benches in Bangalore and Mumbai. In those cases, it was held that the filing of Form 67, although required by Rule 128(9), was procedural rather than mandatory. The tribunal emphasized that the DTAA, which overrides domestic law, does not stipulate denial of FTC for procedural delays.

In particular, the ITAT noted that the tax authorities in Bangalore had acknowledged the correctness of the FTC claim under the DTAA. The disallowance stemmed only from the delay in submitting Form 67. The tribunal reiterated that procedural delays should not result in the denial of substantive benefits like FTC.

Precedents Referenced

The ITAT Chandigarh heavily relied on the following cases to support its decision:

• Ms. Brinda Rama Krishna vs ITO (Bangalore ITAT), where it was held that delay in filing Form 67 should not result in FTC denial as it is a directory, not a mandatory requirement.
• M/s 42 Hertz Software India (P) Ltd. vs ACIT (Bangalore ITAT), which also concluded that Rule 128(9) does not mandate FTC denial for late submission of Form 67.
• Sonakshi Sinha vs CIT (Mumbai ITAT), which ruled that filing Form 67 after the due date but before the completion of assessment proceedings should not disqualify the assessee from claiming FTC.

Conclusion

The ITAT Chandigarh, citing the principles established by multiple ITAT benches, ruled in favor of the assessee. It concluded that the denial of FTC solely on procedural grounds, where substantive compliance was otherwise achieved, was unwarranted. The decision reaffirmed that the DTAA provisions take precedence over procedural requirements, and the assessee’s claim for FTC should be allowed.

This ruling provides clarity for taxpayers seeking FTC, reinforcing that a delay in filing Form 67 does not justify the disallowance of such claims, provided the substantive requirements are met.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 08/12/2022 pertaining to Assessment Year 2020-21 wherein the assessee has taken the following grounds of appeal:

“1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of the Foreign Tax Credit duly claimed in the return of income vide Form 67 while processing the return under section 143(1) vide intimation dated 24. 12.2021 resulting in a tax demand of Rs. 1,73,900/- which is illegal, arbitrary and unjustified.

2. That the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of the Foreign Tax Credit for the reason that the Form 67 was uploaded late on 18.10.2021 but before the intimation under section 143(1) dated 24. 12.2021 which makes the issue debatable and as such upholding the disallowance of the claim on a debatable issue is beyond the scope of Section 143(1) which makes the addition made arbitrary and unjustified.

3. That the Ld. Commissioner of Income Tax(Appeals) has erred in applying the sole decision of the Hon ble Visakhapatnam which was against the assessee as against 3 decisions mentioned in his order of various Benches of Hon ble ITAT which are in favour of the assessee in utter disregard of the settled position that in case of conflicting decisions, the view in favour of the assessee is to be applied.

4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

5. That the order of the Ld. Commissioner of Income Tax is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable.”

2. Briefly the facts of the case are that the assessee filed his return of income on 15/12/2020 declaring total income of Rs. 79,17,730/-. In the return of income, the assessee has shown income from shares of Becton, Dickinson amounting to Rs. 4,02,023/- and has claimed tax relief under section 90 / 90A amounting to Rs. 1,37,974/-. The returned income was processed by CRC, Bangalore and intimation under section 143(1) was issued on 24/12/2021. In the intimation so issued by the CRC, Bangalore, in Annexure- FSI, it shows details of income from outside India and tax relief sought by the assessee wherein the income of Rs. 4,02,023/-, tax paid outside India amounting to Rs. 1,64,464/- and, tax payable on such income under normal provisions in India amounting to Rs. 1,37,974/- and tax relief available to the assessee amounting to Rs. 1,37,974/- and the relevant Article of India US DTAA under which the relief has been claimed has been stated as Article 25(2)(A). It is relevant to note that in the Annexure-FSI as provided by the tax payer and as computed by CRC, Bangalore, the particulars of the income, tax paid outside India, tax payable in India and tax relief available to the assessee, there is no mismatch between the two set of figures. However while finally determining the tax relief under section 90/90A, as against an amount of Rs. 1,37,974/- as claimed by the assessee, the CRC has denied the whole of the relief amounting to Rs. 1,37,974/- which has resulted in the tax liability of Rs. 1,73,900/- after including the interest under section 234B r.w. 234C of the Act.

