VAIBHAV MORARKA,MUMBAI vs. ITO 19(3) (1), MUMBAI

The Assessee is an individual taxpayer, whose primary source of income during the year consideration was Director's remuneration from various listed and unlisted companies and has been assessed to tax for more than the last 15 years.

The Assessee purchased an immovable property situated in Spain during the year under consideration and subsequently let out the same, earning rental income amounting to Rs.13,60,097/-. Tax amounting to Rs.3,95,979/- was withheld/paid in Spain in respect of such rental income. Since the due date for filing the return of income for AY 2020-21 was extended up to 15.02.2021 on account of the Covid-19 pandemic, thus the Assessee filed his original return of income on 09.01.2021 declaring total income of Rs.69,44,120/-, comprising income under the head "Salaries" amounting to Rs.70,47,504/- and income under the head "Income from Other Sources" amounting to Rs.1,61,617/-.

As per the Assessee, the relevant details pertaining to the rental income earned from the property situated in Spain were not available at the time of filing the original return of income and, being the first year of such foreign rental income, the same inadvertently remained to be offered to tax in the original return. However, upon realizing the aforesaid omission, the Assessee filed a revised return of income on 17.02.2021 declaring total income at Rs.78,96,190/-, including rental income earned from the house property situated in Spain amounting to Rs.9,52,068/- {total rental income of Rs. 13,60,097/- - 4,08,029/- being deduction claimed u/s 24(a) of the Act}, under the head "Income from House Property".

Though the Assessee, while filing the revised return of income, claimed relief under Section 90 of the Act in respect of taxes paid in Spain amounting to Rs.3,95,979/-, however the requisite tax certificate evidencing payment/withholding of taxes in Spain had not been received by the Assessee at that time.

In the meantime, the return of income filed by the Assessee was processed vide intimation dated 24.12.2021 under Section 143(1) of the Act, raising a demand of Rs.4,10,870/-, presumably denying the foreign tax credit claimed by the Assessee under Section 90 of the Act.

Since the tax year in Spain was from 01.01.2020 to 31.12.2020, thus the rental income could be declared to the foreign tax authorities only on 17.06.2021 and the corresponding tax certificate was ultimately issued by the Spain Tax Authority on 20.09.2021. As this was the first year in which the Assessee claimed relief under Section 90 of the Act and the foreign tax certificate was issued only on 20.09.2021 after declaration of the relevant rental income before the foreign tax authorities on 17.06.2021 and therefore Form No. 67 could not be filed within the prescribed time.

Subsequently, while following up with the Jurisdictional Assessing Officer as well as the Centralized Processing Centre (CPC) regarding the outstanding demand, the Assessee realized that Form No. 67 had remained to be filed. Accordingly, upon realizing the mistake and in order to remove the defect and fulfill the condition for claiming the benefit under Section 90 of the Act, the Assessee immediately filed Form No. 67 on 03.11.2022 and repeatedly requested the authorities to grant foreign tax credit under Section 90 of the Act vide letter dated 05.12.2022 and through grievances raised on 06.12.2022, 20.01.2023, 21.01.2023 and lastly on 23.02.2023.

However, the Assessee could not obtain any relief and, therefore, filed a rectification application under Section 154 of the Act on 08.03.2023 seeking rectification of the intimation issued under Section 143(1) of the Act dated 24.12.2021.

The AO/CPC, vide order dated 05.06.2023, rejected the said application filed under Section 154 of the Act.

Consequently, the Assessee challenged the said intimation/order by filing a first appeal before the ld. Commissioner, who vide the impugned order dismissed the same, affirming the order passed under Section 154 of the Act.

Thus, being aggrieved, the Assessee has preferred the instant appeal.

Heard the parties and perused the material available on record. Admittedly, the Assessee filed Form No. 67 after processing of the return of income under Section 143(1) of the Act and, therefore, the question that emerges is “whether the Assessee is entitled to the benefit under Section 90 of the Act”.

We observe that the Assessee has contended that the tax year in Spain was from 01.01.2020 to 31.12.2020 and, consequently, the relevant rental income could be declared to the foreign tax authorities only on 17.06.2021. Accordingly, the tax certificate was issued by the Spain Tax Authorities on 20.09.2021. Thereafter, the Assessee claimed relief under Section 90 of the Act and subsequently, upon realizing the omission, filed Form No. 67 on 03.11.2022. Thereafter, various grievances were raised but without any result, compelling the Assessee to file an application under Section 154 of the Act seeking relief under Section 90 of the Act.

