JEAN CHRISTOPHE PIERRE ANDRE LETELLIER,MUMBAI vs. ASSESSING OFFICER NATIONAL CENTRE, DELHI, MUMBAI

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ITA 701/MUM/2024Status: DisposedITAT Mumbai18 May 2026AY 2018-1935 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that denial of FTC solely on account of delayed filing of Form No. 67 is not sustainable, as substantive treaty relief cannot be defeated by procedural technicalities. The FTC is allowable subject to verification of foreign tax paid and Indian tax attributable to the income.

What were the facts?

The assessee, a French resident, earned rental income from a property in France. He paid taxes in France and claimed Foreign Tax Credit (FTC) in India. The FTC was denied by the Assessing Officer and CIT(A) due to delayed filing of Form No. 67 and non-disclosure in the original return.

What were the issues?

Whether Foreign Tax Credit can be denied due to delayed filing of Form No. 67, despite substantive entitlement under the DTAA. The interpretation of Article 6 of the India-France DTAA regarding taxation of immovable property income.

Which sections of the Income-tax Act were involved?

Section 90,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘F’ BENCH

For Appellant: Shri Nitesh Joshi
For Respondent: Shri Nakul Agrawal, SR DR
Hearing: 18/02/2026Pronounced: 18/05/2026

आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been preferred by the assessee against the impugned order dated 20.12.2023 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, arising out of the assessment order passed under section 143(3) of the Income-tax Act,

2 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier 1961 for Assessment Year 2018-19. Though the dispute, at first blush, appears to be confined to denial of Foreign Tax Credit (“FTC”) amounting to Rs.1,72,725 in respect of taxes admittedly paid in France, the controversy has thrown up certain larger issues touching upon the interpretation of Article 6 of the India-France Double Taxation Avoidance Agreement (“DTAA”), the true import of the expression “may be taxed”, the relationship between source-based and residence-based taxation, and the extent to which a resident State may independently compute income arising from immovable property situated in another Contracting State. The grievance of the assessee is that both the Assessing Officer as well as the learned CIT(A) have denied FTC solely on account of delayed furnishing of Form No.67 and non- disclosure of the rental income in the original return of income, without appreciating that the substantive right to claim relief against double taxation emanates from section 90(2) of the Act read with the applicable treaty provisions and cannot be defeated by procedural technicalities.

2.

The relevant facts, as borne out from the assessment records, are that the assessee is a citizen of France who came to India in connection with his assignment as Managing Director of L’Oréal India Private Limited. During the relevant previous year, the assessee was admittedly resident and ordinarily resident in India and accordingly filed his return of

3 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier income on 06.07.2018 declaring total income of Rs.8,15,12,760/-. The return was subsequently selected for limited scrutiny under the E-Assessment Scheme on two specific issues, namely, foreign immovable property and foreign bank account. During the course of assessment proceedings, notices under sections 143(2) and 142(1) were issued requiring the assessee to furnish complete particulars regarding foreign assets, foreign bank accounts, investments made therein, income earned therefrom and the corresponding tax treatment adopted by him. In compliance thereto, the assessee furnished details of two immovable properties situated in France, one acquired in the year 2010 and another acquired in the year 2012. It was explained that one of the said properties had remained let out during the period from 01.04.2017 to 31.10.2017 and had yielded rental income of Euro 9,000, whereafter the property was sold during the relevant previous year. The assessee also furnished details regarding the foreign bank accounts through which the rental receipts and other transactions relating to the said property had been routed. Thus, the existence of the French property, the rental income arising therefrom and the foreign banking transactions stood disclosed and formed the very subject matter of inquiry during the scrutiny proceedings.

4 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier 3. The assessee’s consistent stand before the Assessing Officer was that the rental income arising from the immovable property situated in France was governed by Article 6 of the India-France DTAA and was accordingly liable to tax in France, being the State in which the property was physically situated. It was submitted that the said rental income had in fact been subjected to tax in France and taxes thereon had been duly discharged under the French Income Tax Code. According to the assessee, Article 6 embodies the internationally recognised situs principle whereby income from immovable property bears its closest territorial, legal and economic nexus with the State in which the property is situated. The assessee therefore proceeded on the understanding that the rental income was taxable in France and not separately chargeable to tax in India. It was further explained that since the income itself was considered by the assessee to be outside the Indian tax net by virtue of the treaty provisions, Form No.67 claiming FTC was not furnished within the period contemplated under Rule 128 of the Income-tax Rules.

4.

