Delayed Form 67 filing held procedural; foreign tax credit under Rule 128 cannot be denied when submitted before assessment

ITAT Delhi allowed the assessee's appeal against denial of foreign tax credit that had been refused solely on the ground of delayed filing of Form 67. The tribunal held that the requirement to file Form 67 is procedural and not mandatory in a manner that extinguishes the substantive right to claim foreign tax credit. Since the assessee had filed Form 67 before completion of the assessment, the delay did not justify disallowance. Relying on prior ITAT precedent adopting the same view, the ITAT directed that the foreign tax credit be granted to the assessee.

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ISSUES PRESENTED AND CONSIDERED

1. Whether foreign tax credit (FTC) can be denied where Form No. 67 was not filed on or before the due date for filing the return under rule 128(9) of the Income Tax Rules but was filed before completion of assessment proceedings.

2. Whether the requirement of filing Form No. 67 on or before the due date of filing the return is mandatory or directory for the purpose of claiming FTC under section 90/91 and rule 128.

3. Whether non-filing of Form No. 67 within the timeline prescribed by rule 128(9) attracts any negative consequence under the Act (i.e., denial of FTC) when the Act itself (sections 90/91) does not prescribe such a timeline.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Entitlement to FTC where Form No. 67 filed before completion of assessment but after ROI due date

Legal framework: Sections 90/91 of the Income Tax Act provide for relief in respect of tax paid in a foreign country; Rule 128(8)/(9) of the Income Tax Rules prescribes the statement/certificate in Form No. 67 and stipulates that it "shall be furnished on or before the due date specified for furnishing the return of income" under section 139(1).

Precedent Treatment: Coordinate benches of the Tribunal have held (e.g., earlier decisions cited by the Tribunal) that delay in filing Form No. 67 before the due date is not automatically fatal to the claim of FTC when Form No. 67 is filed during the assessment proceedings; decisions relied on treat rule 128(9) as directory where non-compliance does not attract an express adverse consequence. The Supreme Court decision in Wipro Ltd (referred to by the Tribunal) addressed twin conditions in a statutory provision and was considered distinguishable by the Tribunal.

Interpretation and reasoning: The Tribunal examined whether Rule 128(9)'s time stipulation is mandatorily linked to denial of FTC. Rule 128(9) prescribes a procedural timeline but does not itself prescribe disallowance of FTC as a consequence of delay. Sections 90/91 likewise do not mandate a timeline for filing the declaration or prescribe denial as the penalty for delay. The Tribunal therefore treated the requirement in rule 128(9) as directory rather than mandatory, especially where the form was furnished before completion of assessment and the substantive entitlement to credit was otherwise established.

Ratio vs. Obiter: Ratio - Where Form No. 67 is filed before completion of assessment proceedings, a taxable person is entitled to FTC notwithstanding non-compliance with the timeline in rule 128(9), because the rule prescribes procedure and no adverse consequence for delay is stipulated in the rule or the Act. Distinguishing comment (obiter) - The Supreme Court decision in Wipro Ltd is not directly on point because it dealt with statutory twin conditions; here the issue concerns non-statutory procedural rule and absence of specified consequences for non-compliance.

Conclusion: Filing Form No. 67 before completion of assessment proceedings suffices for entitlement to FTC; the denial of FTC solely on the ground of late filing under rule 128(9) is not warranted.

Issue 2 - Mandatory versus directory nature of rule 128(9) requirement

Legal framework: Rule 128(9) required Form No. 67 to be furnished on or before the due date for filing the return; rule 128(4) sets out conditions when FTC would not be allowed.

Precedent Treatment: The Tribunal followed coordinate-bench decisions (e.g., Brinda Rama Krishna, 42 Hertz Software India, Vinodkumar Lakshmipathi) which held the timeline in rule 128(9) to be directory and not mandatory where no adverse consequence is provided for non-adherence. Those decisions were applied rather than overruled.

Interpretation and reasoning: The Tribunal applied the well-settled principle that procedural provisions without an express negative consequence for non-compliance are generally directory. Since rule 128 does set out explicit scenarios in rule 128(4) where FTC would be denied, but does not provide that delayed filing of Form No. 67 attracts denial, the timing requirement was held to be procedural. The Tribunal also noted legislative action extending the timeline (amendment effective 1 April 2022 permitting filing by end of assessment year) as supportive of the directory view.

Ratio vs. Obiter: Ratio - The timeline in rule 128(9) is directory where non-filing by the due date is not linked by the rule or Act to automatic disallowance of FTC. Obiter - Reference to the legislative amendment extending the timeline is indicative but not essential to the decision where Form No. 67 was filed before assessment completion.

Conclusion: The requirement in rule 128(9) to file Form No. 67 by the due date of the return is directory; late filing during assessment does not, by itself, disentitle the assessee to FTC.

Issue 3 - Interaction between procedural rules and substantive provisions (sections 90/91) and applicability of Wipro Ltd precedent

Legal framework: Sections 90/91 confer substantive right to relief for tax paid abroad; procedural requirements for claiming FTC are provided by rules (rule 128).

Precedent Treatment: The Tribunal distinguished the Supreme Court authority relied upon by the Revenue (Wipro Ltd) on the ground that that case concerned statutory conditions and their mandatory effect, whereas rule 128 represents a procedural rule without express penal consequence for non-compliance. Coordinate bench authorities treating rule 128(9) as directory were followed.

Interpretation and reasoning: The Court emphasized the distinction between conditions that form part of substantive statutory entitlement and procedural prerequisites in rules. Where the statute does not prescribe a timeline or consequence, procedural non-compliance should not be read to extinguish substantive rights unless the rule itself prescribes such consequence. The Tribunal therefore declined to apply Wipro Ltd as controlling in this factual matrix.

Ratio vs. Obiter: Ratio - Distinguishing Wipro Ltd is part of the decision's ratio: mandatory treatment of procedural timelines in rules cannot be assumed where the statute is silent about consequences of delay. Obiter - Observations on legislative amendment timing and policy considerations are supplementary.

Conclusion: The Supreme Court decision relied upon does not mandate denial of FTC here; the Tribunal's view following coordinate bench precedent is that procedural non-compliance under rule 128(9) does not nullify the substantive entitlement under sections 90/91 when Form No. 67 is filed before completion of assessment.

Final Disposition

The Tribunal allowed the appeal and directed that FTC be granted because Form No. 67 was filed before completion of assessment proceedings; denial of FTC solely for late filing under rule 128(9) was held to be unsustainable.

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