Precedents Cited

The tribunal extensively relied on prior judgments to bolster its decision, particularly emphasizing the supremacy of DTAA over domestic laws:

• M/s 42 Hertz Software India Pvt. Ltd. v. ACIT (ITA No.29/Bang/2021): Held that procedural lapses should not override substantive rights granted under DTAA.
• Ms. Brinda Kumar Krishna v. ITO (ITA No.454/Bang/2021): Affirmed that filing Form No. 67 is a directory requirement and not mandatory, thus not a valid ground to deny FTC.
• Various Supreme Court decisions, including Union of India Vs. Azadi Bachao Andolan and GE India Technology Centre P Ltd. Vs. CIT, reinforcing that DTAA provisions, when beneficial, override domestic tax laws.
• CBDT Circular No. 333 dated 02.04.82: Provided interpretative guidance aligning with the tribunal’s stance on DTAA supremacy.

Legal Reasoning

The court's reasoning hinged on the hierarchical precedence of DTAA over domestic procedural rules. Section 90 of the Income Tax Act empowers taxpayers to claim relief from double taxation as per the terms of the DTAA. The tribunal observed that while Rule 128 of the Income Tax Rules prescribes the procedure for claiming FTC, including the timely filing of Form No. 67, these procedural requirements are directory, not mandatory. Consequently, non-compliance with such procedures should not negate the substantive rights conferred by the DTAA.

Furthermore, the tribunal highlighted that DTAA provisions are designed to prevent double taxation and ensure fairness, thereby justifying their precedence over domestic laws. The decision underscored that procedural technicalities should not impede the realization of substantive tax rights, especially when international agreements are at play.

Impact

This judgment sets a significant precedent by reinforcing the principle that DTAA provisions take precedence over domestic procedural requirements in tax matters. Future cases involving FTC claims may reference this decision to argue that procedural lapses should not override the protections and benefits afforded under DTAA. Additionally, tax authorities might need to reassess their stance on procedural non-compliance when assessing FTC claims to ensure alignment with this interpretation.

For taxpayers, this ruling provides greater assurance that their substantive rights under international tax agreements will not be easily negated by procedural oversights. It encourages a focus on compliance with substantive requirements, rather than overemphasizing procedural formalities that may not impact the fundamental rights under DTAA.

Double Taxation Avoidance Agreement (DTAA)

DTAA is a treaty signed between two or more countries to avoid the issue of double taxation of income earned by individuals or businesses. It ensures that taxpayers are not taxed twice for the same income in two different jurisdictions.

Foreign Tax Credit (FTC)

FTC is a credit provided to taxpayers for taxes paid to a foreign government on income that is also subject to tax in their home country. It prevents double taxation by allowing the taxpayer to reduce their domestic tax liability by the amount of tax paid abroad.

Form No. 67

This is a specific form prescribed under Rule 128 of the Income Tax Rules, which taxpayers must file to claim FTC. It contains details of income earned and taxes paid in foreign countries, serving as evidence to substantiate the FTC claim.

Section 90 of the Income Tax Act, 1961

This section deals with the provisions for Double Taxation Avoidance Agreements. It allows taxpayers to avail tax reliefs as per the terms negotiated in DTAA between India and other countries to which it is a party.