The Assessing Officer, however, did not accept the aforesaid explanation. After referring to the provisions of section 5(1)(c) of the Act, he observed that the assessee was admittedly resident and ordinarily resident in India and therefore his global income was liable to tax in India

5 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier irrespective of the place of accrual or receipt. The Assessing Officer further relied upon CBDT Circular No.91/2008 dated 28.08.2008 dealing with interpretation of treaty provisions employing the expression “may be taxed” and concluded that Article 6 merely enabled taxation in France but did not prohibit taxation in India. According to him, the rental income from the French property formed part of the total income chargeable to tax in India and therefore had to be independently computed under the provisions of the Income- tax Act. Proceeding on this basis, the Assessing Officer converted the rental receipts of Euro 9,000 into Indian currency, computed the income under the head “Income from House Property”, granted deduction admissible under section 24 and ultimately determined taxable income at Rs.4,86,070. Simultaneously, while acknowledging that taxes had been paid in France, he declined to grant FTC on the ground that Form No.67 prescribed under Rule 128(9) had not been furnished within the due date prescribed under section 139(1). Thus, while accepting the factum of foreign taxation, the Assessing Officer denied the consequential treaty relief against double taxation solely on account of non-compliance with the procedural requirement embodied in Rule 128.

5.

Aggrieved by the assessment order, the assessee carried the matter before the learned CIT(A). Before the first appellate authority, it was contended that the denial of FTC merely on

6 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier account of delayed filing of Form No.67 was contrary to the scheme of section 90 of the Act as well as the object and purpose of the DTAA. It was argued that the assessee had never disputed the existence of the rental income nor attempted to conceal the same and that complete particulars relating to the property, rental receipts and taxes paid in France had been furnished during the assessment proceedings. The assessee also relied upon judicial precedents wherein it had been held that furnishing of Form No.67 is directory and procedural in nature and that substantive treaty relief cannot be denied merely because of delayed compliance with procedural requirements.

6.

The learned CIT(A), however, substantially affirmed the view adopted by the Assessing Officer. Upon a reading of the impugned appellate order, it emerges that the learned CIT(A) proceeded principally on the footing that the assessee had neither offered the rental income to tax in the original return nor furnished Form No.67 within the prescribed timeline. According to the learned CIT(A), compliance with Rule 128 constituted an essential pre-condition for grant of FTC and therefore the assessee was not entitled to claim the benefit of taxes paid in France. The appellate authority did not undertake any elaborate examination of Article 6 of the India- France DTAA, the treaty principles governing taxation of income from immovable property or the subsequent judicial

7 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier developments concerning Form No.67 and Rule 128, but largely treated the procedural lapse as sufficient to sustain the denial of FTC.

7.

Before us, the learned counsel for the assessee assailed the orders of the lower authorities and submitted that the entire controversy has been approached from an incorrect perspective. According to him, there is no dispute regarding the ownership of the French property, the receipt of rental income therefrom, the payment of taxes in France or the applicability of the DTAA. The assessee had throughout maintained that the rental income was governed by Article 6 and was taxable in France and therefore the omission to furnish Form No.67 within the prescribed period was neither deliberate nor intended to evade taxes. It was submitted that once the Assessing Officer chose to bring the income to tax in India, the inevitable consequence under the treaty framework was grant of corresponding relief against double taxation and therefore denial of FTC merely because of delayed filing of Form No.67 would amount to elevating procedure over substance and form over justice.

8.

Elaborating his submissions, the learned counsel invited our attention to Article 6 of the India-France DTAA and submitted that the provision is founded upon the universally recognised situs principle which accords taxing rights in

8 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier respect of income from immovable property to the State in which such property is situated. It was submitted that unlike business profits, dividends, interest or royalties, income from immovable property bears an exceptionally close territorial and economic nexus with the jurisdiction where the property physically exists. The ownership rights, municipal regulations, valuation principles, tenancy laws, local taxes, registration records and all legal incidents relating to such property are governed by the municipal law of the situs State. It was therefore contended that once the property in question was situated in France and the rental income therefrom had been determined and subjected to tax in accordance with the French Income Tax Code, the assessee bona fide proceeded on the understanding that the said income was taxable in France under Article 6 and was therefore not separately liable to tax in India. The learned counsel submitted that this understanding was neither fanciful nor devoid of legal foundation but was supported by the language of Article 6 itself as well as by internationally accepted principles reflected in the OECD and United Nations Model Conventions.

9.

