Filing Of Form-67 After Filing ITR But Before Issuance Of Intimation, Amounts To Due Compliance: Madras High Court Allows Foreign Tax Credit Claim

The Madras High Court has allowed the Foreign Tax Credit (FTC) claim on the grounds that filing Form-67 after filing the Income Tax Return (ITR) but before the issuance of an intimation amounts to due compliance.

The bench of Justice Krishnan Ramasamy has observed that the returns were filed without FTC; however, the same was filed before passing the final assessment order. The filing of FTC in terms of Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act, and it will always be directory in nature.

The petitioner/assessee was employed in Kenya during the years 2016–2018 as CEO. For the financial year 2018-2019, the petitioner was a resident of India, including his Kenyan income. He filed an Indian Income Tax return and claimed the benefit of Foreign Tax Credit (FTC) under Section 90/91 of the Income Tax Act, 1961, read with Article 24 of the India-Kenya Double Taxation Avoidance Agreement. During the year, he had income from both Kenya and India. The petitioner has filed the income tax return for the income in Kenya. According to the petitioner, he is entitled to a Foreign Tax Credit (FTC).

The petitioner submitted that while filing the Indian ITR for the assessment year 2019-2020, Form-67 prescribed under Rule 128 of the Income Tax Rules, 1962, for claiming FTC was inadvertently not uploaded along with the Indian ITR.

On February 2, 2021, the petitioner uploaded Form 67 along with the TDC certificate. On March 26, 2021, the income tax return was subsequently processed by the Centralized Processing Centre (CPC), Bangalore, under Section 143(1) of the Act, for which the petitioner received the intimation through e-mail.

However, the FTC was not given effect. Therefore, the petitioner made a request on March 27, 2021, to the CPC to give effect to the FTC. The petitioner also requested on May 3, 2021, to the CPC, Bangalore, through e-proceedings to rectify the above intimation by giving effect to FTC. However, the request of the petitioner was not accepted, and he received an intimation on May 18, 2021, under Section 143(1) of the Act with the above demand. On May 26, 2021, the petitioner once again requested the CPC through a letter to give effect to the FTC.

On June 15, 2021, the petitioner received a rectification order by e-mail on July 21, 2021, with a similar demand of Rs. 29,69,260.

The petitioner contended that the procedure under Rule 128 is directory-like in nature and is not mandatory. The Department has rejected the request of the petitioner. Even though the FTC was filed well before the completion of the assessment proceedings, in the present case, the intimation under Section 143(1) was received on March 26, 2021, whereas the petitioner uploaded the FTC on February 2, 2012.

The Department contended that the procedure prescribed under Rule 128 is mandatory and cannot be considered directory in nature. In terms of Section 139, Form-67 should be filed on or before the due date for filing the return of income tax.

The court held that the intimation under Section 143(1) was issued on March 26, 2021, but the FTC was filed on February 2, 2021. Thus, the respondent is supposed to have provided due credit to the FTC of the petitioner. However, the FTC was rejected by the department, which is not proper and is not in accordance with the law.

Counsel For Petitioner: Vikram Vijayaraghavan

Counsel For Respondent: B.Ramasamy

Case Title: Duraiswamy Kumaraswamy Versus PCIT

Citation: 2023 LiveLaw (Mad) 358

Case No.: W.P.No.5834 of 2022 and W.M.P.Nos.5925 and 5927 of 2022

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