Kasper Pieter Tideman Vs ITO (ITAT Pune)

The case of Kasper Pieter Tideman vs. ITO before the ITAT Pune pertains to the denial of Foreign Tax Credit (FTC) due to the delayed filing of Form 67. The assessee, a resident taxpayer, had declared an income of ₹28,88,780 for AY 2021-22 and claimed FTC of ₹1,48,111 for taxes paid in the USA and the Netherlands. However, the Centralized Processing Centre (CPC), Bengaluru, disallowed the credit in its intimation under Section 143(1) of the Income Tax Act, 1961, on the grounds that Form 67 was filed after the due date prescribed under Rule 128(9) of the Income Tax Rules. The CIT(A) upheld the denial, leading the assessee to appeal before the ITAT.

The assessee contended that under Section 90 of the Income Tax Act and the India-USA (Article 25) and India-Netherlands (Article 23) Double Taxation Avoidance Agreements (DTAAs), the FTC claim cannot be disallowed solely due to procedural lapses. The appellant relied on the rulings in Vinodkumar Lakshmipathi (ITAT Bangalore) and Sonakshi Sinha (ITAT Mumbai), which established that DTAA provisions override domestic tax rules, and that non-filing of Form 67 within the prescribed timeframe does not invalidate FTC claims. Additionally, the CBDT Notification No. 100/2022, which extended the deadline for filing Form 67, was cited to support the claim that such procedural requirements should not restrict substantive rights.

However, the CIT(A) relied on Supreme Court precedents, including PCIT-III, Bengaluru vs. Wipro Ltd. (2022) and State of Jharkhand vs. Ambay Cements (2005) 1 SCC 368, to uphold the mandatory nature of statutory compliance. The Supreme Court had ruled that when a law prescribes a particular procedure for availing exemptions or benefits, strict adherence is required. Thus, the CIT(A) rejected the assessee’s argument, stating that DTAA provisions do not exempt taxpayers from the requirement of timely Form 67 filing under Rule 128(9).

The ITAT Pune, after reviewing the case and considering various judicial precedents, ruled in favor of the assessee. It held that Form 67 filing is a procedural requirement rather than a mandatory one and that denying FTC solely on procedural grounds contradicts DTAA provisions. The tribunal referred to Hyderabad ITAT’s ruling in Baburao Atluri vs. DCIT, which stated that delayed filing of Form 67 does not warrant denial of FTC. Other ITAT benches, including Pune, had previously allowed FTC in similar circumstances, further reinforcing the position that procedural non-compliance should not lead to double taxation.

The ruling underscores the principle that DTAA provisions override domestic procedural requirements and that FTC should not be denied solely due to late Form 67 submission. This decision aligns with multiple ITAT precedents and provides clarity on the interpretation of procedural compliance in foreign tax credit claims under Indian tax laws.

FULL TEXT OF THE ORDER OF ITAT PUNE

The appeal filed by the assessee is directed against the order dated 21.11.2023 of the Ld. Commissioner of Income Tax (Appeals), Patna [“CIT(A)”] pertaining to Assessment Year (“AY”) 2021-22.

2. The assessee has raised the following grounds of appeal:-

“1. On the facts and in the circumstances of the case and in law the CPC, Bengaluru erred in not granting the Foreign Tax Credit of Rs.1,48,111/- claimed by the appellant in his return of income by making a disallowance in intimation u/s 143(1).

2. On the facts and in the circumstances of the case and in law the CPC, Bengaluru erred in not taking cognizance of the fact that the appellant has duly paid the taxes on his income arising in USA and Netherland in the respective country and is eligible for foreign tax credit in India, in the light of the provisions of section 90 of the Income Tax Act, 1961 and the Article 25 of India – USA and Article 23 of India-Netherland DTAA.

3. On the facts and in the circumstances of the case and in law the CPC, Bengaluru erred in not appreciating the fact that the disallowance of foreign tax credit for the taxes duly paid in USA and Netherland shall result into double taxation which is contrary to the provision of Income Tax Act, 1961 and the DTAA.