The learned counsel further referred to Article 23 and Article 24 of the India-France DTAA and submitted that the treaty consciously accords a distinct treatment to income and gains arising from immovable property. Drawing support from OECD Commentary, United Nations Model Commentary and

9 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier various passages extracted from Klaus Vogel’s Commentary on Double Taxation Conventions, it was argued that Article 6 recognises the primacy of the situs State because of the exceptionally close connection between the immovable property and the territory in which it is located. According to the learned counsel, a significant jurisprudential issue arises as to whether, once the situs State has determined and taxed the income under its own municipal law, the residence State can independently disregard such determination and recompute the same income under an altogether different statutory framework. Though it was fairly conceded that the present appeal need not necessarily be decided on that larger controversy, it was submitted that the issue nevertheless demonstrates the bona fide basis on which the assessee had proceeded while filing his return of income.

10.

Developing the argument further, the learned counsel submitted that practical difficulties inevitably arise if income from immovable property situated abroad is independently subjected to computation under domestic provisions of the residence State. By way of illustration, it was pointed out that the Income-tax Act recognises concepts such as annual letting value, deemed rental income and notional rent under sections 22 and 23. If an immovable property situated in France remains vacant throughout the year and French domestic law does not recognise any concept analogous to

10 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier deemed annual letting value, serious questions would arise as to whether an Indian Assessing Officer can nevertheless determine notional rental income and, if so, by reference to which valuation data, municipal records, comparable rentals or local regulations. It was submitted that such examples reveal that the controversy extends beyond allocation of taxing rights and enters the domain of computational jurisdiction. According to the learned counsel, these issues have not yet received comprehensive judicial examination in India and therefore deserve consideration in an appropriate case.

11.

Coming to the immediate issue of foreign tax credit, the learned counsel submitted that the entitlement to FTC flows from section 90(2) of the Act read with the relevant provisions of the DTAA and constitutes a substantive right intended to eliminate double taxation. Rule 128 and Form No.67 merely prescribe the machinery through which such relief is to be claimed and verified. It was contended that a delegated procedural requirement cannot be interpreted in a manner that extinguishes a substantive treaty entitlement unless the parent statute expressly so provides. The learned counsel emphasised that Rule 128 nowhere stipulates that delayed filing of Form No.67 would result in permanent forfeiture of FTC. On the contrary, once the taxes paid abroad are duly evidenced and the claim is otherwise verifiable, denial of FTC

11 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier merely on account of delay in furnishing the prescribed form would frustrate the very object of section 90 and the treaty mechanism.

12.

Reliance was placed upon a series of judicial precedents wherein the requirement of filing Form No.67 has been held to be directory and procedural rather than mandatory. Particular reliance was placed upon the decisions rendered in Sonakshi Sinha, Duraiswamy Kumaraswamy and other cases where the courts and tribunals have consistently held that substantive treaty relief cannot be denied merely because of delayed compliance with procedural requirements. It was submitted that the assessee had throughout disclosed the existence of the French property, the rental receipts and the payment of taxes in France during the assessment proceedings and that the claim for FTC was never an afterthought. Rather, the claim arose only because the Assessing Officer rejected the assessee’s understanding of Article 6 and proceeded to bring the rental income to tax in India. Therefore, according to the learned counsel, once the income was subjected to tax in India, corresponding relief against double taxation became inevitable and the denial of FTC merely on account of delayed filing of Form No.67 was wholly unjustified.

12 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier 13. Per contra, the learned Departmental Representative strongly supported the orders of the Assessing Officer and the learned CIT(A) and submitted that the assessee was admittedly a resident and ordinarily resident in India during the relevant assessment year and therefore liable to tax on his global income by virtue of section 5(1)(c) of the Act. According to him, the rental income received from the French property formed part of the assessee’s global income and was therefore chargeable to tax in India irrespective of the fact that the property was situated abroad. The learned Departmental Representative submitted that Article 6 of the DTAA merely permits taxation in the State where the property is situated but does not confer exclusive taxing rights upon that State. Reliance was placed upon CBDT Circular No.91/2008 to contend that where a treaty employs the expression “may be taxed”, the income nevertheless forms part of the taxable income of the resident State and the relief contemplated by the treaty is only in the nature of credit or exemption as provided under the relevant article dealing with elimination of double taxation.

14.

The learned Departmental Representative further submitted that considerable reliance had been placed by the assessee upon OECD Commentary, United Nations Commentary and Klaus Vogel’s observations. However, according to him, none of these authorities support the

13 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier proposition that the residence State loses its jurisdiction to compute and tax such income under its domestic law. It was submitted that the OECD Commentary itself recognises that Article 6 does not interfere with domestic computational provisions and therefore there is nothing impermissible in the Assessing Officer independently determining the rental income under sections 22 to 27 of the Income-tax Act. According to the Revenue, the situs principle and the computation mechanism operate in different spheres and the treaty does not mandate acceptance of the foreign jurisdiction’s computation for purposes of domestic taxation.

15.