The Assessee has, therefore, prayed for grant of relief, whereas the ld. D.R., through written submissions, has contended that filing of Form No. 67 for claiming foreign tax credit (FTC) under Section 90 is mandatory and, in its absence, no benefit can be granted to the Assessee. It has further been argued that if filing of Form No. 67 is permitted at any stage, as per the judgments relied upon by the Assessee, Rule 128 would become redundant. Further, Section 90(2) of the Act provides that the DTAA shall apply to the extent it is more beneficial to the taxpayer. However, the same does not override procedural machinery provisions, which are essential for implementation thereof.

We observe that the Hon'ble Coordinate Bench of the Tribunal at Chennai, in the case of Govind Rajan Vasudevan vs. DCIT (ITA No.2718/Chny/2025 decided on 02.01.2026), dealt with an identical issue, wherein the CPC, vide intimation under Section 143(1) of the Act, disallowed the FTC claimed by the Assessee on the ground that Form No. 67 had not been filed along with the return of income under Section 139(1) of the Act. The Assessee therein contended that such omission was inadvertent. However, the Assessee subsequently filed Form No. 67 online and brought the same to the notice of the AO through an application under Section 154 of the Act.

The then AO, somehow while passing the rectification order, denied the claim on the ground that Form No. 67 had not been filed before the due date prescribed under Section 139(1) of the Act. The said view was affirmed by the ld. CIT(A).

The Hon'ble Tribunal, while placing reliance upon the decision of the Hon'ble Madras High Court in Duraiswamy Kumaraswamy vs. Principal Commissioner of Income Tax-8 & Ors. (W.P. No.5834 of 2022 & Ors., order dated 06.10.2023), wherein it was held that filing of Form No. 67 in terms of Rule 128 of the Income-tax Rules, 1962 is directory in nature and merely a procedural requirement for implementation of the provisions of the Act, allowed the claim of the Assessee and the appeal challenging denial of benefit under Section 90 of the Act.

We further observe that similar issues have arisen in several cases, including Tabassum Abdullah Inamdar vs. DCIT 42(3)(1), Mumbai (ITA No.6561/Mum/2025 decided on 16.02.2026), wherein identical relief was granted to the Assessee by observing as under: -

Thus, as per dictum laid down by the Hon’ble High Court in the above case, the contentions of the Ld. DR to the effect “that filing of Form No. 67 for claiming foreign tax credit (FTC) under Section 90 is mandatory and, in its absence, no benefit can be granted to the Assessee. If filing of Form No. 67 is permitted at any stage, as per the judgments relied upon by the Assessee, Rule 128 would become redundant. Further, Section 90(2) of the Act provides that the DTAA shall apply to the extent it is more beneficial to the taxpayer. However, the same does not override procedural machinery provisions, which are essential for implementation thereof”, are answered in negative accordingly.

Coming to the facts of the instant case again, admittedly the tax year in Spain was from 01.01.2020 to 31.12.2020. Therefore, the Assessee declared the rental income before the Spain Tax Authorities only on 17.06.2021 and the corresponding tax certificate was issued on 20.09.2021.

The Assessee had already claimed relief under Section 90 of the Act in respect of taxes paid amounting to Rs.3,95,979/-, which was denied vide intimation dated 24.12.2021 issued under Section 143(1) of the Act. Subsequently, while pursuing the outstanding demand, the Assessee realized that Form No. 67 had remained to be filed and accordingly filed the same on 03.11.2022. Thereafter, various grievances were raised and, upon failure to obtain any relief, the Assessee filed an application under Section 154 of the Act, which also did not yield any favorable result.

Thus, the aforesaid sequence of events supports the genuineness of the Assessee's claim.

We reiterate that the Hon'ble Madras High Court in Duraiswamy Kumaraswamy (supra) has categorically held that filing of Form No. 67 in terms of Rule 128 is directory in nature and is prescribed only for implementation of the provisions of the Act. Further, the said dictum has been consistently followed by various Benches of the Tribunal. Thus, we are also inclined to follow the judgment of the Hon'ble High Court.

Consequently the claim made by the Assessee under Section 90 of the Act is allowed, subject to factual verification by the Jurisdictional Assessing Officer.

In the result, Assessee’s appeal is allowed in the above terms.