Denial of Foreign Tax Credit for Late Form 67 Filing Not Justified if Revised Return Filed Under Rule 128(9)

ITAT Hyderabad held that denial of foreign tax credit (FTC) solely due to delay in filing Form 67 is not justified when the assessee filed a revised return declaring foreign salary income and claimed FTC accordingly. The tribunal noted the amendment to Rule 128(9) of the I.T. Rules effective 1/4/2022, permitting submission of Form 67 by the end of the relevant assessment year if the return is filed within the prescribed time under section 139(1) or (4). The appeal by the assessee was allowed, affirming the grant of FTC despite the initial delay in Form 67 filing.

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ISSUES:

Whether Foreign Tax Credit (FTC) can be denied solely on the ground of delay in filing Form 67.Whether the provisions of Double Taxation Avoidance Agreement (DTAA) override the procedural requirements under the Income Tax Act and Rules regarding FTC claim.Whether the amended Rule 128(9) of the Income Tax Rules, 1962, allowing filing of Form 67 on or before the end of the relevant Assessment Year, applies to the claim of FTC.Whether the filing of a revised return under section 139(5) declaring foreign income and claiming FTC entitles the assessee to FTC despite initial non-declaration.

RULINGS / HOLDINGS:

The denial of FTC solely on the ground of delay in filing Form 67 is "not justified and highly arbitrary"; delay in filing Form 67 does not disentitle the assessee from claiming FTC when the form is filed along with the revised return within the prescribed limitation.The provisions of DTAA "override the provisions of the Act and the Rules," and FTC is a "vested right" under Article 24(3)(a) of DTAA read with section 90 of the Act, which cannot be denied due to procedural non-compliance such as delayed filing of Form 67.The amended Rule 128(9) of the Income Tax Rules, effective from 1/4/2022, permits filing of Form 67 "on or before the end of the Assessment Year relevant to the previous year," and thus supports allowance of FTC despite delayed filing within that period.The filing of a revised return under section 139(5) declaring previously undeclared foreign income and claiming FTC entitles the assessee to FTC, as the claim is linked with the foreign income declared in the revised return filed within the limitation.Consistent Tribunal and High Court decisions hold that the requirement to file Form 67 is "directory in nature" and does not mandate disallowance of FTC for delayed filing.The Assessing Officer is directed to allow the claim of FTC after verifying the details of foreign tax paid, and to delete any demand raised by rejecting the FTC claim.

RATIONALE:

The legal framework involves section 90 and section 91 of the Income Tax Act, 1961, Rule 128(8) and (9) of the Income Tax Rules, 1962, and the relevant DTAA provisions, particularly Article 24(3)(a).Judicial precedents from various Benches of the Tribunal, Hon'ble High Courts, and the Supreme Court establish that DTAA provisions override domestic law and procedural rules when granting relief from double taxation.The Tribunal relied on authoritative decisions including the Supreme Court ruling in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT, which affirms DTAA's primacy over conflicting domestic provisions.The amended Rule 128(9) reflects a legislative intent to relax the timeline for filing Form 67, harmonizing procedural compliance with substantive rights under DTAA and the Act.Decisions emphasize that procedural requirements under the Rules are "directory" rather than "mandatory," and non-compliance should not defeat substantive rights to FTC.The principle of consistency in judicial decisions was applied, following precedents favorable to the assessee, in line with the Supreme Court's ruling in Vegetable Products Ltd. v. CIT.

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