4. On the facts and in the circumstances of the case and in law the CPC, Bengaluru failed to appreciate the fact that filing of Form No. 67 under Rule 128 Of the Income Tax Rules, 1962 is a directory and not a mandatory requirement.

5. On the facts and in the circumstances of the case and in law the CPC, Bengaluru erred in not taking cognizance of the fact that the filing of Form No. 67 is a procedural requirement and the same cannot disentitle the substantive right of claiming foreign tax credit on taxes paid by the appellant in USA and Netherlands.

6. The appellant craves for leave to add, alter, amend, delete etc the above ground of appeal in the interest of natural ”

3. Briefly stated, the assessee filed its return for AY 2021-22 on 08.10.2021 declaring income of Rs.28,88,780/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (the “Act”) on 12.05.2022 by the Ld. Assessing Officer, CPC, Bengaluru (“AO”) and intimation was issued as per which Foreign Tax Credit (“FTC”) of Rs.1,48,111/- of the assessee’s United States of America & Netherlands income was not considered even though Form 67 was filed on 08.01.2022 before the return was processed by the Ld. AO.

4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who confirmed the order of the Ld. AO on the ground that the assessee failed to furnish Form 67 on or before the due date for furnishing the return prescribed under section 139(1) of the Act which is mandatory according to Rule 128(9) of the Income Tax Rules, 1962 (the “Rules”).

4.1. Before the CIT(A) the assessee submitted that u/s 90 of the Act r.w. Article 25 of the India-USA DTAA and Article 23 of the India- Netherlands DTAA claim of FTC cannot be disallowed for non-compliance of procedural requirement prescribed under the Rules. DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. The assessee placed reliance on the decision of the Bangalore Bench of the Tribunal in Vinodkumar Lakshmipathi reported in TS-719-ITAT-2022 (Bang) wherein it has been held that the DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act, thus, non-furnishing of Form No. 67 before the due date u/s 139(1) is not fatal to the claim for FTC. Further reliance was placed on the Mumbai Bench of the Tribunal in Sonakshi Sinha’s case reported in TS-742-ITAT-2022 (Mum) wherein the Tribunal has observed that section 90 or 91 does not prescribe timeline for filing of such declaration on or before due date of filing of return of income and Rule 128(4) provides the condition where the foreign tax credit would not be allowed, which does not include non-filing of prescribed Form within the prescribed limit.

4.2. In support of its claim, the assessee also relied on the Notification 100/2022/F No. 370142/35/2022-TPL dated 18th August, 2022 issued by the CBDT which has substituted sub-rule (9) of Rule 128 allowing the assessee to file Form 67 till the end of assessment year and where return is being filed under updated return the time for filing Form 67 is extended to such date of furnishing of updated return and submitted that although the said notification has come into effect from 01.04.2022, being a notification giving relief to taxpayers, the same should also be applied to cases pertaining to period earlier to the said notification.

5. The contentions raised by the assessee did not convince the Ld. CIT(A) who denied relief to the assessee by observing, inter-alia as follows in paras 7.6 to 10.3 of his order :-

“7.6. It is clear from above provisions that a resident taxpayer who has credit for any foreign tax paid in a country outside India by way of deduction or otherwise, will be required to furnish statement in Form 67 before due date specified under sub-section (1) of 139 to claim credit of such taxes.

7.7. In the instant case, the appellant had filed form 67 on 08/01/2022, however as per the intimation u/s 143(1) of the Act, the due date for filing of the ITR was 31/12/2021. Clearly the appellant had not followed provisions of rule 128 (9) of the Income Tax Rules. Hence, the AO had rightly denied the foreign tax credit.

