Facts of the Case

The assessee, an individual resident and ordinarily resident in India, was employed with a Singapore-based company and earned salary income taxable both in India and Singapore during Assessment Year 2021-22. The assessee filed his return of income on 30.11.2021 declaring total income of ₹1,10,00,600 and claimed foreign tax credit of ₹8,57,617 under Sections 90/91 in respect of taxes paid in Singapore. The return was processed under Section 143(1) by the ADIT, CPC, Bengaluru, denying the foreign tax credit solely on the ground that Form No. 67 was not filed within the due date prescribed under Rule 128(9). Interest under Sections 234B and 234C was also levied. Although Form No. 67 was subsequently filed on 30.08.2022 and rectification was sought, the same was rejected. The CIT(A) upheld the denial of foreign tax credit, holding that timely filing of Form No. 67 was mandatory. Aggrieved, the assessee filed an appeal before the Tribunal.

Issues Involved

Whether foreign tax credit under Section 90 read with the India–Singapore DTAA can be denied merely due to delayed filing of Form No. 67 under Rule 128, whether Rule 128 is mandatory or directory in nature, and whether procedural non-compliance can override substantive treaty rights.

Petitioner’s Arguments

The assessee contended that Section 90 of the Income-tax Act and Article 25 of the India–Singapore DTAA confer a substantive right to claim foreign tax credit, which cannot be defeated by procedural requirements prescribed under Rule 128. It was argued that Rule 128 nowhere provides that delay in filing Form No. 67 would result in denial of foreign tax credit. Reliance was placed on coordinate bench decisions including Rahul Anand vs ADIT, CPC and Jaspal Singh Bindra vs DCIT, as well as judicial precedents holding that procedural conditions are directory and not mandatory.

Respondent’s Arguments

The Revenue supported the order of the CIT(A) and contended that Rule 128 expressly mandates filing of Form No. 67 within the due date of filing the return, and in the absence of timely compliance, foreign tax credit was rightly denied. It was argued that no authority has been vested with the power to condone delay in filing Form No. 67.

Court Order / Findings

The ITAT Kolkata held that Section 90 of the Act read with Article 25(2) of the India–Singapore DTAA grants a vested and substantive right to claim credit of foreign taxes paid, and such right cannot be curtailed by procedural rules. The Tribunal observed that Rule 128 is meant for implementation of the Act and the DTAA and does not stipulate denial of foreign tax credit for delayed filing of Form No. 67. Relying on the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd. and the Madras High Court decision in Duraiswamy Kumaraswamy vs PCIT, the Tribunal held that filing of Form No. 67 is directory and procedural in nature. The Tribunal further held that DTAA provisions override the Income-tax Act and Rules where more beneficial to the assessee. Accordingly, denial of foreign tax credit solely on procedural grounds was held to be unsustainable.

Important Clarification

The Tribunal clarified that procedural requirements under the Income-tax Rules cannot extinguish substantive rights conferred by the Act and tax treaties. Delay in filing Form No. 67 does not disentitle an assessee from claiming foreign tax credit when the underlying income has suffered tax abroad and the DTAA conditions are satisfied.

Final Outcome

The appeal filed by the assessee was partly allowed for statistical purposes. The Assessing Officer was directed to allow foreign tax credit of ₹8,57,617 after verification in accordance with law and the India–Singapore DTAA. Interest under Sections 234B and 234C was held to be consequential and was directed to be recomputed accordingly.

Source Link- https://itat.gov.in/public/files/upload/1767178936-Wbb3ew-1-TO.pdf

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