ITAT holds delayed Form 67 filing is directory; directs verification and grant of eligible Foreign Tax Credit

ITAT Pune allowed the appeal of the assessee, a salaried employee who earned income in the Netherlands, regarding disallowance of Foreign Tax Credit due to delayed filing of Form 67. The Tribunal held that filing Form 67 is directory, not mandatory, and delay alone cannot be a ground to deny FTC, particularly when the form was filed before the impugned order. ITAT condoned the delay and directed the JAO to verify Form 67 and, if the claim is in accordance with law, grant the eligible Foreign Tax Credit.

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ISSUES PRESENTED AND CONSIDERED

1. Whether Foreign Tax Credit (FTC) claimed under section 90 can be disallowed solely on account of delay in furnishing Form 67.

2. Whether the requirement of filing Form 67 for claiming FTC is mandatory or directory.

3. Whether delay in furnishing Form 67 should be condoned and the matter remitted to the Jurisdictional Assessing Officer (JAO) for verification and adjudication on merits.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Disallowance of FTC solely for delay in furnishing Form 67

Legal framework: FTC was claimed under section 90 and was not allowed at the processing stage under section 143(1)(a) because Form 67 was not filed within the prescribed time; Form 67 filed subsequently.

Precedent Treatment: The Tribunal relied on its recent decision on an identical issue where FTC denial on account of delayed Form 67 was held impermissible in view of circumstances including pandemic-related disruptions.

Interpretation and reasoning: The Court observed that the assessee had paid taxes abroad and filed the domestic return claiming FTC; non-submission of Form 67 within the due date was held to be an inadvertent oversight aggravated by COVID-19 related abnormalities and changed filing timelines. The Tribunal emphasized that denial of FTC solely on timing of Form 67, without examining veracity of the underlying foreign tax payment and supporting documents, is inappropriate.

Ratio vs. Obiter: Ratio - FTC should not be denied purely for delay in filing Form 67 where the substantive claim and supporting facts exist and can be verified; Obiter - contextual references to pandemic and limitation adjustments informed the exercise of discretion.

Conclusions: Denial of FTC only because Form 67 was filed late was held to be incorrect; the claim should be examined on merits rather than rejected on procedural timing grounds.

Issue 2 - Whether filing Form 67 is mandatory or directory

Legal framework: Statutory/regulatory requirement to furnish Form 67 when claiming FTC, with an applicable due date (noted due date was up to 10/01/2021 in the facts).

Precedent Treatment: The Tribunal followed its precedents (including a recent decision dealing with the same issue) taking the consistent view that filing of Form 67 is directory and not mandatory.

Interpretation and reasoning: The Tribunal reasoned that where the substantive claim of foreign tax payment is supported by documents and the taxpayer subsequently files Form 67 prior to final adjudication, the procedural lapse of late filing should not extinguish the substantive right to FTC. The Court considered the practical difficulties posed by the pandemic and the removal of part of the limitation period by higher authority decisions as relevant context for treating the requirement as directory in application.

Ratio vs. Obiter: Ratio - filing Form 67 is directory; therefore, delay in filing is not, by itself, a valid ground to deny FTC. Obiter - observations about pandemic-related filing difficulties and limitation adjustments as mitigating factors.

Conclusions: The requirement to file Form 67 is directory in nature; the delay in furnishing it does not, per se, justify denial of the FTC claim.

Issue 3 - Condonation of delay and remittal to JAO for verification and adjudication

Legal framework: Administrative powers to condone procedural delays and remit issues to the assessing authority for verification of claims and documents.

Precedent Treatment: Following Tribunal precedent, delay was condoned where Form 67 was filed before the appellate order and where substantive documentation was available for examination.

Interpretation and reasoning: The Tribunal found that Form 67 had been filed prior to the impugned appellate order and that the appellant had placed supporting material on record. Given the tribunal's view that Form 67 is directory, the correct course is to condone delay and direct the JAO to verify the veracity of the FTC claim rather than uphold a denial on procedural timing grounds. The Tribunal stressed that the JAO must provide a reasonable opportunity of hearing and examine the authenticity and legal compliance of the foreign tax payments claimed.

Ratio vs. Obiter: Ratio - where Form 67 is filed late but before adjudication and supporting material exists, delay should be condoned and the matter remitted for verification; Obiter - instructions on procedural fairness and opportunity to be given by the JAO.

Conclusions: Delay in filing Form 67 was condoned; the matter was directed to be restored to the JAO to examine and verify the FTC claim on merits and allow the credit if substantiated, after affording the assessee an opportunity of hearing.

Interrelationship and Court's overall conclusion

The Tribunal treated the issues as interrelated: since Form 67 is directory (Issue 2), denial of FTC solely for delayed filing (Issue 1) is unsustainable, and the appropriate remedial action is condonation and remittal for merits verification (Issue 3). The Tribunal set aside the appellate authority's refusal to consider the late Form 67 and directed factual and documentary verification by the JAO, with liberty to allow FTC if records conform to law.

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