7.8. The appellant had relied upon the decisions of Hon’ble ITAT Mumbai and Hon’ble ITAT Bangalore in support of his claims, however Hon’ble Supreme court in the case of PCIT-III, Bengaluru vs Wipro Ltd. in CIVIL APPEAL NO. 1449 OF 2022 (Arising out of SLP(Civil) No. 7620/2021) order dated 11/07/2022 held as under-

“14. In view of the above discussion and for the reasons stated above, we are of the opinion that the High Court has committed a grave error in observing and holding that the requirement of furnishing a declaration under Section 108 (8) of the IT Act is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The same is erroneous and contrary to the unambiguous language contained in Section 108 (8) of the IT Act. We hold that for claiming the benefit under Section 108 (8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with. Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The orders passed by the High Court as well as ITAT taking a contrary view are hereby set aside and it is held that the assessee shall not be entitled to the benefit under Section 1 DB (8) of the IT Act on noncompliance of the twin conditions as provided under

Section 1 DB (8) of the IT Act, as observed hereinabove. The present Appeal is accordingly Allowed.”

Though, this is in context of different section but underlying law is well settled that a person who claims exemption or concession must establish that it is entitled to that exemption or concession. A provision providing for an exemption, concession, or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions must be complied with.

8. Similarly, Hon’ble Supreme Court in the ‘case of State of Jharkhand v Ambay Cements,(2005) 1 SCC 368 had clearly laid down,

“26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.”

9: Thus relying on the judgements on Hon’ble Supreme Court as stated above and as per provision of rule 128(9) of the Income Tax Rules, the ground no. 1 of the appeal is hereby dismissed.

10. Ground 2 relates to the claim of the appellant that the DTAA overrides the Income Tax Act as clause (2) of section 90 of the Income Tax Act 1961, expressly provide that provisions of agreements as referred in sub clause (1) of section 90 for granting relief of tax, the provisions of the Act shall apply to the extent they are beneficial to the assessee.

10.1 90(2) of the Act states,

“(2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”

10.2 As it is clear from the provisions of S.90(2) of the Act that it does not provide any such provision which exempts the appellant from the mandatory provisions of filing of the form 67 within the prescribed time frame under rule 128(9) of the Income Tax Rules.

10.3 Further respectfully relying on the decisions of Hon’ble Supreme Court in the cases of State of Jharkhand v Ambay Cements,(2005) 1 SCC 368 and in the case of PCIT-III, Bengaluru vs Wipro Ltd. in CIVIL APPEAL NO. 1449 OF.2022 (Arising out of SLP(Civil) No. 7620/2021), it is clear that whenever a statute provides that a particular thing should be done in a particular manner, it should be done in the manner prescribed and not in any other Accordingly ground no. 2 raised by the appellant is hereby dismissed.”

6. Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds relate thereto.

7. The Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by the decisions of various Benches of the He reiterated the contentions raised before the Ld. CIT(A) and cited various judicial precedents relied upon by the assessee in support of its claim on allowability of FTC before the Ld. CIT(A).

8. The Ld. DR, on the other hand, supported the order of the Ld. AO/CIT(A).

9. We have considered the submissions of the parties and perused the records. It is evident that the solitary ground of denial of the claim of the assessee for FTC is delay in filing Form It is an admitted position that the assessee filed Form 67 on 08.01.2022 before the end of the relevant AY 2021-22 which is in conformity with the CBDT notification No. 100/2022 amending sub-rule (9) of Rule 128 of the Rules. The Rule nowhere provides that if Form 67 is not filed within time, relief sought by the assessee under section 90 of the Act would be denied. The assessee filed Form 67 before the return for the relevant AY was processed u/s 143(1) of the Act by the Ld. AO.

10. Various coordinate benches of the Tribunal have held that filing Form 67 is a procedural/directory requirement and is not a mandatory requirement.

11. We find the Hyderabad Bench of Tribunal in the case of Baburao Atluri Vs. DCIT vide ITA Nos.108 & 118/Hyd/2022, order dated 07.2022 has allowed the FTC despite delay in filing the FTC certificate in form No.67 by observing as under:

“10. We have heard the rival arguments made by both the sides, perused the orders of the AO and NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case did not allow the Foreign Tax Credit (FTC) on the ground that Form No.67 has been filed beyond the due date of filing of the return. We find the NFAC upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that filing of foreign tax credit certificate in Form-67 is directory in nature and not mandatory and therefore the NFAC is not justified in denying the Foreign Tax Credit.

