FTC Claim Not Denied Despite Delay as Filing of Form 67 Held Directory, Not Mandatory: ITAT [Read Order]

The Tribunal observed that the AO erred in denying credit for FTC even though the necessary form had been placed on record before the assessment order was passed. The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) in its recent ruling held that Foreign Tax Credit (FTC) cannot be denied merely because of a delay in filing Form 67 when the form was submitted prior to the completion of the assessment order, observing that the Double Taxation Avoidance Agreement (DTAA) overrides procedural requirements under domestic law.

The appellant Nanda Kishore Ravula, filed return of income for the Assessment Year 2020-21 on 15.12.2020 declaring total income of ₹ 1,08,11,550. Subsequently, the appellant filed a revised return of income on 30.03.2021 and claimed FTC amounting to ₹ 21,57,343.

Also Read: Procedural delay in filing form 67 cannot override objectives of DTAA: ITAT directs to grant FTC

The return of income was processed by the Assessing Officer (Centralized Processing Centre)( AO (CPC) ), who issued intimation under section 143(1) rejecting the FTC claimed by the appellant. An application under section 154 was also filed by the appellant and the same was also rejected by the AO(CPC).

Aggrieved by the assessment order, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals) ( CIT(A) ) contending that he had filed the return on or before the due date provided under section 139(1) of the Act and also filed the revised return within the due date provided under section 139(5).

The appellant further submitted that the Form 67 was filed before the AO passed the assessment order and therefore the credit for the FTC ought to have been allowed.

However, the CIT(A) rejected the explanation and upheld the disallowance on the ground that, in order to claim FTC the assessee shall furnish the relevant statement in Form 67 on or before the due date of filing the return of income under section 139(1).

Also Read: Late Filing of Form 67 Cannot Override Rights under DTAA: ITAT Allows FTC Claim

The departmental submitted that the assessee had failed to furnish Form 67 on the specified date being the due date of furnishing the return under section 139(1), which was a mandatory condition according to Rule 128(9) of the Income Tax Rules.

The Bench comprising Ravish Sood (Judicial Member) and Manjunatha G. (Accountant Member) set aside the order of the CIT(A), noting that the AO wrongly denied FTC and the appeal was dismissed without proper appreciation of facts.

The Tribunal relied on the Bangalore ITAT's ruling in 42 Hertz Software India (P) Ltd. vs Assistant Commissioner of Income Tax (2022), where it was held that on perusal of rule 128 (8) and (9), one of the requirements for claiming FCT is that Form 67 should be submitted before filing the return. However, this condition was viewed as directory in nature, since rule 128(9) does not provide for disallowance of the credit in case of delay.

Also Read: ITAT Allows Foreign Tax Credit Despite Delay in Filing Form 67, Says Compliance is Directory and Not Mandatory

The Tribunal additionally referred to the Madras High Court’s ruling in Duraiswamy Kumaraswamy vs PCIT (2022), which reiterated that the requirement of filing Form 67 is only directory and that the rule serves merely to implement the provisions of the Act.

The Tribunal also cited the Supreme Court’s ruling in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (2021), which confirmed that DTAA provisions take precedence over domestic tax law and that procedural rules cannot override substantive rights under a tax treaty.

Accordingly, the appeal was allowed.

The appellant was represented by Nikhill Tiwari, while the Department was represented by Gurpreet Singh