AMBIBUZZ TECHNOLOGIES LLP, MUMBAI V. ITO, CPC, BENGALURU

ITA 1084/MUM/2023

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Ambibuzz Technologies LLP appealed against the order of the CIT(A)/NFAC, Delhi, which confirmed the disallowance of the Foreign Tax Credit (FTC) claimed under section 90 of the Income Tax Act, 1961. The FTC was initially denied by the Central Processing Centre (CPC) due to the late filing of Form No. 67, which was filed on 31.03.2021, past the prescribed due date of 15.02.2021. The Tribunal considered the arguments that the procedural requirements under Rule 128 of the Income Tax Rules should not override the substantive rights granted under the DTAA and section 90 of the Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300073 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-06-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 02-04-2023
• Other Referred Cases: M/s. Brinda Ramat Krishna Vs. ITO
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962, India Japan DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 154; 143(1); 207; 139(1); 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM आयकर अपील सं/ I.T.A. No.1084/Mum/2023 (निर्धारण वर्ा / Assessment Year: 2020-21) Ambibuzz Technologies LLP Office No. 1410/1411, 14 th Floor, One Lodha Place Senapati Bapat Marg, Opp Lodha Supremus, Lower Parel, Mumbai-400013.. बिधम/ Vs. Income Tax CPC, Bengaluru. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : ABOFA3714G (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 26/06/2023 घोषणा की तारीख /Date of Pronouncement: 14/07/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. CIT(A)/NFAC, Delhi dated 13.02.2023 for AY. 2020-21. 2. The only grievance of the assessee is against the action of the Ld. CIT(A) confirming the disallowance of Foreign Tax Credit (FTC) u/s 90 of the Income Tax Act, 1961 (hereinafter “the Act’). 3. Brief facts are that the assessee had filed return of income for AY. 2020-21 on 31.03.2021 and filed along with it Form No. 67 [As per Rule 128 of the Income Tax Rules, 1962 (hereinafter “the Rules’)] and claimed FTC u/s 90 of the Act to the tune of Rs.3,30,786/-. However, the same was denied by the CPC while processing the return of income u/s 143(1) of the Act, on the ground that the assessee ought to have filed Form No. 67 on or before 15.02.2021 (prescribed time limit u/s 139(1) of the Act under Rule 128(9) of the Rules). The Assessee by: Shri Rajesh Sanghvi Revenue by: Shri Dharmvir D Yadav (Sr. DR) ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 2 assessee filed rectification application before the CPC which was dismissed by the CPC by passing order u/s 143(1) of the Act dated 11.08.2022. On appeal by the assessee, Ld. CIT(A) has passed the impugned order confirming the action of AO/CPC on the reason that the assessee failed to file the Form No. 67 within the prescribed date [due date as prescribed u/s 139(1) of the Act], Aggrieved, the assessee is before this Tribunal. 4. I have heard both the parties and perused the records. The assessee is a limited company and is in the business of providing software related services in India, and also provide export service outside India. The assessee filed return of income on 31.03.2021 and the shown net taxable income from business and profession at Rs.3,30,786/- and tax on same was Rs.1,03,206/-. During the year under consideration, the assessee has provided export services to Ambika Corporation, Japan which had deducted tax at source in respect of payments made to assessee as per, the domestic tax law of that country and issued certificate evidencing the same. And the assessee on the strength of the certificate, claimed FTC for the relevant year u/s 90 r.w. Article 23/12 of the India Japan DTAA of Rs.3,30,508/- and claimed tax payable as nil. On 31.03.2.021, assessee filed along with return of income, Form 67 and claimed FTC. However, the CPC by order dated 23.12.2021 denied/disallowed FTC (of Rs.1,03,203/-), for delay in filing Form 67, by passing the intimation order u/s 143(1) of the Act. The assessee filed rectification request before the CPC and vide order dated 11.08.2022 u/s 154 of the Act, the AO confirmed the earlier order of CPC. On appeal, the Ld. ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 3 CIT(A) confirmed the action by the AO/CPC. It is noted that this issue is no longer res-integra. Double Taxation relief is provided in Chapter IX of the Act and Section 90 of the Act provides that Government of India may enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. As per the Article 23 r.w. Article 12 of the India Japan DTAA, credit of foreign taxes need to be given. The relevant provision of DTAA of India-Japan i.e. Article 23 (Elimination of Double Taxation) sub-clause (2)(a) is extracted below: - “2. Double taxation shall be avoided in the case of India as follows: (a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction. Such deduction in either cse shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable, as the case may be, to the income which may be taxed in Japan. Further, where such resident is a company by which surtax is payable in India, the deduction in respect of income-tax paid in Japan shall be allowed in the first instance from income-tax payable by the company in India and as to the balance, if any, from surtax payable by it in India.” 