The learned Departmental Representative also contended that the assessee had not merely failed to furnish Form No.67 within the prescribed period but had also omitted to disclose the rental income in the original return of income. It was pointed out that Form No.67 was ultimately furnished only on 30.03.2021 whereas the assessment order had already been passed on 05.03.2021. According to him, the statutory framework contemplates timely filing of the prescribed form so as to enable the Assessing Officer to examine and verify the claim during the course of assessment proceedings. It was therefore argued that the assessee, having failed to comply with the procedural requirements prescribed under Rule 128, could not subsequently seek FTC as a matter of right.

14 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier 16. Summing up his submissions, the learned Departmental Representative contended that the assessee’s global income was taxable in India, that Article 6 did not confer exclusive taxing rights upon France, that CBDT Circular No.91/2008 fully supported the action of the Assessing Officer in bringing the rental income to tax in India, and that the failure to furnish Form No.67 within the prescribed period disentitled the assessee from claiming FTC. He accordingly submitted that the orders of the lower authorities were in accordance with law and deserved to be sustained. Having heard the rival submissions and perused the material placed before us, we shall now proceed to examine the controversy in the light of the statutory provisions, treaty framework, international commentaries and judicial precedents cited before us.

17.

We have heard the rival submissions, perused the orders of the authorities below, the written submissions filed by the assessee as well as by the learned Departmental Representative, and have also considered the relevant provisions of the India-France DTAA, the OECD Commentary, the United Nations Model Convention Commentary and the extracts from Klaus Vogel’s Commentary on Double Taxation Conventions placed before us. The controversy before us, in its immediate and operative form, is whether foreign tax credit in respect of taxes paid in France can be denied to the assessee merely because Form No.67 was not furnished

15 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier within the time contemplated under Rule 128(9) of the Income-tax Rules. However, before we advert to this narrower controversy, it is necessary to first notice the larger treaty issue which was elaborately argued before us, because the assessee’s conduct in not initially offering the French rental income to tax in India and not furnishing Form No.67 within time emanates from his understanding of Article 6 of the India-France DTAA. That understanding may ultimately be accepted or rejected in an appropriate case, but it cannot be brushed aside as frivolous, fanciful or contrived, for it is rooted in a significant and long-standing debate in international tax jurisprudence concerning the taxation of income from immovable property situated in another Contracting State.

18.

Article 6 of the India-France DTAA deals with income from immovable property. Article 6(1) provides that income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State. Article 6(2) defines the expression “immovable property” by reference to the law of the Contracting State in which the property in question is situated and further includes property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable

16 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier or fixed payments as consideration for working of mineral deposits, sources and other natural resources. Article 6(3) makes the provision applicable to income derived from direct use, letting or use in any other form of immovable property. Article 6(4) extends the provision to income from immovable property of an enterprise and to income from immovable property used for performance of independent personal services. Thus, the architecture of Article 6 unmistakably demonstrates that the decisive connecting factor is the situs of the property. The provision does not proceed from the residence of the taxpayer as the dominant nexus; it proceeds from the location of the immovable property itself, and that is because immovable property is, by its very nature, territorially rooted in the State where it exists.

19.

The rationale for such a treaty rule is not difficult to discern. Land and buildings are not floating sources of income which can be divorced from the territory in which they are situated. Ownership rights, title, registration, tenancy regulation, zoning laws, municipal valuation, local property taxes, permissible user, restrictions on transfer, maintenance obligations, and even the capacity of the property to yield income are all matters governed primarily, and often exclusively, by the law of the situs State. Therefore, income from immovable property has historically been regarded as having the closest economic, juridical and fiscal connection

17 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier with the State where the property is situated. It is for this reason that Article 6 of the OECD Model and the UN Model, upon which Article 6 of the India-France Convention is broadly patterned, allocates taxing rights to the State of situs. The OECD Commentary explains that the right to tax income from immovable property is accorded to the State in which the property producing such income is situated because there is always a very close economic connection between the source of such income and the State of source. The United Nations Model Commentary adopts substantially the same approach and emphasises the strong territorial connection between immovable property and the State in which it is located. Klaus Vogel, in his celebrated commentary, also describes Article 6 as a distributive rule which assigns taxing authority to the situs State because the existence of immovable property in the other Contracting State shifts primary taxation from the residence State to the State in whose territory the property is situated.

20.

