Prem Lata Bansal, Senior Advocate
Query
Whether ITO is under an obligation to allow foreign tax credit u/s 90 of the Income Tax Act, 1961 despite the fact that Form No.67 has not been filed by the assessee on or before the due date of filing of return of income u/s 139(1) of the Act as per Rule 128(9) of the Income Tax Rules 1962?
Answer
1. In the given query it is apparent that assessee has not uploaded Form No.67 for claiming foreign tax credit on or before the due date of filing of return as per section 139(1) of the Act. Hence, issue arose as to whether assessee is entitled to avail foreign tax credit u/s 90 of the Income Tax Act, 1961.
2. Section 90 prescribes for foreign tax relief, which lays down as under:-
“90(1) – The central Government may enter into an agreement with the Government of any country outside India or specified territory outside India, –
(a) for the granting of relief in respect of –
- income on which have been paid both income tax under this Act and income tax in that country or specified territory, as the case may be, or
- income tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, (without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory,) or
(c) for exchange of information for the prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be or investigation of cases of such evasion or avoidance, or
(d) for recovery of income tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be,
and may be notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.
90(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.”
Thus section 90(2) provides for double taxation relief.
3. Section 295(2)(ha) gives power to the Board to issue rules for FTC. The relevant extract is as follows:-
“(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:-
(ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”
(4) In pursuance to this power, Rule 128 is framed in Income Tax Rules, which prescribes the procedure to avail foreign tax credit. Sub-clause (8) & (9) of Rule 128 are relevant, which reads as under:-
128(8) – Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely:-
- a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein;
- certificate or statement specifying the nature of income and the amount of tax deducted there from or paid by assessee, –a) from the tax authority of the country or the specified territory outside India; ob) from the person responsible for deduction of such tax; or
c) signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,-
A) an acknowledgment of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee;
B) proof of deduction where the tax has been deducted.
128(9) – 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 ?(ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub- section (1) of section 139, in the manner specified for furnishing such return of income.”
5. Rule 128(9) provides that Form No.67 should be filed on or before the due date of filing of return u/s 139(1) of the Act, however, the rule nowhere provides that if the said Form No.67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 would be denied. As per section 295(2), Board has power to prescribe procedure to grant FTC, however, it does not have power to prescribe a condition or to provide for disallowance of FTC.
Rule 128 is a procedural provision and not a mandatory provision. Violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. In Sambhaji & Ors v. Gangabai & Ors (2008) 17 SCC 117, Hon’ble Supreme Court have held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance.
6. Provisions of DTAA override the provisions of the Act, the assessee has a vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of procedural provision. Had there been an intention of legislation to deny FTC due to procedural lapse then either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form No.67 on or before the due date prescribed u/s 139(1) of the Act. There are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time e.g. section 80AC, 80IA(7), 10A(5), 10B(5) etc.
7. Now CBDT has issued a Notification bearing No.100/2022/F.No.370142/35/ 2022-TPL dated 18.08.2022 whereby procedure is made slightly liberal by amending sub-rule (9) of Rule 128, which states that
“(9) 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 (ii) of sub-rule (8) shall be furnished on or before the end of the assessment year relevant to the previous year in which the income referred to in sub-rule (i) has been offered to tax or assessed to tax in India and the return for such assessment
year has been furnished within the time specified under sub-section (i) or sub- section (iv) of section 139.”
Thus now CBDT has allowed to file Form No.67 even alongwith belated return u/s 139(4).
In view of above, it is stated that the assessee is entitled to FTC even if Form No.67 is not filed alongwith return u/s 139(1) but has filed during the assessment proceeding.
8. Hon’ble Madras High Court has decided the identical issue in favour of assessee in the case of Duraiswamy Kumaraswamy v. Pr. CIT (2024) 460 ITR 615 (Mad) relying upon the judgement of Supreme Court in the case of CIT v. G.M. Knitting Industries (P) Ltd. (2015) 376 ITR 456 (SC) which relates to deduction u/s 80-IB of the Act.
Various Benches of ITAT have also decided the issue in favour of assessee in the following cases:-
Sonakshi Sinha v. CIT(A), NFAC
(ITA No.1704/Mum/2022 dated 20.09.2022)
M/s 42 Hertz Software India Pvt. Ltd. v. ACIT Circle-3(1)(1)
(ITA No.29/Bang/2021 dated 07.03.2022)
Ms Brinda RamaKrishna v. ITO Ward-5(3)(1), Bangalore
(ITA No.454/Bang/2021 dated 17.11.2021)
9. It is further to be stated that even if there is no agreement between the countries then also assessee is entitled to deduction from the Indian income tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country whichever is the lower, as per section 91(1) of the Income Tax Act.