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Facts
The assessee, a resident of India, earned salary income from Indonesia and claimed Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act. The AO denied the FTC for not filing Form 67 before the due date for filing the return of income. The assessee filed Form 67 belatedly. The CIT(A) upheld the denial, stating that Form 67 is mandatory.
Held
The Tribunal held that the requirement of filing Form 67 is directory and not mandatory. The denial of FTC solely on the ground of procedural lapse in filing Form 67 would defeat the purpose of Section 90 and the Double Taxation Avoidance Agreement (DTAA). Therefore, the assessee cannot be deprived of FTC due to a procedural lapse.
Key Issues
Whether the non-filing of Form 67 before the due date prescribed under Section 139(1) warrants denial of Foreign Tax Credit.
Sections Cited
90, 139(1), 143(1), 234B, 234C, 128, 295
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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
O R D E R
PER KESHAV DUBEY, JUDICIAL MEMBER:
These two appeals at the instance of the assessee are directed against the orders of the ld. ADDL/JCIT(A)-2 Visakhapatnam both dated 11.12.2024 vide DIN & Order No. ITBA/APL/S/250/2024-25/1071108497(1) for the Assessment year 2018-19 and DIN & Order No. ITBA/APL/S/250/2024- 25/1071109313(1) for the Assessment year 2019-20 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). Since the issue in both these appeals of the same assessee are common in nature, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity. for adjudication.
& 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 2 of 20 In this appeal, the assessee has raised the following grounds of appeal:-
& 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 3 of 20 3. Brief facts of the case are that the assessee being a Resident Individual filed his return of income for Assessment year 2018 -19 u/s 139(1) of the Act on 25/09/2018 vide e-filing acknowledgment number 305309811250918 declaring a total income of Rs.3,21,69,560/-. Out of the Gross tax payable amounting to Rs.1,12,06,398/-, the assessee claimed Rs.15,20,710/- as relief u/s 90/90A & thus the Net Tax Payable amounting to Rs.96,85,688/- were covered by way of TDS to the extent of Rs. 38,24,758/- and advance tax paid to the extent of Rs.60,00,000/- & thus the assessee claimed the balance amount as refund amounting to Rs.1,39,070/- along with interest u/s 244A thereon. The due date of filing the return was extended to 31/10/2018 for the Asst. year 2018-19. Further, the assessee was subjected to audit u/s.44AB of the Act and filed the tax audit report also on 25/09/2018 vide e-filing acknowledgement number 305271181250918.
3.1 Thereafter, the return of income of the assessee was processed and accordingly an intimation u/s 143(1) of the Act was passed on 17/03/2020 by accepting the total income of Rs.3,21,69,560/- as declared by the assessee in his return of income, however determined the Amount of tax payable amounting to Rs.42,79,592/- due to the following reasons:-
Particulars Amount (in Rs.)
Denial of relief u/s 90 of the Act 15,20,710/-
Denial of credit of tax deducted at 19,57,888/- source (38,24,758 – 18,66,870) Excess levy of interest u/s 234B 9,40,064/- and 234C Brief facts on denial of relief u/s 90 of the Act as submitted by the assessee are:
& 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 4 of 20 3.2 During the previous year relevant to assessment year 2018- 2019, the assessee was employed by M/S PT Indoliberty Textiles, Indonesia. Since, the assessee is a resident of India within the meaning of Sec 6 of the Act, the assessee's global income is also taxable in India. Hence, the assessee offered salary income of Rs.76,00,800/- received from M/S PT Indoliberty Textiles, Indonesia and claimed the foreign tax credit (FTC) of Rs.15,20,710/-which was deducted as tax at source by the employer.
3.3 The AO while processing the return u/s 143(1) of the Act denied the relief claimed u/s 90 of the Act on the ground that the Form 67 was not filed. However, on becoming aware of the fact that the Form 67 has to be filed, the assessee filed the form-67 on 01/08/2020 vide e-filing acknowledgement number 437052681010820.
3.4 The assessee also filed an application u/s 154 of the Act before the AO praying to allow the foreign tax credit vide rectification applications dated 02/02/2022, 13/02/2023 & 25/04/2023. However, the AO passed the order u/s 154 of the Act without considering assessee's application in this regard.
Now brief facts on denial of credit of tax deducted at source as submitted by the assessee are:
3.5 The assessee filed the return of income by claiming the credit of total TDS amounting to Rs.38,24,758/-. However, the intimation u/s 143(1) of the Act was passed by allowing credit of tax deducted at source only to the extent of Rs. 18,66,870/-.
3.6 Further, in this regard the assessee also filed a rectification application u/s 154 of the Act against the said intimation u/s 143(1) before the AO and accordingly the order u/s 154 of the Act & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 5 of 20 was passed by the AO on 24/05/2023 allowing the credit of tax deducted at source.
