Foreign Tax Credit Cannot Be Denied For Delay In Filing Form 67: Bangalore ITAT

The ITAT’s Bangalore Bench has held that the assessee’s Foreign Tax Credit cannot be rejected due to a delay in filing Form 67.

The Bench, which included members Beena Pillai (Judicial Member) and Chandra Poojari (Accountant Member), ruled that Rule 128 of the Income Tax Rules, which requires the assessee to submit Form 67 before filing the income tax return in order to claim Foreign Tax Credit (FTC), is advisory in nature and not mandatory, and thus FTC cannot be denied for late filing of Form 67.

With respect to tax withheld by Japan, the Assessee 42 Hertz Software India Pvt Ltd filed its income tax return and claimed FTC under Section 90 of the Income Tax Act. The Assessing Officer pointed out that the Assessee had failed to file Form 67 before filing its income tax return, which was required in order to claim FTC. Following that, during the assessment processes, the Assessee filed Form 67, which the AO rejected. The AO denied the FTC claim on the basis that the Assessee failed to file Form 67 on or before the due date for filing the income tax return under the Act, as required by Rule 128 (9) of the Income Tax Rules, 1962. In response to the AO’s order, the Assessee filed an appeal with the Commissioner of Income Tax (Appeals) (CIT(A)).

The CIT(A) upheld the AO’s decision, ruling that because the Assessee failed to file Form 67 within the time limit set up in the Income Tax Act, it was non-est in law. The CIT(A) found that Rule 128 (8) and (9) are necessary in nature and rejected the Assessee’s argument that completing Form 67 was merely a procedural obligation whose non-compliance did not disqualify the Assessee from FTC. The Assessee brought an appeal to the ITAT against the CIT’s decision (A).

Before the ITAT, the Counsel for the Assessee 42 Hertz Software argued that the provisions of Rule 128 are procedural in nature, and that no condition is stipulated in the India-Japan DTAA that the FTC can be prohibited for non-compliance with any procedural rule. The Assessee has a vested right to claim the FTC under the tax treaty, according to the Counsel, because the provisions of the DTAA override the provisions of the Income Tax Act. This right cannot be taken away simply because the Assessee failed to comply with a procedural requirement. The departmental representative argued that because meeting the requirements of Rule 128 (9) is mandatory, the revenue authorities were justified in refusing to credit the Assessee for foreign tax paid.

Foreign Tax Credit (FTC) is allowed on furnishing a statement of income from a country or specified territory outside India offered for tax for the previous year, as well as a statement of foreign tax deducted or paid on such income in Form No. 67, according to Rule 128(8)(i) of the Income Tax Rules, 1962. Furthermore, Rule 128 (9) states that the statement in Form No. 67 must be filed on or before the due date stipulated in Section 139 (1) of the Income Tax Act for filing the income tax return.

The ITAT pointed out that Rule 128 requires the Assessee to file Form 67 before filing an income tax return in order to claim FTC. Because Rule 128 does not provide for FTC disallowance in the event of a delay in filing Form 67, the ITAT determined that the obligation is merely advisory and not necessary.

In the case of Engineering Analysis Centre of Excellence (P) Ltd versus Commissioner of Income Tax, the ITAT ruled that it is a trite law that the DTAA overrides the provisions of the Income Tax Act and the Income Tax Rules, which was upheld by the Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd versus Commissioner of Income Tax (2021).

As a result, the ITAT determined that the Assessee’s FTC could not be refused due to a delay in filing Form 67.

The ITAT upheld the Assessee’s appeal and returned the case to the AO to assess the Assessee’s claim in conformity with the law.

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