3. Against the said intimation, the assessee moved in appeal before the Ld. CIT(A), NFAC Delhi wherein the decision of the AO CRC to disallow the relief claimed by the assessee was held to be as per law as the Form No. 67 which was required to be filed under Rule 128(9) of the Income Tax Rules 1962 has been filed after the time limit as prescribed.

4. Against the said findings and order of the Ld. CIT(A), NFAC Delhi, the assessee is in appeal before us.

5. During the course of hearing, the Ld. AR submitted that during the year under consideration, the assessee has shown income of Rs. 4,02,023/- on account of ESOR’s of Becton, Dickinson and Company being a foreign entity based out of USA on which tax of Rs. 1,64,464/- was deducted in respect of which the assessee has claimed foreign tax relief while filing the return of income. It was submitted that Form No. 67 which was required to be filed as per the Rule 128 was filed online with the Department on 18/10/2021 and same was on the record of the Department well before the processing of the return of income byCRC undersection 143(1) dt. 24/12/2021.

5.1 It was submitted that while processing the return of income, the CRC Bangalore has not taken cognizance of Form No. 67 which was duly filed by the assessee which has resulted in the tax demand so raised by the CRC in terms of intimation issued under section 143(1) of the Act. It was submitted that neither Section 90 nor DTAA provides that Foreign Tax Credit (FTC) shall be disallowed for non compliance with any procedural requirement. It was submitted that FTC is the assessee’s vested right as per Article 24(4)(a) of the DTAA r.w.s 90 of the Act.

5.2 It was further submitted that Rule 128(9) provides that Form No. 67 should be filed on or before the due date of filing the return of income as prescribed under section 139(1) of the Act. However, the Rule no where provides that if the said Form is not filed within due date, the benefit of FTC would be denied. It was submitted that there are many section in the Income Tax Act that specifically deny deduction or exemption or relief if the return is not filed within the prescribed time limit such as Section 80-IA(7). However such language is not used in Rule 128(9). Further reliance was placed on the decision of Coordinate Bangalore Benches in case of Ms. Brinda Rama Krisna Vs. ITO-1 93 ITD 840 and 42 Hertz Software India (F) Ltd. vs. ACIT 139 Taxmann.com 448, Coordinate Mumbai Benches in case of Sonakshi Sinha Vs. CIT(A) 142 taxmann.com 414, Anuj Bhagwati Vs. DCIT in ITA No. 1844/Mum/2022 and Nirmala Murli Relwani Vs. ADIT in ITA No. 2094/Mum/2022.

5.3 It was submitted that similar contention were raised before the Ld. CIT(A) and reliance was placed on the aforesaid Coordinate Benches decisions however the Ld. CIT(A) has relied on the decision of another Coordinate Visakhapatnam Bench in case of Muralikrishna Vaddi Vs. ACIT/DCIT [2022] 142 taxmann.com 32. It was submitted that the Ld. CIT(A) has acknowledged the fact that the various other Coordinate Benches have decided the matter in favour of the assessee, however given the fact that there is no jurisdictional Tribunal or High Court decision on the matter, he has relied on the decision taken by the Visakhapatnam Bench which is in favour of the department. It was submitted that it is a settled legal preposition that where there are no decision of the jurisdictional Tribunal and there are conflicting decisions of different Benches of the Tribunal wherein the contrary view have been taken, the view in favour of the assessee should be adopted while deciding the matter.

5.4 It was further submitted that even though the decision of the Bangalore Bench of the Tribunal in case of M/s 42 Hertz Software India (F) Ltd. Vs. ACIT (Supra) was brought to the notice of the Visakhapatnam Benches as evident from the order itself, however without considering the same, the matter has been decided. It was accordingly submitted that the said decision of the Coordinate Visakhapatnam Bench cannot therefore be held as binding precedent and the view taken by the Mumbai and Bangalore Benches which are consistently in favour of the assessee be followed.

6. Per contra, the Ld. DR has drawn our reference to the findings of the Ld. CIT(A),NFAC, Delhi and it was submitted that in order to claim relief under section 90/90A, the assessee is required to file Form No. 67 within the time limit as provided under Rule 128(9) of the Income Tax Rules and filing of Form No. 67 is mandatory in nature and not just procedural requirement as claimed by the

7. We have heard the rival contentions and perused the material available on the record. The limited issue under consideration is where there is a delay in filing of Form No. 67 as required under Rule 128 of the Income Tax Rules, would the same result in denial of the FTC which the assessee is otherwise eligible to claim and has duly claimed while filing the return of income and which has been duly computed and acknowledged by the CRC, Bangalore as so claimed by the assessee while processing the return of income so filed by the assessee.