This situs principle also explains why Article 6 occupies a distinct place in treaty architecture. Income from immovable property is not treated in the same manner as dividends, interest, royalties, fees for technical services or business profits. In the case of business profits, the residence State ordinarily retains taxing rights unless the enterprise carries on business in the other Contracting State through a

18 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier permanent establishment. In the case of dividends, interest and royalties, the treaty often permits source taxation subject to limitations while preserving residence State taxation with credit. But income from immovable property stands on a different footing because the source is not merely economic but territorial and legal. The property is physically situated in the other State and the income arises from exploitation of that property. Therefore, Article 6 recognises the State of situs as having a special and primary fiscal claim. Article 23 of the India-France DTAA dealing with “Other Income” also assumes relevance in this context, because it applies only to items of income not dealt with in the preceding articles and therefore excludes income from immovable property which is specifically dealt with under Article 6. Similarly, Article 24 dealing with capital gains, in so far as it concerns gains from alienation of immovable property, also follows a situs-based approach. Thus, both income from immovable property and gains from alienation thereof are treated as distinct classes of income having a special territorial nexus with the State where the property is situated.

21.

However, the controversy does not end with recognition of the situs principle. Article 6 uses the expression “may be taxed” and not the expression “shall be taxable only”. This phraseology has generated considerable debate in treaty interpretation. One possible view is that the expression “may

19 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier be taxed” merely confers a non-exclusive taxing right upon the source or situs State and does not divest the residence State of its domestic law jurisdiction to tax the same income, subject of course to the method article dealing with elimination of double taxation. Under this approach, France may tax the income because the property is situated in France, and India may also tax the income because the assessee is resident in India, with double taxation being relieved by grant of foreign tax credit or exemption, depending upon the treaty method adopted. This is broadly the position canvassed by the Revenue and also the reasoning which underlies CBDT Circular No.91/2008, which clarifies that where a treaty provides that an income “may be taxed” in the other Contracting State, such income is to be included in the total income chargeable to tax in India and relief is thereafter to be granted in accordance with the relevant provisions of the treaty.

22.

The alternative view, which the assessee has sought to highlight, is that in the peculiar context of Article 6, the phrase “may be taxed” cannot be understood in a mechanical or universal sense divorced from the subject matter of the article. It is one thing to say that dividends or interest “may be taxed” in the source State, because such income may arise through contractual or corporate relationships and may not carry an exclusive territorial nexus. It is quite another to say

20 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier that income from immovable property “may be taxed” in the State where the property is situated, because the very subject matter of the income is embedded in that jurisdiction. Under this approach, Article 6 is not merely an enabling provision allowing the situs State to tax; it is a recognition of the primacy of the situs State in respect of income arising from property situated within its territory. This is the debate which has been highlighted before us with reference to the OECD Commentary, UN Commentary and Klaus Vogel. Vogel notes that Article 6, viewed in isolation, uses the language of an open distributive rule and does not by itself exclude taxation in the residence State, but its practical effect must be understood along with the relief article. At the same time, the commentary recognises that the taxing authority over immovable property income is allocated to the situs State owing to the strong territorial connection of such property.

23.

The India-France DTAA has its own protocol and interpretative history, and the expression “may be taxed” in the context of the India-France Convention has also been the subject of arguments in various contexts. We are conscious that, in some treaties, the expression “may be taxed” has been read differently depending upon the language of the relief article and the protocol, while in others it has been understood as permitting concurrent taxation subject to relief. The learned counsel for the assessee has submitted

21 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier that the protocol to the India-France DTAA and the scheme of the treaty need to be seen while interpreting the expression “may be taxed”. The learned Departmental Representative, on the other hand, has placed reliance upon CBDT Circular No.91/2008 and has submitted that the expression cannot be construed as conferring exclusive taxation upon France. We do not consider it necessary, in the present appeal, to render an authoritative pronouncement on the precise effect of the protocol or the ultimate meaning of the expression “may be taxed” in Article 6, because the dispute before us can be disposed of on the narrower issue of foreign tax credit. Nevertheless, we must observe that the controversy is not devoid of substance and cannot be dismissed as a mere attempt to avoid disclosure. It raises serious questions of treaty interpretation and deserves deeper examination in a case where the final outcome turns directly upon the scope of Article 6.

24.

The more intriguing dimension of the controversy lies not merely in allocation of taxing rights but in computation of the taxable quantum. Article 6 allocates taxing rights, but it does not prescribe a computational code. Neither Article 6 nor the OECD Commentary lays down how annual value, municipal taxes, maintenance charges, deductions, repairs or other allowances are to be computed. These matters are ordinarily left to domestic law. The OECD Commentary itself states that

22 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier Article 6 does not prejudice the application of domestic law as regards the manner in which income from immovable property is to be taxed. The Revenue relies upon this observation to contend that the Indian Assessing Officer was entitled to compute the income under sections 22 to 27 of the Income-tax Act. The assessee, however, contends that this principle, if applied without sensitivity to the situs-based character of Article 6, may lead to considerable practical anomalies and possible distortions.

