Foreign tax credit claim despite late Form 67 filing; deadline treated as directory, denying treaty relief held unsustainable

Whether foreign tax credit (FTC) could be denied solely because Form 67 was not filed within the due date for filing the return was the dominant issue. The ITAT held that the time stipulation for filing Form 67 is directory and not mandatory, and that treaty relief under the US-India DTAA cannot be defeated by such procedural non-compliance. Consequently, denial of FTC on this ground was held unsustainable and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether foreign tax credit under section 90 read with the applicable DTAA can be denied merely because Form No. 67 was not filed within the due date prescribed under rule 128(9) of the Income-tax Rules, when the claim otherwise falls within the DTAA entitlement.

(ii) Whether rule 128(9)'s time stipulation for filing Form No. 67 is to be treated as directory (procedural) rather than mandatory so as not to extinguish the assessee's substantive entitlement to foreign tax credit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Denial of foreign tax credit for delayed filing of Form No. 67

Legal framework (as discussed by the Court): The Court examined the assessee's claim of foreign tax credit under section 90 of the Act and the credit mechanism under the India-USA DTAA (Article 25), alongside rule 128 of the Income-tax Rules which prescribes the manner of granting foreign tax credit and contains the requirement in rule 128(9) regarding filing Form No. 67 by the due date.

Interpretation and reasoning: The Court adopted the reasoning of coordinate bench decisions and applied the principle that the DTAA entitlement to credit is a substantive right, and neither section 90 nor the DTAA itself provides for denial of credit solely for non-compliance with a procedural filing timeline. The Court further accepted the view that rule 128(9) does not itself prescribe a consequence of disallowance where Form No. 67 is filed beyond the due date, indicating that the requirement is procedural/directory rather than mandatory. The Court treated the time limit for filing Form No. 67 as a compliance mechanism for implementation, not as a condition that extinguishes the underlying DTAA-based relief.

Conclusions: The Court held that merely because Form No. 67 was not filed within the prescribed time under rule 128(9), the assessee is not precluded from claiming foreign tax credit for taxes paid outside India. The denial of FTC on this sole ground was therefore not justified, and the Assessing Officer was directed to grant the foreign tax credit in accordance with law and the India-USA DTAA.

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