- India signed the Double Taxation Avoidance Agreements (DTAA) with a number of countries in order to avoid double taxation on the aforementioned income. Section 90 of the Income-tax Act of 1961 (the Act), read in conjunction with Article 24(4)(A) of the India-Australia Treaty of the DTAA allows an individual to claim relief, in the form of a Foreign Tax Credit (FTC), for taxes payable in India against taxes paid in Australia.
- Rule 128 of Income-tax Rules, 1962 (IT Rules) prescribes that a “statement of income earned outside India and foreign tax credit” is required to be furnished in Form No. 67 for claiming FTC. The question frequently whether the submission of Form 67 is mandatory or advisory in nature is frequently asked.
- Recently the Bangalore ITAT in the case of Ms. Brinda RamaKrishna vs ITO (ITA No. 454/Bang/2021) has examined this issue.
- An employee who was a resident of India claimed FTC in her Indian tax return for taxes paid in Australia against services rendered in Australia during the period. However, she failed to submit form 67 prior to filing the tax return, which she did later after realizing her mistake.
- The return was processed online by the income tax department, and an intimation was issued denying the FTC claim.
- The Tax Officer rejected the rectification application filed by the Taxpayer on the basis that filing of form 67 before the due date was mandatory.
- The First Appellate Authority CIT(A) rejected a taxpayer’s contention that filing “Form No. 67 is a procedural requirement and non-compliance did not disentitle her to the FTC” on the grounds that the taxpayer did not file Form 67 within the time allowed and thus Form 67 filed later is unenforceable in law.
- The Taxpayer approached the Income Tax Appellate Tribunal (ITAT)
- The provisions of the DTAA that allow overriding of the provisions of the Act and the rules cannot contradict IT Act.
- CBDT does not have the authority to prescribe a condition for the disallowance of FTC under Rule 128 of the IT Rules, so the provisions of Rule 128 of the IT Rules are only procedural. Rule 128 of the IT Rules makes no mention of an FTC claim being denied if Form 67 is not filed within the time frame specified.
- The violation of procedural norms did not nullify the substantive right to seek FTC. Rule 128 of the IT Rules did not allow the FTC to be disallowed for a delay in filing Form No. 67. Filing Form 67 was only a requirement for claiming FTC and was not required.
- A reliance was placed on the decision of the Honorable Supreme court decision in the case of Sambhaji and Others v. Gangabai and Others [17 SCC 117 (2008)] wherein it was held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions. Procedures are considered the handmaid and not the mistress. The procedural law should not ordinarily be constructed as mandatory; the procedural law is always subservient to and is an aid to justice. As a result, the ITAT determined that the filing of Form 67, which is a procedural law, should not influence the FTC’s claim.
- ITAT reiterated that DTAA overrides the provisions of the Act, and the Rules cannot be contrary to provisions of the Act, but an aid. As a result of the ITAT order, the taxpayer may resort to the rectification procedure, and thereby the taxpayer may claim FTC.
- This ITAT decision clarifies that if Form 67 is not submitted by the due date, the taxpayer does not lose the FTC claim if it is submitted later.
- This could bring some relief to taxpayers that have faced a similar situation.
The judgment also emphasizes the primacy of the DTAA and the Act, along with the fact that Rules cannot override the Act by limiting a claim that is available under the DTAA or the Act.
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