DTAA Over-Ride Income Tax Act: ITAT rules FTC cannot be Denied for Delay in Filing Form 67 [Read Order]

The Visakhapatnam Bench of the Income Tax Appellate Tribunal (ITAT) has held that the benefit of Foreign Tax Credit (FTC) cannot be denied merely on account of delay in filing Form 67 and reiterated that the provisions of a Double Taxation Avoidance Agreement (DTAA) override the provisions of the Income Tax Act, 1961.

The dispute arose from the denial of Foreign Tax Credit claimed by the assessee, Srikanth Atluri, on the ground that Form 67, along with the prescribed certificate evidencing payment of taxes in a foreign jurisdiction, was not furnished along with the return of income filed under Section 139(1) of the Income Tax Act, 1961.

The Assessing Officer as well as the Commissioner of Income Tax (Appeals) rejected the claim for Foreign Tax Credit by holding that Form 67 had not been filed within the time prescribed under Rule 128(9) of the Income Tax Rules, 1962.

The assessee contended that, subsequent to filing the return of income, Form 67 was furnished through an application filed under Section 154 of the Act seeking rectification. It was submitted that taxes had already been paid in the foreign jurisdiction and denial of credit for such taxes would result in double taxation of the same income. The assessee further argued that Rule 128(9) does not prescribe any penal consequence or disallowance for delayed filing of Form 67 and, therefore, denial of Foreign Tax Credit on procedural grounds was unwarranted.

The Revenue relied upon an earlier decision of the Visakhapatnam Bench in Muralikrishna Vaddi v. ACIT/DCIT, wherein it was held that the use of the word “shall” in Rule 128(9) made filing of Form 67 within the prescribed time mandatory.

After considering the rival submissions, the Tribunal of Udayan Das Gupta, Judicial Member And Omkareshwar Chidara, Accountant Member observed that “the provisions of Double Tax Avoidance Agreement (“DTAA”) override the Income Tax Act and hence when the DTAA provides by way of Article 24 for the credit of taxes paid on the same income in another country, it cannot be denied to the assessee on the basis of procedural lapses, which is arising out of the delay in filing of Form No.67.

Following the decision rendered in the assessee’s own case for an earlier assessment year, the Tribunal allowed the appeal and directed the Revenue authorities to grant credit for the taxes paid by the assessee in the foreign jurisdiction.

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