Foreign Tax Credit cannot be rejected due to Form 67’s late filing
This appeal has been lodged by the taxpayer against the ruling delivered by the Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi, hereinafter referred to as Ld. ‘CIT(A)’, for the Assessment Year (AY) 2017-18. The sole matter brought up by the taxpayer pertains to the decision made by the Ld. CIT(A) that upheld the order of the Assessing Officer (AO) under sections 154 read with 143(3) of the Income Tax Act, 1961 (the ‘Act’). The disputed issue pertains to the disallowance of foreign tax relief claimed amounting to Rs. 17,72,470/-, which was sought under sections 90/90A of the Act.
The factual background of the case is as follows:
The taxpayer has been an employee of Cognizant Technology Solutions India Pvt. Ltd. since 1999 and was assigned to the UK in May 2008, working there until September 2020. Subsequently, the taxpayer was relocated back to India. During this tenure, the taxpayer received benefits from their employer in the form of equity shares and restricted stock under the Employee Stock Option Plan (ESOP). These stocks vested over a four-year period, contingent on the taxpayer’s continued employment with the company under the ESOP. The taxable profit for the taxpayer was calculated based on the grant price of $19.66 and the sale price. Tax was deducted in the UK, amounting to Rs. 17,72,470/-, which the taxpayer claimed as foreign tax relief under section 90 of the Act.
However, the taxpayer failed to file Form-67, which is required to be submitted on or before the filing of the income tax return under section 139(1) of the Act. The income tax return was filed after the due date, and Form-67 was filed with a delay of two and a half years from the date of filing the return. The AO CPC issued an order under section 143(1) of the Act dated March 28, 2019, allowing the foreign tax relief claim. Subsequently, upon the filing of Form-67 in relation to the foreign tax deducted, the AO issued an order under section 154 of the Act, withdrawing the foreign tax credit of Rs. 17,72,470/- on the basis of the delay in filing Form-67.
The CIT(A) also dismissed the taxpayer’s appeal, upholding the AO’s decision, citing non-compliance with the provisions of Rule 128 of the Income Tax Rules, 1962, by not filing Form-67 by the due date of the return of income under section 139(1) of the Act.
Upon reviewing the arguments presented by both sides and examining the evidence on record, it is evident that the taxpayer was working abroad and foreign tax of Rs. 17,72,470/- was withheld in the United Kingdom under the Double Taxation Avoidance Agreement (DTAA) between India and the UK, as well as section 90(2) of the Act. While Rule 128, Sub-Rule 9 mandates the filing of Form-67 by the due date of the return of income, there is no provision that expressly states the denial of foreign tax credit in case of a delayed filing of Form-67 for foreign tax credit. Therefore, it is reasonable to conclude that the taxpayer is entitled to receive the foreign tax credit of Rs. 17,72,470/- under section 90 of the Act.
Furthermore, it is important to note that the claim for foreign tax credit was initially accepted in the order passed under section 143(1) of the Act dated March 28, 2019. The AO later withdrew this credit by issuing an order under section 154 of the Act when the taxpayer submitted Form-67 before the AO. In our opinion, it is not justifiable to deny the taxpayer the foreign tax credit due to the technicality of not submitting Form-67 by the due date of filing the return under section 139(1) of the Act.
The decision in favor of the taxpayer is supported by the rulings of Coordinate Benches in similar cases, such as Atanu Mukherjee vs. ITO in ITA No. 439/KOL/2022 for AY 2020-21, dated December 20, 2022, and Sobhan Lal Gangopadhyay vs. ADIT in ITA No. 782/KOL/2022 for AY 2020-21, dated May 9, 2023.
In conclusion, the appeal filed by the taxpayer is deemed valid, and the foreign tax credit of Rs. 17,72,470/- is allowed. This decision was rendered on July 19, 2023, in Kolkata.