25.

The illustration given during the course of arguments is apposite. Under Indian law, income from house property may in certain situations be determined not merely on the basis of actual rent received but also on the basis of annual letting value or deemed rent. Section 23 contains its own statutory assumptions and computational devices. Now consider a property situated in France which remains vacant throughout the year and under French domestic law no taxable rental income is imputed. Can an Indian Assessing Officer nonetheless determine a deemed annual letting value under the Indian Income-tax Act? If yes, by reference to what material? Would he adopt French municipal valuation? Would he call for local comparable rentals in France? Would he apply Indian municipal valuation principles to a property situated in France? Would he examine local French rent control laws, market restrictions, vacancy conditions,

23 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier property taxes, maintenance obligations and permissible deductions? These questions are not rhetorical flourishes; they demonstrate the real administrative and jurisprudential difficulties that may arise when the residence State seeks to independently apply its domestic computational machinery to immovable property situated in another sovereign jurisdiction.

26.

Similar difficulties may arise even in cases of actual rent. The income computed under French law may permit deductions, municipal levies, repairs or allowances which are not identical to those allowed under the Indian Act. Conversely, the Indian Act may allow a standard deduction which French law may not. If both States compute the same rental stream independently under their own domestic laws, two different taxable bases may emerge in relation to the same property and same receipts. The question then arises: is the residence State merely to grant credit against tax paid in the situs State, regardless of the difference in tax base, or should the computation in the situs State be given some recognition because the income arises from property governed entirely by that State’s legal order? The treaty does not expressly answer this question. The commentaries provide guidance but not finality. One strand of thought suggests that each Contracting State may apply its own law and the relief article will take care of double taxation. Another strand

24 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier suggests that in matters of immovable property, the situs State enjoys not only the primary right to tax but also the primary authority to characterise and quantify the income arising from the property. This is precisely the larger debate which we consider necessary to notice, but not necessary to decide in the present appeal.

27.

There is also force in the countervailing concern expressed by the Revenue. If the residence State is bound to accept the computation made by the foreign jurisdiction in every case, then similarly placed Indian residents may suffer differing tax consequences depending upon the computational laws of different foreign jurisdictions. One foreign country may allow liberal deductions; another may tax only actual rent; a third may impute notional income; a fourth may exempt certain classes of property. Complete deference to foreign computation may therefore produce non-uniformity in the taxation of Indian residents. This concern cannot be brushed aside. It shows that the issue is not one-sided. The controversy requires a careful balancing of treaty allocation rules, the situs principle, the domestic law of the residence State, the method article eliminating double taxation and principles of administrability. It is for this reason that we consider the matter fit to be left open rather than determined incidentally in a case where the relief can be granted on a narrower and less controversial ground.

25 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier

28.

We may also briefly notice the relevance of Article 23 and Article 24 in this context. Article 23, dealing with other income, is a residuary article and applies only to items of income not dealt with in the preceding articles of the Convention. The fact that income from immovable property is specifically carved out and dealt with under Article 6 shows that the treaty treats it as a special category and not as residuary income. Article 24, in so far as it deals with capital gains from immovable property, also gives importance to the situs of the property. Thus, the treaty architecture consistently recognises that income or gains arising from immovable property have a distinctive territorial character. This supports the assessee’s submission to the extent that the situs principle is deeply embedded in the treaty scheme. At the same time, the use of the expression “may be taxed” and the presence of separate articles for elimination of double taxation indicate that the treaty may contemplate relief through the method article rather than complete exclusion in every case. These are precisely the competing strands which make the issue jurisprudentially important.

29.

At a practical level, the return forms also reveal that the matter has not always been free from ambiguity. The assessee has pointed out that, for the relevant assessment year, the return form did not provide a clear and workable mechanism

26 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier in the house property schedule for disclosing income from foreign immovable property while simultaneously claiming that the same was exempt or not chargeable in India under the DTAA. If the income was entered in the house property schedule, it would automatically flow into the computation of total income. The exempt income schedule also did not contain a specific column for income claimed as exempt under the treaty in this context. On the other hand, in certain schedules relating to capital gains, treaty-based non- taxability was more clearly recognised. We do not rest our decision on the structure of the return form, but the submission does support the assessee’s broader plea that the interaction between Article 6, domestic computation provisions, disclosure requirements and FTC mechanism was not free from complexity. The assessee’s conduct must therefore be seen in this background.

30.

