Filing Form 67 for Foreign Tax Credit Is Directory, Not Mandatory Under Rule 128(9) of Income Tax Rules

ITAT Chennai held that filing Form 67 for claiming foreign tax credit is directory, not mandatory. Despite the form being filed belatedly and not in strict compliance with rule 128(9) of the Income Tax Rules, the assessee was entitled to the foreign tax credit as the form was submitted before completion of assessment. The appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

• Whether the foreign tax credit (FTC) can be denied solely on the ground of belated filing of Form No. 67 beyond the due date specified under section 139(1) of the Income Tax Act.
• Whether the requirement to file Form No. 67 on or before the due date of filing the return of income is mandatory or directory in nature.
• Whether delay in filing Form No. 67, when filed before completion of assessment proceedings, disentitles the assessee from claiming foreign tax credit.
• Whether the amendment to Rule 128(9) of the Income Tax Rules, allowing filing of Form No. 67 on or before the end of the assessment year, impacts the timeline and consequences of delayed filing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Mandatory vs. Directory Nature of Filing Form No. 67 for Claiming Foreign Tax Credit

Relevant Legal Framework and Precedents: Rule 128(9) of the Income Tax Rules, 1962 requires that Form No. 67, which is a statement for claiming foreign tax credit, shall be furnished on or before the due date specified for filing the return of income under section 139(1). Section 90 and 91 of the Income Tax Act provide for foreign tax credit but do not prescribe a timeline for filing Form No. 67. Prior Tribunal decisions, including those by coordinate benches, have held that the requirement to file Form No. 67 before the due date is directory and not mandatory.

Court's Interpretation and Reasoning: The Tribunal observed that Rule 128(9) does not specify any adverse consequence or penalty for delay in filing Form No. 67. The absence of such a provision indicates that the rule is procedural rather than substantive. The Tribunal relied on consistent coordinate bench decisions which held that the requirement to file Form No. 67 before the due date of return filing is directory. The principle that procedural requirements without explicit negative consequences are generally not mandatory was applied.

Key Evidence and Findings: The assessee filed the return of income under section 139(1) on 10-01-2021 but filed Form No. 67 on 15-01-2021, which was beyond the due date. However, Form No. 67 was filed before the completion of the assessment proceedings. The Tribunal noted no statutory provision denying FTC for such delay.

Application of Law to Facts: The Tribunal applied the legal principle that procedural non-compliance without prescribed consequences is directory. Since Rule 128(9) does not prescribe denial of FTC for late filing, the delay in filing Form No. 67 did not disentitle the assessee from claiming credit.

Treatment of Competing Arguments: The Revenue contended that delay in filing Form No. 67 beyond the due date mandated denial of FTC. The Tribunal rejected this, distinguishing the facts from cases involving violations of substantive provisions and emphasizing the procedural nature of Rule 128(9).

Conclusions: The filing of Form No. 67 is directory and not mandatory. Delay in filing beyond the due date specified under section 139(1) does not automatically result in denial of foreign tax credit, provided the form is filed before completion of assessment proceedings.

Issue 3: Effect of Filing Form No. 67 Before Completion of Assessment Proceedings

Relevant Legal Framework and Precedents: The Tribunal referred to recent decisions including the Mumbai Tribunal's ruling in a similar case where Form No. 67 was filed during assessment proceedings, allowing FTC despite delay. The principle is that filing before completion of assessment suffices.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee complied with filing Form No. 67 before the assessment was completed, which aligns with the procedural intent of Rule 128(9). The Tribunal emphasized that the legislative amendment effective 1 April 2022 further extended the permissible timeline to the end of the assessment year, reflecting legislative intent to relax strict timelines.

Key Evidence and Findings: The assessee's Form No. 67 was filed on 15-01-2021, after the return but before assessment completion, satisfying the procedural requirement as interpreted by the Tribunal.

Application of Law to Facts: The Tribunal applied the principle that procedural timelines are flexible when no explicit penalty or denial is prescribed. Filing Form No. 67 before assessment completion is sufficient to claim FTC.

Treatment of Competing Arguments: The Revenue's argument that strict adherence to filing deadlines is mandatory was rejected in light of the procedural nature of the rule and absence of statutory denial for delay.

Conclusions: Filing Form No. 67 before completion of assessment proceedings is adequate for claiming foreign tax credit, even if filed after the due date for filing the return of income.

Issue 4: Impact of Amendment to Rule 128(9) Allowing Filing of Form No. 67 up to End of Assessment Year

Relevant Legal Framework and Precedents: The amendment to Rule 128(9) effective from 1 April 2022 permits filing Form No. 67 on or before the end of the assessment year, extending the timeline beyond the earlier due date of filing the return.

Court's Interpretation and Reasoning: The Tribunal observed that the legislative amendment reflects a conscious decision to relax the timeline for filing Form No. 67. This supports the view that the timeline for filing is not mandatory and that delay beyond the return filing due date should not automatically result in denial of FTC.

Key Evidence and Findings: The amendment was cited to demonstrate legislative intent to provide flexibility in filing Form No. 67, reinforcing the Tribunal's view that the earlier strict timeline was not mandatory.

Application of Law to Facts: Although the amendment was post the relevant assessment year, it indicates legislative recognition of the procedural nature of the filing requirement and supports the Tribunal's approach to allow FTC despite delay.

Treatment of Competing Arguments: The Revenue did not dispute the amendment but maintained that the earlier timeline was mandatory. The Tribunal rejected this, relying on the amendment as indicative of the procedural nature of the requirement.

Conclusions: The amendment to Rule 128(9) supports the conclusion that the timeline for filing Form No. 67 is directory, not mandatory, and delay beyond the due date should not lead to denial of foreign tax credit.

Overall Conclusion: The Tribunal held that the foreign tax credit cannot be denied solely on the ground of belated filing of Form No. 67 beyond the due date specified under section 139(1). The requirement to file Form No. 67 on or before the due date is directory and not mandatory. Filing the form before completion of assessment proceedings suffices to claim foreign tax credit. The legislative amendment to Rule 128(9) further supports this flexible approach. Accordingly, the appeal was allowed and the foreign tax credit was directed to be granted.

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