The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that a genuine claim for Foreign Tax Credit (FTC) should not be denied merely because of procedural or technical lapses, observing that taxes cannot be collected without the authority of law.
The bench of Prashant Maharishi (Vice President) condoned a substantial delay of 1,933 days in filing the appeal and directed the Assessing Officer (AO) to examine the taxpayer’s foreign tax credit claim on merits after verification.
The taxpayer, a dental surgeon and managing partner of a partnership firm in Bengaluru, earned income from multiple sources, including professional fees received from Elite Dental Clinic Limited, Tanzania, apart from partner’s remuneration, bank interest, commission income and house property income.
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For Assessment Year 2018-19, the taxpayer filed her income tax return declaring total income of ₹15.18 lakh and claimed Foreign Tax Credit of ₹79,742 under Section 90 of the Income Tax Act in respect of taxes paid in Tanzania. According to the records, Form No. 67, which is mandatory for claiming FTC, had also been filed electronically before the due date for filing the return.
However, while processing the return under Section 143(1), the Central Processing Centre (CPC) disallowed the foreign tax credit, resulting in an additional tax demand of ₹99,290.
Instead of examining whether the taxpayer was legally entitled to the foreign tax credit, the Commissioner (Appeals) dismissed the appeal after holding that it had been filed with a delay of 1,933 days.
The taxpayer explained that she was unaware that an appeal against an intimation issued under Section 143(1) could be filed electronically through Form No. 35. She stated that the appeal was filed immediately after obtaining professional advice from a Chartered Accountant and an Advocate.
Before the Tribunal, the taxpayer argued that there was no default in filing Form No. 67, which had been uploaded within the prescribed due date along with the return of income. Therefore, the foreign tax credit ought to have been granted while processing the return.
It was further contended that once the supporting documents—including Form No. 67, the Tanzanian tax deduction certificate and the applicable Double Taxation Avoidance Agreement (DTAA)—were already available on record, the Revenue authorities should not have rejected the claim merely on technical grounds.
The taxpayer also relied upon Article 265 of the Constitution, submitting that no tax can be collected except by authority of law and that a legally available tax credit cannot be denied because of procedural shortcomings.
The Department opposed the appeal, arguing that the taxpayer had failed to establish sufficient cause for the extraordinary delay of 1,933 days and therefore the appellate authority was justified in refusing to condone the delay.
The Tribunal observed that the central issue was not the delay itself but whether a legitimate foreign tax credit could be denied when the taxpayer had already filed Form No. 67 before the due date and the supporting documents were available before the return was processed.
The Bench accepted the taxpayer’s explanation that she was genuinely unaware of the electronic appeal-filing procedure and that she filed the appeal immediately after receiving professional assistance. It held that such ignorance, in the facts of the case, constituted sufficient cause for the delay.
The Tribunal further observed that if Form No. 67 had indeed been filed within the prescribed time and the claim was otherwise supported by law, the taxpayer could not be deprived of the foreign tax credit merely because of procedural issues.
Reiterating the constitutional principle that “no tax can be collected without authority of law,” the Tribunal emphasized that substantive tax relief should not be denied on technical grounds where the taxpayer has otherwise complied with the statutory requirements.
Rather than granting the credit outright, the ITAT restored the matter to the Assessing Officer for fresh examination.
The Tribunal directed the taxpayer to produce Form No. 67, the certificate evidencing tax deduction in Tanzania, and documents showing that the corresponding income had been offered to tax in India. The Assessing Officer was instructed to verify these records and grant the foreign tax credit if the claim is found to be in accordance with law.
The Tribunal allowed the appeal for statistical purposes, setting aside the NFAC’s order and directing fresh verification of the foreign tax credit claim.
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