Keval Niraj Hutheesing, Ahmedabad V. The ITO, Ward-3(3)(1), Ahmedabad

ITA 559/AHD/2022

AI Insights

The case involves Keval Niraj Hutheesing, an individual who worked in the UK and returned to India during the assessment year 2019-20. He declared his global income, including salary from the UK, in his Indian tax return and claimed a foreign tax credit for taxes paid in the UK. The Assessing Officer initially did not grant this credit, leading to a series of appeals. The main legal contention was whether the procedural requirements under Rule 128(9) of the Income Tax Rules, which were not fully complied with, should bar the foreign tax credit, especially when the DTAA provisions were in favor of the assessee. The Tribunal's decision emphasized the primacy of substantive law over procedural requirements in the context of international tax treaties.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299985 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 15-03-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 08-12-2022
• Other Referred Cases: Sanjay Patil vs. The Assessing Officer ITA No. 189 of 2021 (Surat), Ms. Brinda RamaKrishna v. The Income Tax Officer ITA No. 454 of 2021 (Bangalore), Vinodkumar Lakshmipathi v. CIT(A) NFAC ITA No. 680 of 2022 (Bangalore), Sonakshi Sinah v. Commissioner of Income-Tax (Appeals) ITA No. 1704 of 2022 (Mumbai), 42 Hertz Software India Pvt. Ltd. v. Assistant Commissioner of Income Tax ITA No. 29 of 2021 (Bangalore)
• Laws Referred To: Income Tax Act, 1961, DTAA between India and UK
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Residential status; Rectification of order; Double taxation relief; Opportunity of being heard; Principle of natural justice
• Section: 6; 90; 154; 234B; 139(5); 143(1); 207; 139(1); 72; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . No .5 59 /A h d / 20 22 ( A s se ss m e nt Y e a r : 20 19- 20 ) Ke va l N ir a j H u th e e s in g 6, A a la p B u n g lo w - 3, N e ar H i ma li To w er , Sa te lli te , A h me da ba d V s . I T O, War d - 3 ( 3) ( 1 ) , A h me da ba d [ P AN N o. A K SP H 4 41 3J ] (Appellant) .. (Respondent) Appellant by : Ms. Amrin Pathan, A.R. Respondent by: Shri R. R. Makwana, Sr. D.R. D a t e of H ea r i ng 16.03.2023 D a t e of P r o no u n ce me nt 29.03.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. CIT(Appeals), National Faceless Appeal Centre (in short “NFAC”), Delhi on 13.10.2022 for A.Y. 2019-20. 2. The grounds of appeal raised by the assessee are as under: “1. The Order passed by the learned CIT(A) is erroneous and contrary to the provision of law and facts and therefore required to be suitably modified. It is submitted that it be so done now. 2. The Order passed by the learned CIT(A), disallowing the claim of foreign tax credit, is bad in laws as no opportunity of being heard was provided to the Appellant as required under Faceless Appeal scheme notified under sub-section (6B) of section 250 of the Act. The learned CIT(A) failed to follow principle of natural justice before passing such order and thus such order is liable to be quashed. It is submitted that it be so held now. 3. The learned CIT(A) has erred in not adjudicating the ground no.1 of the appeal filed before CIT(A) in respect of not providing opportunity of being heard to the Appellant u/s 154(3) of the Act. It is submitted it be so held now. 4. The learned CIT(A) has erred in facts and in law in nor allowing the credit in respect of foreign tax paid of Rs.2,37,653 u/s. 90 of the Act read with Article 24(2) of the DTAA between India and UK, inspite of the fact that foreign income on which such taxes has been paid is duly offered to tax in return of income. 5. The learned CIT(A) has erred in facts and in law in holding that claim of foreign tax credit cannot be granted on the ground that the provisions of Rule 128(8)(ii) and 128(9) of the Income Tax Rules are not complied with. It is submitted it be so held now. ITA No. 559/Ahd/2022 Keval Niraj Hutheesing vs. ITO Asst.Year–2019-20 - 2 - 6. The learned CIT(A) erred in facts and in law in not allowing the credit of foreign tax paid on invalid ground of delay in filing Form 67 as per Rule 128 of the Income Tax Rules. 7. The learned CIT(A) erred in not directing the AO to delete excess interest levied under section 234B and 234C of the Act. It is submitted it be so held now. Your appellant prays for leave to add, alter and/or to amend any of the grounds before the final hearing of the appeal.” 3. The assessee is an individual working in United Kingdon as Audit Proof Staff-TM and earning income by way of salary. During the assessment year under consideration he was working in United Kingdom till 15.02.2019 and then came back to India. Considering his total stay in India and outside India for A.Y. 2019-20 the assessee’s residential status is resident of India for A.Y. 2019-20 as per Section 6 of the Income Tax Act, 1961 as well as under Article 4 of DTAA between India and United Kingdom. The assessee accordingly filed return of income on 31.08.2019 declaring total income of Rs. 27,68,730/- which includes salary income from United Kingdom. Since salary income earned in United Kingdom and offered to tax in India, the assessee claimed relief of Rs. 2,37,653/- of taxes paid in UK as per Section 90 of the Act read with Article 24 of DTAA between India and UL while filing tax return. The return of income was processed under Section 143(1) on 19.03.2021 wherein credit for taxes paid in UK was not granted by the Assessing Officer. The assessee filed From 67 on 05.04.2021 and rectification application under Section 154 of the Act on the same day. The rectification order was passed on 29.04.2021 but the mistake for non-grant of foreign tax credit was not rectified. 