5. The Ld. AR submitted that neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements. According to the Ld. AR, the assessee ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 4 acquires right as per Article 23(2)(a) of the DTAA r.w.s 90 of the Act and same cannot be disallowed for non-compliance of procedural requirements i.e. prescribed in the Rules. For such a propostion, the assessee cited the decision of the Banglore bench of this Tribunal in the case of M/s. Brinda Ramat Krishna Vs. ITO (ITA. No.454/Bang/2021 dated 17.11.2021 wherein the same issue came up before the Co-ordinate Bench of this Tribunal and the Tribunal held as under: - “7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that Section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below: “4. In the case of India, double taxation shall be avoided as follows: (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;” ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 5 It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirements. FTC is Assessee’'s vested right as per Article 24(4)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules. 8. It was further submitted by him that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: “(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters :— .............. (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;” 9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision. 10. It was further submitted that Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act. However, the Rule nowhere provides that if the said Form 67 is not filed ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 6 within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to section 80AC, 80- IA(7), 10A(5) and 10B(5). Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9). 11. It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that: "The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non- observance of all conditions irrespective of the purposes they were intended to serve." Further reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Sambhaji and Others v. ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 7 Gangabai and Others, reported in (2008) 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted that filing of Form 67 as per the provisions of section 90 read with Rule 128(9) is a procedural law and should not control the claim of FTC. 12. It was further submitted that even in the context of 80IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases:  CIT vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi)  PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 taxmann.com 16 (Allahabad)  CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 taxmann.com 379 (Karnataka)  CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi)  CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka). 13. It was submitted that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer. ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 8 Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the following cases and circulars: Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505 (SC) GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC) Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 taxmann.com 42 (SC) (Pg 106-109 of PB 2-Para 25 & 26) CBDT Circular No 333 dated 2/4/82 137 ITR (St.) It was submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision. 14. The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and cannot be subject matter of decision in Sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record. 15. In his rejoinder, the learned counsel for the Assessee submitted that Form No.67 was available before the AO when the intimation u/s.143(1) of the Act dated 28.5.2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s.154 of the Act on the ground that the issue was debatable but rather the ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 9 decision was given that the relevant rule was mandatory and hence non furnishing of Form No.67 before the due date u/s.139(1) of the Act was fatal to the claim for FTC. 16. I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the learned counsel for the Assessee and hold that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above. I am also of the view that the issue in the proceedings u/s.154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee’s application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard.” 6. Per contra, the Ld. DR could not controvert the relevant facts. However, he supported the action of the Ld. CIT(A) on the ground that the assessee failed to file Form No. 67 within the due date which was on 15.02.2021. Therefore, according to him, the Ld. CIT(A) confirmed the action of the AO passed u/s 154 of the Act and he doesn’t want this Tribunal to interfere in the action of Ld. CIT(A). ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 10 7. We note that the decision cited by the Ld. AR of the assessee squarely applies to the issue/lis before this Tribunal. Therefore, the impugned action of the Ld. CIT(A) cannot be countenanced. It is noted that Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67; and as decided by plethora of decisions on this issue which has held that filing of Form No. 67 is not mandatory but directory in nature. And it is trite law that DTAA overrides the Act and therefore Rules made there would obviously not over-ride the DTAA. Therefore, since the assessee has filed the Form No. 67 along with return of income on 31.03.2021, the AO is directed to grant FTC by taking into consideration, the Form No. 67 placed at page no. 38 of PB wherein the assessee has claimed credit of Rs.3,30,508/- in accordance to law. 8. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 14/07/2023. Sd/- (ABY T. VARKEY) JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 14/07/2023. Vijay Pal Singh, (Sr. PS) ITA No.1084/Mum/2023 A.Y. 2020-21 Ambibuzz Technologies LLP 11 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai