Introduction

The case of Bhaskar Dutta v. Director of Central Income Tax (DCIT), Int. Taxation 1(2)(2), New Delhi adjudicated by the Income Tax Appellate Tribunal (ITAT), New Delhi Bench on January 11, 2023, addresses a pivotal issue concerning the eligibility for foreign tax credit (FTC) when Form 67 is filed beyond the stipulated deadline due to extraordinary circumstances caused by the COVID-19 pandemic.

Parties Involved:

• Appellant: Bhaskar Dutta, a non-resident individual.
• Respondent: DCIT, Int. Tax-1(2)(2), New Delhi.

The principal matter revolved around the appellant's claim for FTC, which was initially rejected on the grounds of late submission of Form 67. The appellant contended that the delays were attributable to the COVID-19 pandemic, seeking relief based on extensions granted by the Hon'ble Supreme Court.

Summary of the Judgment

The ITAT, after meticulous examination of the submissions and relevant legal provisions, held that Bhaskar Dutta duly filed Form 67 within the extended limitation period as mandated by the Supreme Court due to the COVID-19 pandemic. Consequently, the Tribunal ruled in favor of the appellant, directing the Assessing Officer to approve the foreign tax credit initially disallowed.

Key Findings:

• The original deadline for filing Form 67 was missed; however, extensions were granted due to COVID-19.
• Rule 128(9) of the Income Tax Rules does not categorically mandate the timely filing of Form 67, interpreting it as a directory requirement rather than a stringent obligation.
• Precedents cited supported the view that exceptional circumstances warrant flexibility in compliance timelines.
• The Tribunal emphasized that FTC provisions under Sections 90 and 91 of the Income Tax Act take precedence over procedural rules in exigent situations.

Analysis

Precedents Cited

The judgment extensively relied on previous tribunal decisions to substantiate the appellant's stance:

• Ms. Brinda Rama Krishna v. ITO (ITA No. 454/Bang/2021): The Tribunal held that Rule 128(9) does not preclude FTC claims due to delayed Form 67 filing, emphasizing the directory nature of the requirement.
• Sonakshi Sinha v. CIT (ITA No. 1704/Mum/2022): This case reinforced the interpretation that Form 67's timely filing is not an absolute prerequisite for FTC eligibility, especially under extended limitation scenarios.
• Murli Baddi v. ACIT (2022): Supported the notion that procedural delays should not undermine substantive tax credits when justified by circumstances like the pandemic.

These precedents collectively influenced the Tribunal's rationale, highlighting a judicial inclination towards equitable interpretations during unprecedented times.

Legal Reasoning

The Tribunal's legal reasoning centered on the distinction between mandatory and directory provisions within tax regulations. Rule 128(9) specifies the requirements for claiming FTC via Form 67 but does not explicitly mandate strict compliance with deadlines to the extent of disallowing credits. Given the extraordinary constraints posed by COVID-19, the Tribunal opined that the spirit of the law intended to facilitate rightful tax claims should prevail over rigid procedural adherence.

Additionally, the Tribunal highlighted that Sections 90 and 91 of the Income Tax Act, which govern FTC, should supersede procedural impediments, especially when delays are beyond the taxpayer's control.

Impact

This judgment sets a significant precedent for future cases where taxpayers face delays in procedural compliance due to exceptional circumstances. It underscores the judiciary's willingness to interpret tax laws with flexibility, ensuring that substantive rights like FTC are not unduly compromised by formalistic hurdles.

Potential Implications:

• Enhanced taxpayer confidence in claiming FTC despite procedural delays caused by unforeseen events.
• Encouragement for tax authorities to exercise discretion in similar contexts, promoting fair taxation practices.
• Possible reevaluation of procedural rules to incorporate provisions for exceptions during emergencies.

Complex Concepts Simplified

Form 67: A declaration required under the Income Tax Act for taxpayers claiming a credit for taxes paid in foreign countries to avoid double taxation.

Foreign Tax Credit (FTC): A credit allowable to taxpayers for taxes paid in a foreign jurisdiction, ensuring that the same income is not taxed twice.

Rule 128(9) of the Income Tax Rules: Specifies the requirements and timeline for filing Form 67 when claiming FTC.

Sections 90 and 91 of the Income Tax Act: Deal with agreements for the avoidance of double taxation and prevention of fiscal evasion, facilitating FTC claims.

Directory vs. Mandatory Requirement:

• Mandatory: Obligatory compliance; failure to adhere results in penalties or denial of benefits.
• Directory: Advisory guidelines; non-compliance does not automatically lead to adverse consequences.

Conclusion

The Tribunal's decision in Bhaskar Dutta v. DCIT marks a crucial interpretation of procedural tax compliance amidst global crises. By acknowledging the unprecedented challenges posed by the COVID-19 pandemic and prioritizing substantive rights over procedural delays, the judgment reinforces the principle of equitable taxation. This case serves as a beacon for both taxpayers and tax authorities, emphasizing the need for flexibility and fairness in the application of tax laws during extraordinary circumstances.