Rectification order u/s 154 quashed by High Court, CPC directed to give Foreign Tax Credit
In a recent judgment, the Hon’ble Madras High Court has set aside the rectification order passed u/s 154 and directed Centralized Processing Center (CPC) Bengaluru to take into consideration the Foreign Tax Credit as per Form 67 filed along with the income tax return.
ABCAUS Case Law Citation:
4277 (2024) (10) abcaus.in HC
Important Case Laws relied upon:
Duraiswamy Kumaraswamy Vs. Principal Commissioner of Income Tax (2023) 156
CIT Vs. G.M.Knitting Industries (P) Ltd.,
his Writ Petition has been filed a Writ Petition challenging the impugned rectification order passed under Section 154 of the Income Tax Act, 1961 (the Act) read with section 143(1) by CPC Bengaluru denying the credit for Foreign Tax as claimed in Form No. 67.
The petitioner filed his income tax return for the relevant assessment year (AY 2022-2023) in terms of Section 139 of the Act and claimed the Foreign Tax Credit. The petitioner submitted the Form No. 67, to claim the Foreign Tax Credit under the Double Taxation Avoidance Agreement (DTAA) entered into between Republic of India and United States of America (USA).
The petitioner received an intimation by CPC u/s 143(1) of the Act, not granting the benefit of the Foreign Tax Credit, by raising a demand along with consequential interest. The petitioner filed a rectification request for reprocessing the return of income through the income tax portal along with Form No. 67 by showing the foreign tax paid in terms of Section 139(4) of the Act. However, the CPC vide the impugned order u/s 154 read with Section 143 (1) of the Act, had not provided any credit to the amount of foreign tax paid by the petitioner, which was furnished under Form No.67.
Aggrieved, the instant Writ Petition was filed.
The Income Tax Department strongly opposed the submissions of the petitioner and submitted that in terms of Section 139 of the Act, Form No. 67 should be filed on or before the due date of filing the return of income tax. It was submitted that since Rule 128 of the Income Tax Rules, 1962 is mandatory, the CPC had rightly rejected the Foreign Tax Credit filed subsequent to the return. However, it was also submitted that if the Court thinks it fit to quash the impugned order, the CPC can consider the aspect of Form No. 67 alone.
The Hon’ble High Court observed that admittedly, the petitioner had filed his income tax return
along with Form No. 67. The petitioner was working in a foreign country and paid the income tax. While passing the intimation under Section 143 (1) of the Act, the aspect of payment of foreign tax had not at all been considered, though it was filed along with the income tax return. After receipt of the intimation, the petitioner filed rectification application to rectify the same and to consider the Form No.67. Though the application was submitted once again, without considering the vital aspects, simply it was rejected, which was not proper and the same was not in accordance with law.
It was observed that the Hon’ble High Court had already laid that filing of Form No.67 is not mandatory or directory. Even by following the law laid down by the Hon’ble Supreme Court of India the Court had held that filing of Foreign Tax Credit in terms of Rule 128 is only directory in nature.
Accordingly, the Hon’ble High Court set aside the impugned order and the matter was remitted back to the CPC to make reassessment by taking into consideration of the Foreign Tax Credit filed by the petitioner under Form No. 67. The CPC was directed to give due credit to the petitioner’s foreign income and pass the final assessment order.
Further, it was made clear that the impugned order was set aside only to the extent of disallowing of Foreign Tax Credit claim made by the petitioner and hence the CPC was directed to reassess only on the aspect of rejection of Foreign Tax Credit.
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