Case Title: Duraiswamy Kumaraswamy Versus PCIT
Case No: W.P.No.5834 of 2022 and W.M.P.Nos.5925 and 5927 of 2022
Decided on: 06th October, 2023
CORAM: THE HON’BLE MR. JUSTICE KRISHNAN RAMASAMY
Introduction
The Madras High Court whole hearing a petition filed to overturn the First Respondent’s order in DIN and order dated 25.01.2022 for the Assessment year 2019–2020. Additionally, they require to order the First Respondent to excuse the late filing of Form-67 and approve the Foreign Tax Credit claim of Rs. 23,23,484/- accepted that the Foreign Tax Credit (FTC) claim, arguing that proper compliance is demonstrated by completing Form-67 after the Income Tax Return (ITR) is filed but prior to the issue of an intimation.
Facts of the Case
In this case, the petitioner moved to India for the 2018–2019 fiscal year after working as a CEO in Kenya from 2016 to 2018. The petitioner made money in Kenya and India throughout this time. In compliance with the Double Taxation Avoidance Agreement (DTAA) between Kenya and India, the petitioner submitted an Indian income tax return for the assessment year 2019–2020 and claimed the benefit of the Foreign Tax Credit (FTC) under Section 90/91 of the Income Tax Act, 1961.
The petitioner accidentally failed to upload Form-67, which is required by Rule 128 of the Income Tax Rules, 1962, in order to claim the Federal Tax Credit (FTC), during the filing of their Indian income tax return. But on February 2, 2021, the petitioner corrected this by uploading the Tax Deduction Certificate (TDC) and Form 67. Following this, on March 26, 2021, the petitioner received an email informing them that the income tax return had been handled by the Centralised Processing Centre (CPC), Bangalore, in accordance with Section 143(1) of the Act.
On March 27, 2021, the petitioner requested that the CPC apply the Foreign Tax Credit (FTC) because the FTC was not granted even after Form 67 was submitted. On May 3, 2021, the petitioner additionally asked for the intimation to be corrected to reflect the FTC through e-proceedings. Nonetheless, the petitioner did not receive the fulfilment of these demands, and on May 18, 2021, the Act’s Section 143(1) provided notification of a demand.
The petitioner has cited the Hon’ble Supreme Court’s decision in Civil Appeal Nos. 10782 of 2013 and 4048 of 2014, dated June 24, 2015, in the matter of Commissioner of Income-Tax, Maharashtra v. G.M. Knitting Industries (P) Ltd. As per the ruling, the Supreme Court decided that filing Form 3AA throughout the assessment process and prior to the final assessment decision being issued will be deemed adequate compliance, even if it is not submitted with the income return.
The petitioner pursued the case further, asking the CPC to implement the FTC’s decision on May 26, 2021. Following that, on June 15, 2021, the petitioner received an email correction order on July 21, 2021, along with a demand for Rs. 29,69,260. The petitioner contends that Rule 128’s approach is just directory and not required. The petitioner got the notification pursuant to Section 143(1) on March 26, 2021, even though the FTC was uploaded on February 2, 2021, despite filing it well in advance of the assessment proceedings coming to an end. After the Department denied the petitioner’s request, a rectification order with a comparable requirement was issued on July 21, 2021.
According to the Department, the Rule 128 procedure is mandatory and should not be interpreted as merely directory or advisory. The Department’s position is that, in compliance with Section 139, Form-67 needs to be turned in by the deadline for filing the income tax return.
Courts analysis and decision
The court observed that the FTC was left out of the initial returns submissions. But the FTC was filed ahead of the official assessment order. The court stressed that the FTC submission is of a directory nature in accordance with Rule 128. The rule’s primary function is to make the Act’s requirements easier to apply, and it is by its very nature directory.
The court also noted that although the FTC had been filed on February 2, 2021, the notification pursuant to Section 143(1) had been issued on March 26, 2021. As such, the department has a duty to suitably recognise and attribute the petitioner’s FTC. It was decided that the department’s denial of the FTC was unlawful and in conflict with the law.
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Written by- Rupika Goundla