8. In this regard, we refer to the decision of Coordinate Bangalore Benches in case of Ms. Brinda Rama Krishna Vs. ITO (supra) wherein the assessee had claimed FTC under section 90 r /w Article 24 of the India – Australia Tax Treaty in the revised returned income. However the assessee did not file Form No. 67 before filing the return of income. On realizing the same, the assessee filed Form No. 67 subsequently and thereafter the revised returned income was processed by CRC and intimation under section 143(1) was issued disallowing the claim of FTC. In the said factual background, the Coordinate Bangalore Benches vide its order dated 17/11/2021 has held that Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67. It was further held that filing Form No. 67 is not mandatory but a directory requirement and further DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act and the matter was accordingly decided allowing the necessary relief to the assessee.

8.1 Thereafter, Coordinate Bangalore Benches in another decision dated 7/03/2022 in case of M/s 42 Hertz Software India (P) Ltd. Vs. ACIT(supra) following the earlier decision in case of Ms. Brinda Rama Krishna Vs. ITO (supra) has held that on perusal of provisions of Rules 128(8) and 128(9), it is clear that one of the requirement of Rule 128 for claiming FTC is that Form No. 67 is to be submitted by the assessee before filing the return of income and the said requirement cannot be treated as mandatory rather it is directory in nature for the reason that Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No. 67. It was further held that it is a trite law that DTAA overrides the provisions of the Act and the Rules and therefore the FTC cannot be denied to the assessee.

8.2 Subsequently, the Mumbai Benches in case of Sonakshi Sinha Vs. CIT (supra) has taken a similar view and the relevant findings are contained at para 12 of the order dated 20/09/2022 which read as under:

“12. We have carefully considered the rival contention and perused the orders of the lower authorities. Short question in this appeal is whether assessee is entitled to foreign tax credit even when form number 67 required to be filed according to the provisions of rule 128 (9) of the Income Tax Rules on or before the due date of filing of the return of income, not complied by the assessee, but same was filed before the completion of the assessment proceedings. Precisely, the fact shows that assessee filed return of income u/s 139 (1) of the income tax act. In such a return of income, she claimed the foreign lax credit. However, form number 67 was filed during the course of assessment proceedings and not before the due date of filing return. Rule 128 (9) of the Income-tax Rules, 1962 provides that the statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (//) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub­section (1) of section fl9, in the manner specified for furnishing such return of income. We find that coordinate bench in 42 Hertz Software India (P.) Ltd. (Supra) wherein following its earlier order in the case of Ms. Brinda Rama Krishna (supra) it was held 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 and that 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 67. Same view is also taken by a coordinate division bench in Vinodkumar Lakshmipathi v. CIT(A)[IT Appeal No. 680/Bang/2022, 6-9-2022. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Admittedly, Rule 128 does not prescribe denial of credit of FTC. Further the Act i.e. section 90 or 91 also do not prescribe timeline for filing of such declaration on or before due date of filing of ROI. Further rule 128 (4) clearly provides the condition where the foreign tax credit would not be allowed. Rule 128 (9) does not say that if prescribed form would not be filed on or before the due date of filing of the return no such credit would be allowed. Further by the amendment to the rule with effect from 1 April 2022, the assessee can file such form number 67 on or before the end of the assessment year. Therefore, legislature in its own wisdom has extended such date which is beyond the due date of filing of the return of income. Further, the fact in the present case is quite distinct then the issue involved in the decision of the honourable Supreme Court in case of Wipro Ltd (supra). Here it is not the case of violation of any of the provisions of the act but of the rule, which does not provide for any consequence, if not complied with. Therefore, respectfully following the decisions of the coordinate bench on this issue, we hold the assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income-tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Accordingly, ground number 2 of the appeal of the assessee is allowed.”

8.3 In the aforesaid decision, the Coordinate Mumbai Benches have taken note of the amendment to Rule 128(9) wherein the time limit has been extended for filing Form 67 on or before the end of the assessment year and have also referred to the Hon’ble Supreme Court decision in case of Wipro Ltd and has held that delay in filing Form 67 is not the case of violation of any of the provisions of the Act but of the rule, which does not provide for any consequence, if not complied with and therefore, even though there is a delay in filing Form 67, the same cannot lead to denial of foreign tax credit.

