Introduction

The case of Ritesh Kumar Garg v. ITO, Wd 4(2), Jaipur addresses the contentious issue of the disallowance of Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act, 1961, based solely on procedural non-compliance. The appellant, Shri Ritesh Kumar Garg, a salaried employee of M/s. Infosys Limited, sought relief for foreign taxes paid while employed in Finland. The primary contention revolved around the denial of FTC due to the late filing of Form 67.

Summary of the Judgment

The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, delivered its judgment on September 15, 2022, presided over by Hon'ble Shri Sandeep Gosain, Judicial Member. The Tribunal upheld the appellant's contention that the disallowance of FTC was unjustified when based solely on the late submission of Form 67, a procedural requirement. Emphasizing the supremacy of substantive rights over procedural technicalities, the Tribunal directed the Assessing Officer (AO) to grant the disputed FTC of Rs. 1,67,300/- under Section 90 of the Income Tax Act.

Analysis

Precedents Cited

The Tribunal extensively relied on several pivotal judgments to substantiate its stance:

• Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner (1992): Emphasized the distinction between substantive and procedural conditions, cautioning against the rigid enforcement of procedural norms that hinder substantive rights.
• Sambhaji & Ors. v. Gangabai & Ors. (2008): Affirmed that procedural laws should serve justice and not act as barriers, describing procedures as aids rather than obstacles.
• Brinda Rama Krishna v. ITO and 42 Hertz Software India Pvt. Ltd. v. ACIT: Highlighted instances where delayed filing of Form 67 did not warrant the denial of FTC, reinforcing the principle that procedural delays should not impede substantive rights.

Legal Reasoning

The core of the Tribunal's reasoning was the distinction between procedural and substantive requirements. It asserted that:

• Substantive Right: The appellant had an inherent right to claim FTC under Section 90, supported by the Double Taxation Avoidance Agreement (DTAA) between India and Finland.
• Procedural Requirement: While Rule 128(9) mandates the filing of Form 67 within a stipulated timeframe, the Tribunal posited that this is a procedural, directory requirement, not a mandatory one that can override substantive rights.
• Supremacy of DTAA: The Tribunal emphasized that DTAA provisions, being more beneficial to the taxpayer, take precedence over domestic procedural rules that are not explicitly designed to deny benefits.
• Judicial Precedent: Drawing parallels with the cited judgments, the Tribunal underscored that procedural compliance should facilitate, not hinder, the enforcement of substantive rights.

Impact

This judgment reinforces the principle that procedural lapses should not negate substantive rights, especially in the context of international tax agreements like DTAA. It sets a precedent for:

• Taxpayers: Greater confidence in claiming FTC without the fear of procedural technicalities leading to denial.
• Tax Authorities: Encouragement to exercise discretion and fairness, ensuring that procedural rules serve their intended purpose without undermining taxpayer rights.
• Future Litigation: Potential challenges to procedural denials in favor of upholding substantive entitlements under tax laws and treaties.

Complex Concepts Simplified

• Section 90 of the IT Act: Allows taxpayers to claim relief from double taxation through agreements (DTAA) between India and other countries where income is taxed.
• Foreign Tax Credit (FTC): A credit available to taxpayers for taxes paid abroad, preventing double taxation of the same income.
• Form 67: A prescribed form to be filed by Indian residents to claim FTC under DTAA provisions.
• DTAA (Double Taxation Avoidance Agreement): An agreement between two countries to prevent the same income from being taxed twice, facilitating smoother international trade and investment.
• Procedural vs. Substantive Law: Procedural laws govern the process of enforcing rights, while substantive laws define the rights themselves. This case highlights the importance of not allowing procedural oversights to nullify substantive rights.

Conclusion

The ITAT Jaipur's judgment in Ritesh Kumar Garg v. ITO, Wd 4(2), Jaipur marks a significant affirmation of taxpayers' substantive rights over procedural technicalities. By prioritizing the spirit of tax treaties and the inherent rights under Section 90, the Tribunal underscores the judiciary's role in ensuring fairness and justice in tax administration. This landmark decision not only benefits the appellant but also sets a reassuring precedent for countless taxpayers navigating the complexities of international taxation.