Brief facts on excess levy of interest u/s 234B and 234C of the Act as submitted by the assessee are:
3.7 The AO while processing the return of income u/s 143(1) of the Act levied interest u/s 234B and 234C of the Act of Rs. 9,40,064/-. The details are as follows: As per As per Particulars assessee intimation Difference u/s 143(1) (A) (B) (C) (D) Interest Nil 7,68,419/- 7,68,419/- u/s 234B Interest Nil 1,71,645/- 1,71,645/- u/s 234C Total Nil 9,40,064/- 9,40,064/- 3.8 However, while passing the order u/s 154 of the Act, the assessing officer reduced the interest u/s 234B and 234C of the Act amounting to Rs.3,98,138/-.
4. Aggrieved by the aforesaid intimation passed u/s 143(1) of the Act on 17/03/2020, the assessee preferred an appeal before the ld. CIT(A) / ADDL/JCIT(A).
5. The ld. ADDL/JCIT(A) observed that the main contention of the assessee is with regard to disallowance of foreign tax credit. During the year under consideration, the assessee has earned an amount of Rs.76,00,800/- as salary income from Indonesia and in the income tax return filed in India, the assessee has claimed foreign tax credit of Rs.15,20,710/-. However, the CPC has not allowed the foreign tax credit while passing the intimation u/s. 143(1) on 17.03.2020 as the assessee failed to file Form - 67 in terms of section 90 of the Act and Rule 128(9) of the I.T. Rules, 1962. Furthermore, the assessee submitted that he had filed Form - & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 6 of 20 67 on 01.08.2020 i.e., after passing of the intimation on 17/03/2020.
5.1 The ld. ADDL/JCIT(A) by placing reliance on the decision of Hon'ble ITAT, A-Bench, Hyderabad in & 761/Hyd/2024 dated 07.10.2024 in the case of Shri Ramesh Babu Jasti Gandipet Vs. ITO, Ward-12(6), Hyderabad cocluded that if the assessee would have filed the Form 67 on or before the AO passed the order u/s 143(1) of the Act, the AO ought to have given credit for taxes paid outside India when the global income of the assessee has been taxed in India. However, in the instant case, the assessee has not filed the Form 67 as per section 90 of the Act r.w.rule 128(9) of the I.T. Rules, 1962 i.e. before end of AY relevant to the previous year. The assessee in fact filed the Form 67 on 1.8.2020 i.e. after passing the order u/s 143(1) of the Act dated 17.3.2020 and hence the ld. ADDL/JCIT(A) was of the considered view that there is no error in disallowing the foreign tax credit by the AO and accordingly dismissed the appeal of the assessee.
Again being aggrieved by the order of ld. ADDL/JCIT(A) dated 11/12/2024, the assessee has filed the appeal before this Tribunal. The assessee has also filed a paper book comprising 83 pages in support of his contentions along with the case laws relied upon by the assessee.
Before us, the ld. A.R. of the assessee mainly argued on the issue of not allowing the claim of foreign tax credit and other grounds are not pressed. With respect to issue of foreign tax credit, Ld.AR of the assessee, reiterated the submissions as made before the authorities below and also submitted the following written submissions:
& 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 7 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 8 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 9 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 10 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 11 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 12 of 20 & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 13 of 20
8. The ld. D.R. on the other hand relied on the order of the ld. ADDL/JCIT(A).
We have heard the rival submissions and perused the materials available on record. The sole issue for adjudication in the present appeal is whether non-filing of Form 67 before the due date prescribed under section 139(1) should result in the denial of Foreign Tax Credit.
9.1 At the outset, we note that the Rule 128 of the Income Tax Rules, 1962, which governs the claim of FTC, does not specify any consequence of non-filing or delayed filing of Form 67. In the absence of such penal consequences, the requirement should be construed as procedural rather than substantive. The intent of the legislature, as reflected in section 90 of the Act, is to provide relief from double taxation. The denial of Foreign Tax Credit solely on account of a procedural lapse would defeat this very purpose. Further the provisions of DTAA override domestic tax laws, as established by various rulings of the Court. The Revenue authorities cannot deny FTC on a procedural ground when the substantive conditions for claiming such relief under the DTAA and the Income Tax Act have been met.
9.2 We further find that the issue regarding the procedural requirement of filing Form 67 has already been adjudicated by various coordinate benches of the Tribunal, wherein it has been consistently held that the filing of Form 67 is a directory requirement and not a mandatory precondition for claiming FTC. This Tribunal in the case of Brinda Rama Krishna in for AY.2018-19 vide order dated 17.11.2021 had held as under: - & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 14 of 20 (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) Filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC. 9.3 The relevant findings of the Coordinate Bench in the above stated case is extracted as under: “2. The Assessee is an individual and during the previous year relevant to AY 2018-19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20.11.2017 till 16.05.2019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit (“FTC”) for taxes paid in Australia.