Having thus noticed the broader treaty controversy, we make it clear that we are not deciding in this appeal whether income from immovable property situated in France is taxable only in France or whether India, as the State of residence, is independently entitled to compute and tax the same income under the domestic law. We are also not deciding whether the computation made under French law must be accepted by the Indian Assessing Officer or whether sections 22 to 27 can be applied in full measure to foreign immovable property

27 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier situated in another Contracting State. Nor are we deciding the larger implications of the India-France protocol on the expression “may be taxed” in Article 6. All these questions are left open to be decided in an appropriate case where the determination of such issues is necessary for disposal of the appeal. In the present case, even assuming in favour of the Revenue that the income is taxable in India, the undisputed fact remains that the same income has suffered tax in France. Therefore, the operative controversy narrows down to the allowability of FTC.

31.

We now turn to the statutory and procedural framework governing FTC. Section 90 empowers the Central Government to enter into agreements with foreign countries for avoidance of double taxation and for granting relief in respect of income on which tax has been paid both in India and in the foreign country. Section 90(2) provides that where such an agreement applies to an assessee, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. Thus, treaty relief is not a matter of administrative grace. It is a substantive statutory recognition of the taxpayer’s entitlement to be governed by the more beneficial provisions of the applicable DTAA. Article 25 of the India-France DTAA provides the mechanism for elimination of double taxation. Once the same income is taxed in France and is also brought to tax in India, the treaty mechanism requires that

28 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier appropriate relief be granted in India in respect of taxes paid in France, subject to the limitations and conditions prescribed therein.

32.

Rule 128 of the Income-tax Rules prescribes the manner of granting FTC. Form No.67 is the prescribed form through which the assessee furnishes particulars of foreign income, foreign tax paid, the relevant treaty article and the amount of credit claimed. Rule 128(9), as applicable to the year under consideration, required furnishing of Form No.67 on or before the due date of furnishing the return of income under section 139(1). The question, however, is whether the said requirement is mandatory in the sense that non-filing within the prescribed time results in permanent forfeiture of FTC, or whether it is directory and procedural, intended to facilitate verification of the claim. In our considered opinion, the latter view accords better with the scheme of the Act, the object of the treaty and the judicial precedents on the subject.

33.

A clear distinction must be maintained between a substantive right and the procedural machinery through which such right is administered. The right to obtain relief from double taxation flows from section 90(2) read with the DTAA. Rule 128 and Form No.67 provide the mechanism for claiming and verifying such relief. A delegated rule framed under the Act cannot ordinarily be interpreted in a manner

29 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier which extinguishes a substantive treaty entitlement unless the parent statute clearly authorises such consequence. Rule 128 does not provide that failure to furnish Form No.67 within the prescribed time shall result in denial or forfeiture of FTC. It only prescribes the time and manner of furnishing the form. Where the statute intends to deny a substantive benefit for failure to comply with a procedural requirement, it does so in clear and express terms. In the absence of such express consequence, a procedural lapse cannot be elevated into a jurisdictional bar defeating treaty relief.

34.

The coordinate benches of the Tribunal have consistently taken the view that filing of Form No.67 is directory and not mandatory. In Brinda Ramakrishna v. ITO, it was held that FTC cannot be denied merely because Form No.67 was filed belatedly, when the foreign tax payment and the claim are otherwise verifiable. Similar view has been taken in Power and Energy Consultants India (P.) Ltd. v. ITO and several other decisions. The decisions in Sonakshi Sinha and Duraiswamy Kumaraswamy also proceed on the principle that procedural requirements, however important for orderly administration, cannot be allowed to defeat substantive entitlement to relief from double taxation. The underlying rationale is simple and compelling: the purpose of a DTAA is to avoid double taxation, not to create procedural traps by

30 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier which the same income remains taxed twice despite availability of proof of foreign tax payment.

35.

The learned Departmental Representative has attempted to distinguish some of the judicial precedents on the ground that, in those cases, Form No.67 had been filed before completion of assessment whereas in the present case it was filed after the assessment order dated 05.03.2021, namely on 30.03.2021. We have considered this objection. The distinction, though factual, cannot be treated as decisive in the present case. The appellate proceedings are continuation of the assessment proceedings and the claim of the assessee is available for verification before the appellate authority as well as before the Assessing Officer pursuant to directions of the Tribunal. If the substantive conditions for FTC are satisfied, and if the taxes paid in France are verifiable, the mere fact that the form was filed after the assessment order cannot, by itself, extinguish the claim. What is material is not the ritualistic timing of the form but the verifiability of the claim, the existence of foreign tax payment, the identity of income and the applicability of the treaty relief.

36.