11. We find the Bangalore Bench of the Tribunal in the case of M/s. 42 Hertz software India Pvt. Ltd(supra) while deciding an identical issue has held that FTC cannot be denied to the assessee, where the assessee filed FTC in Form No.67, although belatedly since filing of such Form 67 is not mandatory but directory in nature. The relevant observation of the Tribunal from para 6 onwards reads as under:-

“6. There is no dispute that the Assessee is entitled to claim FTC. On perusal of provisions of Rule 128 (8) & (9), it is clear 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. In our view, 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 No.67. This view is fortified by the decision of coordinate bench of this Tribunal in case of Ms.Brinda Kumar Krishna vs.ITO in ITA no.454/Bang/2021 by order dated 17/11/2021.

7. It‟s a trite law that DTAA overrides the provisions of the Act and the Rules, as held by various High Courts, which has also been approved by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. reported in (2021) 432 ITR 471.

8. We accordingly, hold that FTC cannot be denied to the assessee. Assessee is directed to file the relevant details/evidences in support of its claim. We thus remand this issue back to the Ld.AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee. Accordingly the grounds raised by assessee stands allowed for statistical purposes.”

12. We further find, in the instant case, the delay in filing of the FTC certificate in Form-67 was explained to be due to non receipt of the tax deduction certificate from the foreign deductor from Zambia within time for which the said Form-67 was filed belatedly by 14 It was stated that the tax jurisdiction of the Zambian deductor follow different period for taxing the income and have different due dates for filing the return as compared to India. So far as the decision relied on by ld. DR in the case of Muralikrishna Vaddi(supra) is concerned, we find there is a delay of more than two years without any valid and reasonable cause. Therefore, the said decision in our opinion cannot be applicable to the facts of the present case. In any case, when there are two view possible, the view which is favourable to the assessee has to be followed as held by Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported in (1972) 88 ITR 192. Since, the assessee in the instant case has filed FTC certificate in Form No.67 with delay of only „14‟ days, therefore following the decision of the Bangulur Bench of the Tribunal in the case of M/s. 42 Hertz Software India Pvt. Ltd.(supra), we direct the AO to allow the FTC after due verification. The grounds raised by the assessee are accordingly allowed.”

12. Similar view has been taken by the Co-ordinate Bench of the Pune Tribunal in the cases of JCIT Vs. Raj Surendra Mohan Hajela in ITA No. 470/PUN/2023, order dated 14.05.2024; Deelip Kanhailal Chawla Vs. ITO in ITA No. 87/PUN/2023, order dated 09.03.2023 and Milind Moreshwar Pimpalkhare Vs. DDIT, CPC in ITA No. 1031/PUN/2023, order dated 13.10.2023.

13. Reliance placed by the Ld. CIT(A) on the decision of the Hon’ble Supreme Court in the case of State of Jharkhand Ambay Cements 2005) 1 SCC 368 and in the case of PCIT-III, Bengaluru Vs. Wipro Ltd. in CIVIL APPEAL NO. 1449 OF 2022 (Arising out of SLP(Civil) No. 7620/2021), in our view, is completely misplaced as he himself observed in para 7.8 of his order that these decisions were rendered in context of different section and not with respect to claim of FTC.

14. Since the FTC certificate/statement in Form 67 was not examined by the Ld. AO, therefore, considering the totality of the facts and circumstances of the case and in the interest of justice, we deem it appropriate to restore the issue to the file of the Ld. AO with the direction to verify Form No. 67 and allow consequential FTC in accordance with law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

15. In the result, the appeal of the assessee is treated as allowed for statistical purposes.

Order pronounced in the open court on 06th August, 2024.