Foreign tax credit and Rule 128 filing delay: procedural lapse cannot defeat substantive treaty-based credit entitlement.

Rule 128's time-limit for filing Form No. 67 is procedural and does not extinguish the substantive right to foreign tax credit under sections 90 and 91. The Tribunal followed coordinate bench rulings and the Madras High Court's view that delayed filing of the form, where the revised return and Form No. 67 were filed before the section 143(1) intimation, cannot by itself justify denial of credit. It also affirmed that a beneficial DTAA prevails to the extent advantageous to the assessee, and procedural non-compliance cannot override the underlying credit entitlement. The denial of foreign tax credit for belated filing was therefore held unsustainable.

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Issues: Whether foreign tax credit could be denied merely because Form No. 67 was filed after the due date prescribed under Rule 128 of the Income Tax Rules, 1962.

Analysis: The assessee had filed the revised return and Form No. 67 before the intimation under section 143(1) was issued. The dispute turned on whether the time-limit in Rule 128 for furnishing Form No. 67 was mandatory so as to extinguish the substantive right to foreign tax credit, or only directory as a procedural requirement. The Tribunal followed the view already taken by coordinate benches and approved by the Madras High Court that Rule 128 is intended to regulate the procedure for claiming relief under sections 90 and 91, and does not itself create a disallowance where the form is filed belatedly. It also applied the principle that the Double Taxation Avoidance Agreement prevails to the extent it is beneficial and that procedural compliance cannot override the substantive entitlement to credit.

Conclusion: The denial of foreign tax credit for delayed filing of Form No. 67 was not sustainable, and the assessee was entitled to the credit.

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