8.4 We find that the similar view has been taken in case of Anuj Bhagwati Vs. DCII (supra) by the Coordinate Mumbai Benches in its decision dt. 20/09/2022 wherein it was held that filing of Form No. 67 is not mandatory but its directory in nature. Similarly, following the earlier decision, in the case of Nirmala Murli Relwani Vs. Asst. DII (supra), the Coordinate Mumbai Benches vide its order dt. 01/12/2022 has held that mere delay in filing Form No. 67 as per the provisions of Rule 128(9) will not preclude the assessee from claiming the benefit of FTC in respect of tax paid outside India.

8.5 We, therefore, find that the various Coordinate Benches have consistently held that the delay in filing Form No. 67 cannot result in denial of the FTC as the same have to be read as directory and not mandatory in nature.

8.6 In the instant case, it is not in dispute that the assessee has not filed Form No. 67 while filing the return of income however, the same has been filed well before the processing of the return of income and thereafter the intimation under section 143(1) has been issued by the CRC. We therefore find that the CRC has erred in not considering the Form No. 67 so filed by the assessee while processing the return of income and therefore the claim of the FTC by the assessee has been wrongly denied to the assessee.

8.7 As far as the decision of the Coordinate Visakhapatnam Benches in case of Muralikrishna Vaddi (supra) is concerned, in that case, Form No. 67 was filed after scrutiny proceedings were initiated by the AO and that too with a delay of more than two years and in the said factual and distinguishable background however taking into consideration the provision of Rule 128(9) of the Income Tax Rules, the Coordinate Bench vide its order dated 14/06/2022 has held that the word “shall” has been used in Rule 128(9) which shows that filing of Form 67 within prescribed time limit is mandatory in nature and not directory. Here we find that firstly the relevant provisions of the DTAA as well as Act which allow relief to the assessee towards FTC and overrides the rules has apparently not been brought to the notice of the Coordinate Bench and thus not been taken into consideration by the Coordinate Bench and secondly, even the earlier decision of Coordinate Bangalore Benches in case of M/s 42 Hertz Software India (R) Ltd. though brought to its notice has not been considered while passing the said order. Further, as we have noted above, there are series of decisions which have been rendered by the various Coordinate Benches both prior to and even subsequent to the aforesaid decision where a consistent view has been taken holding that the delay in filing Form No. 67 cannot result in denial of the FTC as the same have to be read as directory and not mandatory in nature. We therefore find that the said decision of Coordinate Visakhapatnam Benches cannot act as a binding precedent specially taking into consideration the fact that the relevant provisions of the Act r w DTAA have not been considered and the fact that a consistent view has been taken by the various Benches of the Tribunal which have held that the provisions of Rule 128(9) as directory in nature and not mandatory.

8.8 In the instant case, the ld CIT(A) NFAC, having acknowledged the fact that there are series of decisions rendered by different Benches of the Tribunal in favour of the assessee, has decided to follow the solitary decision of the Vishakapatnam Benches which is in favour of the department for the reason that there are conflicting views taken by the different Benches of the Tribunal and there is no decision of the jurisdictional Tribunal and therefore, he follows the decision of the Vishakhapatnam Benches. Firstly, the ld CIT(A), NFAC is acting as a quasi judicial authority and is not acting as an tax administrator and therefore, what is relevant for him to appreciate is that where there is no decision of the jurisdictional Tribunal Benches and conflicting decisions rendered by the non-jurisdictional Tribunal Benches, there are two reasonable construction possible in the facts and circumstances of the present case and it is a settled legal preposition that where two reasonable constructions of a taxing provision are possible in a given case, the construction in favour of the assessee should be followed and necessary relief be allowed to the assessee. In this regard, necessary guidance can be drawn from the decision of the Hon’ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. (1972) 88 ITR 192 (SC) wherein it was held that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted”. Therefore the mere fact that there is no jurisdictional Tribunal decision on the matter, the assessee cannot be denied the relief where there are decisions elaborating the construction of the FTC provisions as directory and not mandatory and in favour of the assessee and the ld CIT(A) NFAC therefore has erred in not following the said decisions even though rendered by the non-jurisdictional Benches of the Tribunal.

8.9 In view of the aforesaid discussion and in the entirety of facts and circumstances of the case, we are of the considered view that the assessee cannot be denied the claim of FTC merely for the reason that there was a delay in filing the Form No. 67 while processing his return of income and the matter is thus decided in favour of the assessee.

9. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 18/04/2023.