4. Being aggrieved by the rectification order under Section 154 dated 29.04.2021 the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee. ITA No. 559/Ahd/2022 Keval Niraj Hutheesing vs. ITO Asst.Year–2019-20 - 3 - 5. The Ld. A.R. submitted that the Assessing Officer without giving any opportunity to the assessee as not rectified return of income under Section 143(1) thereby not granting foreign tax credit as per Section 154(3) of the Act. The Ld. A.R. further submitted that the CIT(A) has also not granted any opportunity of being heard to the assessee and thus failed to follow principle of natural justice. The Ld. A.R. further submitted that the CIT(A) as well as the Assessing Officer has not taken cognizance of the fact that foreign income on which taxes has already been paid should not be taxed again in India as the assessee has already credited foreign tax and paid to the extent of Rs. 2,37,653/- under Section 90 of the Act read with Article 24(2) of the DTAA between India and UK. The Ld. A.R. further submitted that the CIT(A) erred in law holding that claim of foreign tax credit cannot be granted on the ground that provisions of Rule 128(8)(ii) and 128(9) of the Income Tax Rules are not complied with. The Ld. further submitted that the CIT(A) erred in not allowing the foreign tax paid on invalid ground of delay in filing From 67 as per Rule 128 of the Income Tax Rules. The Ld. A.R. relied upon the following decisions: (1) Sanjay Patil vs. The Assessing Officer ITA No. 189 of 2021 (Surat) (2) Ms. Brinda RamaKrishna v. The Income Tax Officer ITA No. 454 of 2021 (Bangalore) (3) Vinodkumar Lakshmipathi v. CIT(A) NFAC ITA No. 680 of 2022 (Bangalore) (4) Sonakshi Sinah v. Commissioner of Income-Tax (Appeals) ITA No. 1704 of 2022 (Mumbai) (5) 42 Hertz Software India Pvt. Ltd. v. Assistant Commissioner of Income Tax ITA No. 29 of 2021 (Bangalore) ITA No. 559/Ahd/2022 Keval Niraj Hutheesing vs. ITO Asst.Year–2019-20 - 4 - 6. The Ld. D.R. relied upon the order under Section 154 (3) of the Act and order of the CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has paid the taxes on the income earned in United Kingdom in that country and assessee is asking for credit of the same while filing the return of income. The CIT(A) held that the assessee has not filed Form 67 before time allowed under Section 139(5) of the Act and therefore, Form 67 is non-est in law does not categorically discussed the assessee’s case as the assessee has already paid taxes in UK and as per Article 24(2) of the DTAA between India and UK the foreign income cannot be taxed twice. The decision of Bangalore Tribunal in case of Vinodkumar Lakshmipathi vs. CIT is dealing on the identical situation and the Tribunal has taken cognizance of the same in light of the decision of Hon’ble Supreme Court in case of Mangalore Chemicals & Fertilizers Ltd. vs. DCIT (1992 Supp (1) SCC 21) wherein it was observed as under: “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." The Tribunal further held that: Further reliance was placed on the decision of the Hon'ble Supreme Court, in the case of Sambhaji and Others v. 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 80-IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is ITA No. 559/Ahd/2022 Keval Niraj Hutheesing vs. ITO Asst.Year–2019-20 - 5 - 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 v. Axis Computers (India) (P.) Ltd. [2009] 178 Taxman 143 (Delhi) ♦ PCIT, Kanpur v. Surya Merchants Ltd. [2016] 72 taxmann.com 16 (Allahabad) ♦ CIT, Central Circle v. American Data Solutions India (P.) Ltd [2014] 45 taxmann.com 379 (Karnataka) ♦ CIT-II v. Mantec Consultants (P.) Ltd. [2009] 178 Taxman 429 (Delhi) ♦ CIT v. 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. 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) (Pgs. 106-109 of PB 2-Paras 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 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. ITA No. 559/Ahd/2022 Keval Niraj Hutheesing vs. ITO Asst.Year–2019-20 - 6 - 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. 17. In the result, the appeal is allowed.'” 8. Thus, the facts are identical in the present case as well and therefore, we direct the Assessing Officer to give credit for foreign tax as per Form 67 dated 05.04.2021 filed by the assessee prior to the filing of the appeal before the CIT(A) after due verification. 9. In result, appeal of the assessee is partly allowed for statistical purpose. This Order pronounced in Open Court on 29/03/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 29/03/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad