The Income Tax Appellate Tribunal (ITAT), Pune bench, while directing readjudication in respect of Foreign Tax Credit (FTC), observed that the assessee had failed to prove the statement and certificate along with Form No. 67, as per Rule 128(8)(ii) of the Income Tax Rules for claiming FTC, in which income was received from the Kazakhstan Employer, however satisfied all other conditions.
The assessee, Milind Moreshwar Pimpalkhare, at the material time, was working as a salaried employee with BolashakAtyrau LLP, Kazakhstan. He earned a gross salary of Rs. 79,53,339/- from his foreign employer, on which a deduction of tax at source in Kazakhstan was made for a sum of Rs. 7,95,334/.
The assessee filed a return of income declaring the salary received from his Kazakhstan employer and also claimed credit for foreign tax. During the assessment proceedings, the Assessing Officer (AO) denied the FTC. Accordingly, the assessee moved a rectification application under Section 154 of the Income Tax Act, which was denied because the assessee filed the requisite Form No. 67 as prescribed under Rule 128 beyond the due date prescribed under Section 139(1) of the Income Tax Act.
Aggrieved by the order, the assessee filed an appeal before the CIT(A), who confirmed the disallowance. Thus, the assessee filed a second appeal before the tribunal.
The tribunal, during the appeal proceedings, observed that the assessee had a resident status during the year under consideration and the salary received from his employer in Kazakhstan, on which a deduction of tax at source was made, amounted to Rs. 7,95,334. It was also observed that the benefit of TDS had been denied on the premise that the assessee furnished his return beyond the period prescribed under Section 139(1) of the Act.
Furthermore, Sub-rule (1) of Rule 128 provides that the assessee, being a resident, shall be allowed credit for the amount of any foreign tax paid by him in a country outside India by way of deduction or otherwise in the year in which the corresponding income is offered to tax in India. Hence, the salary earned by the assessee from the Kazakhstan employer pertains to the year under consideration, which was included in his return of income for the year.
Subsequently, Sub-rule (8) of Rule 128 states that credit for any foreign tax will be granted upon submitting Form No. 67, the Statement of Income, which details the income subject to tax and the foreign tax that has been deducted accordingly, and the Certificate or Statement, among other things, from the entity in charge of the source tax deduction, which details the type of income and the amount of TDS on it.
Furthermore, the bench noted that prior to the Income-tax (27th Amendment) Rules, 2022, with retrospective effect from 01-04-2022, the requirement under Rule 128(9) was to furnish a Statement in Form No. 67 as per sub-rule (8)(i) and the Certificate or Statement as per sub-rule (8)(ii) on or before the date for furnishing the return of income under Section 139(1) of the Act.
Hence, it can be seen that the above provision was invoked by the learned CIT(A) for refusing the FTC on the premise that the assessee furnished the return belatedly under Section 139(4) of the Act and not under Section 139(1).
After analyzing Rule 128(9), the bench concluded that the assessee needs to fulfill twin conditions, viz., file Form No. 67 and Certificate or the Statement on or before the end of the assessment year relevant to the previous year in which the income has been offered to tax, and furnish a return within the time stipulated under Section 139(1) or 139(4).
The assessee furnished the return on 30-12-2022, which is a belated return under Section 139(4) of the Act. According to the second condition, the assessee furnished Form No. 67 on 29-12-2022, which is well before the time.
Even though before the bench, the assessee contended that the Certificate or Statement under Rule 128(8)(ii) actually accompanied Form No. 67. However, it could not be authentically proved that the relevant Certificate or Statement as per clause (ii) of sub-rule (8) of Rule 128 was also furnished along with Form No. 67 before 31-03-2023.
After reviewing the facts and records, the single-member bench of R.S. Syal (Vice President) directed readjudication in respect of the Certificate or Statement under Rule 128(8)(ii) actually accompanied Form No. 67 for claiming FTC along with the return. Therefore, the bench restored the matter to the file of the Assessing Officer.
Nikhil Pathak, counsel for the assessee, and Neha Deshpande, counsel for the revenue, appeared in the case.
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