The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that procedural delays, such as late Form 67 filing, cannot invalidate a taxpayer’s right to claim a Foreign Tax Credit ( FTC ) under a Double Taxation Avoidance Agreement ( DTAA ).
BGA Electrical & Services Private Limited, the assessee filed an income tax return for Assessment Year 2021-22, claiming a Foreign Tax Credit (FTC) of Rs. 75,000 under Section 90 of the Income Tax Act, 1961.
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The FTC claim was based on taxes paid in Nepal on foreign business income of Rs. 5,00,000 earned from Annapurna Impex and BG Associates J.V.
The assessee filed Form 67 which is required for claiming FTC beyond the deadline prescribed under Rule 128 of the Income Tax Rules. The Centralized Processing Centre (CPC) denied the FTC claim due to late filing of Form 67.
The assessee appealed this denial before the Commissioner of Income Tax (Appeals) [CIT(A)], citing DTAA provisions and procedural lapses. The CIT(A) upheld denying the FTC claim, agreeing with the CPC that timely filing of Form 67 is mandatory under Rule 128.
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Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT) challenging the denial of FTC. The assessee’s counsel argued that the provisions of the India-Nepal DTAA overriding domestic tax rules and procedural delays should not invalidate FTC claims.
The assessee’s counsel also pointed out that the CPC failed to provide prior intimation as mandated under Section 143(1) before adjusting the tax claim. The assessee’s counsel relied on the case of Anindya Sarkar v. ADIT, CPC, Bengaluru, where the ITAT allowed FTC despite late filing of Form 67.
The respondent countered that timely filing of Form 67 is mandatory under Rule 128 and the CPC acted within its jurisdiction by denying FTC.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The two-member bench comprising Sonjoy Sarma (Judicial Member) and Sanjay Awasthi (Accountant Member) observed that DTAAs have an overriding effect over domestic tax provisions and should be interpreted to eliminate double taxation.
The tribunal referred to Article 23 of the India-Nepal DTAA, which provides for FTC irrespective of procedural lapses under domestic law. The tribunal observed that denying FTC due to late filing caused undue hardship and violated principles of equity and justice.
The tribunal concluded that procedural delays should not hinder substantive claims like FTC when the claim is genuine and supported by tax payments in the foreign jurisdiction. The tribunal allowed the appeal directing the CPC to grant the FTC of Rs. 75,000 to the assessee.
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