There is no dispute that the Assessee is entitled to claim FTC. Rule 128 of the Income Tax Rules, 1962 (Rules) provides for giving FTC and reads thus: “Foreign Tax Credit. 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule: Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.” One of the requirements of Rule 128 for claiming FTC is provided by Rule 128 (8) & (9) of the Rules and the same reads thus: “(8) Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely:— (i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein; (ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,— (a) from the tax authority of the country or the specified territory outside India; or (b ) from the person responsible for deduction of such tax; or (c) signed by the assessee: Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,— (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 15 of 20 where the payment has been made by the assessee; (B) proof of deduction where the tax has been deducted. (9) The statement in Form No.67 referred to in clause (i) of subrule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under subsection (1) of section 139, in the manner specified for furnishing such return of income.”
The Assessee claimed FTC of Rs.4,73,779/- u/s. 90 of the Act read with Article 24 of India Australia tax treaty (“DTAA”) in a revised return of income filed on 31.8.2018. The Assessee had not filed the Form 67 before filing the return of income. On realising the same, the Assessee filed Form 67 in support of claim of foreign tax credit on 18.04.2020. The revised return of income was processed by Centralized Processing Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28.05.2020 was passed disallowing the claim of FTC.
The Assessee filed a rectification application before the AO on 15.06.2020 & 25.02.2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10.03.2021, the AO upheld the action on the ground that the Assessee has failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to Rule 128(9) of the Rules.
6. On appeal by the Assessee, the CIT(A) vide Order dated 03.09.2021 confirmed the Order of AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is non-est in law. The CIT(A) also held that provisions of Rule 128 are mandatory in nature. The CIT(A)rejected the contention of the Assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC.
7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that Section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below: “4. In the case of India, double taxation shall be avoided as follows: (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 16 of 20 income chargeable to Indian tax;” It was submitted by him that section 90 of the Act read with Article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non- compliance with any procedural requirements. FTC is Assessee’s vested right as per Article 24(4)(a) of the DTAA read with Section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules.
It was further submitted by him that Section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: “(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:— (ha) the procedure for granting of relief or deduction, as the case may be, of any income- tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;”
9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in Rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision.
It was further submitted that Rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act. However, the Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to section 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in Rule 128(9). Therefore, such condition cannot be read into Rule 128(9).
It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) wherein it observed that: “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 17 of 20 some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the nonobservance of all conditions irrespective of the purposes they were intended to serve.” Further reliance was placed on the decision of the Hon’ble Supreme Court, in the case of Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted that filing of Form 67 as per the provisions of section 90 read with Rule 128(9) is a procedural law and should not control the claim of FTC.
It was further submitted that even in the context of 80IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases: CIT vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi) PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 com 16 (Allahabad) CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 com 379 (Karnataka) CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi) CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
It was submitted that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply to the extent they are more beneficial to a taxpayer. Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee. Reliance in this regard is placed on the following cases (SC) GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC) Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 taxmann.com 42 (SC) (Pg 106-109 of PB 2-Para 25 & 26) CBDT Circular No 333 dated 2/4/82 137 ITR (St.) It was submitted that when there is no condition prescribed in DTAA that the FTC can be disallowed for noncompliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision.
The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and cannot be subject matter of decision in Sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record. and circulars: Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505.
& 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 18 of 20 15. In his rejoinder, the learned counsel for the Assessee submitted that Form No.67 was available before the AO when the intimation u/s.143(1) of the Act dated 28.5.2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s.154 of the Act on the ground that the issue was debatable but rather the decision was given that the relevant rule was mandatory and hence non-furnishing of Form No.67 before the due date u/s.139(1) of the Act was fatal to the claim for FTC.
I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the learned counsel for the Assessee and hold that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above. I am also of the view that the issue in the proceedings u/s.154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee’s application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard.
9.4 The finding of the coordinate bench in above discussed case was further followed in the case of Shashidhar Seetharam Sharma vs. ITO (ITA No. 708/Bang/2022). 9.5 In view of the above detailed discussion and considering the factual matrix of the case, the settled legal position, and judicial precedents, we hold that the requirement of filing Form 67 is directory and not mandatory. The assessee cannot be deprived of Foreign Tax Credit merely on account of a procedural lapse. Accordingly, we set aside the order of the learned ADDL/JCIT(A) and direct the AO to allow the claim of FTC amounting to Rs.15,20,710/- as claimed by the assessee. Hence, the ground of appeal of the assessee is allowed for statistical purposes after necessary verification at the AO’s end. & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 19 of 20
10. In the result, the appeal of the assessee in is allowed for statistical purposes.
12. Since we have, set aside the order of the learned ADDL/JCIT(A) and direct the AO to allow the claim of FTC as & 2558/Bang/2024 Mr. Vikram Dhondu Rao, Bangalore Page 20 of 20 claimed by the assessee by holding that the requirement of filing Form 67 is directory and not mandatory, the same ratio will mutatis mutandis apply to the present appeal also. It is ordered accordingly.
14. In the combined result, both the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced in the open court on 11th August, 2025