We are also unable to accept the Revenue’s submission that the claim of FTC is an afterthought. The assessee’s stand may or may not ultimately succeed on Article 6 in an appropriate case, but the record demonstrates that from the

31 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier assessment stage the assessee consistently maintained that the rental income from the French property was governed by Article 6 of the India-France DTAA and was taxable in France. It was precisely because of this understanding that the assessee did not include the said income in the Indian return and did not initially claim FTC. Once the Assessing Officer rejected that understanding and brought the income to tax in India, the claim for FTC arose as a natural and consequential claim. It is not a case where the assessee, after having concealed income, later invented a foreign tax credit claim. The property, the rental receipts and the foreign tax payment were all part of the material placed before the Department. The case was selected for scrutiny precisely on the issue of foreign immovable property and foreign bank account. Thus, the claim cannot be characterised as mala fide or contrived.

37.

The reliance placed by the learned Departmental Representative on the obligation of a resident assessee to disclose foreign assets and foreign income, including the larger legislative policy underlying the Black Money Act, is well taken as a general proposition. There can be no dispute that a resident and ordinarily resident assessee must disclose foreign assets and foreign income in accordance with law. However, the issue before us is not a penalty proceeding for non-disclosure under the Black Money Act, nor are we adjudicating any charge of wilful concealment of foreign

32 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier assets. The issue before us is limited to whether, after the income has been brought to tax in India and after taxes paid in France on the same income are shown to exist, FTC can be denied solely on account of delayed filing of Form No.67. The answer to that question, in our view, must be in favour of the assessee. Disclosure obligations and entitlement to FTC operate in distinct fields. A procedural or disclosure lapse, if any, may have consequences as provided by law, but it cannot automatically obliterate treaty relief where the foreign tax payment and the doubly taxed income are otherwise verifiable.

38.

It is also relevant that the tax paid in France is stated to be Rs.2,08,038, whereas the FTC claimed in India is Rs.1,72,725, being the Indian tax attributable to the rental income brought to tax by the Assessing Officer. Thus, the assessee is not seeking any windfall or double benefit. On the contrary, he seeks only credit to the extent of Indian tax payable on the very same income which has already suffered tax in France. If the figures are found correct on verification, the foreign taxes paid exceed the Indian tax attributable to the doubly taxed income. In such circumstances, no prejudice can be said to be caused to the Revenue by grant of FTC in accordance with law. Denial of such credit would result in taxation of the same income twice, contrary to the raison d’être of the DTAA.

33 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier

39.

The learned CIT(A), in our view, erred in treating the delay in filing Form No.67 as fatal without examining the substantive treaty entitlement of the assessee and without appreciating the judicial view that the requirement is directory. The Assessing Officer also proceeded on the premise that the absence of timely Form No.67 automatically barred grant of FTC. This approach, with respect, gives primacy to the procedural form over the substantive relief and reduces the treaty mechanism to a technical compliance exercise. Tax treaties are negotiated to allocate taxing rights and eliminate double taxation. Their operation cannot be frustrated by reading into a procedural rule a consequence which the rule itself does not expressly provide.

40.

We therefore hold that, in the facts of the present case, the assessee is entitled to foreign tax credit in respect of taxes paid in France on the rental income from immovable property situated in France, subject to verification of the quantum of foreign tax paid, the identity of income, and the corresponding Indian tax attributable to such income. The Assessing Officer is directed to verify Form No.67 filed by the assessee, the evidence of taxes paid in France, the computation of rental income and the Indian tax attributable thereto, and thereafter grant FTC of Rs.1,72,725 or such amount as may be admissible in accordance with Article 25 of

34 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier the India-France DTAA read with section 90 of the Act and Rule 128 of the Income-tax Rules. Needless to say, the credit shall be restricted to the Indian tax payable on the doubly taxed income and shall be granted after due verification of the relevant documents.

41.

Before parting, we reiterate that our discussion on Article 6, Article 23, Article 24, the OECD Commentary, the UN Model Commentary, Klaus Vogel’s Commentary, the situs principle, the meaning of the expression “may be taxed”, the role of the India-France protocol and the larger question whether the residence State may independently compute income from immovable property situated in the other Contracting State, is only contextual and academic in the present appeal. We have consciously refrained from laying down any final ratio on these larger questions. They are left open to be examined in an appropriate case where such adjudication becomes necessary. The present appeal is decided on the narrower ground that, once the rental income has been brought to tax in India and the same income has already suffered tax in France, FTC cannot be denied merely because Form No.67 was filed belatedly, when the claim is otherwise verifiable.

35 ITA No. 701/Mum/2024 Jean Christophe Pierre Andre Letellier 42. In the result, the appeal of the assessee is allowed for statistical purposes in terms indicated above.

Order pronounced on 18th May, 2026.

Sd/- Sd/- (GIRISH AGRAWAL) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 18/05/2026 KARUNA, sr.ps

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai

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