Filing Form 67 is Not Mandatory for Claiming Foreign Tax Credit in ITR

In the recent case of Brinda Rama Krishna v. ITO, the Bangalore Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and held that the requirement to furnish Form No. 67 was directory and that Rule 128 did not provide for the disallowance of foreign tax credit (FTC) on the non-furnishing of Form No. 67 within the prescribed time. The assessee, an individual ordinary resident of India, worked with Ernst & Young in Australia for the period of November 20, 2017 to May 16, 2019. For the assessment year 2018-19, the assessee offered to tax the salary earned from services rendered in Australia and claimed an Foreign Tax Credit of Rs. 4.73 Lakhs through a revised return. The assessee did not furnish Form No. 67 before filing the revised return of income, which was done subsequently. However, the assessee’s claim for FTC was denied as per the intimation under section 143(1) of the Income Tax Act.

The assessee then preferred a rectification application, which was rejected by the revenue on the basis that filing of Form No. 67 before the due date of return was mandatory. The revenue’s order was upheld by the CIT(A), and the assessee’s contention that filing Form No. 67 was a procedural requirement and non-compliance did not disentitle her of the FTC was rejected by the CIT(A).

The ITAT, however, agreed with the assessee’s contentions that:

(i) The Central Board of Direct Taxes (CBDT) under Rule 128 does not have the power to prescribe a condition for disallowance of Foreign Tax Credit , thus, the provisions of Rule 128 are procedural in nature.

(ii) Rule 128 nowhere stipulates that if Form No. 67 is not filed within the prescribed time, relief under section 90 would be denied. And (iii) violation of a procedural norm did not extinguish the substantive right of claiming Foreign Tax Credit.

Thus, the ITAT held that Rule 128 did not provide for the disallowance of Foreign Tax Credit for delay in filing of Form No. 67 and that filing of Form No. 67 was not mandatory but a directory requirement. The ITAT reiterated that the Double Taxation Avoidance Agreement (DTAA) overrides the provisions of the Income Tax Act and the Rules cannot be contrary to the provisions of the Act.

With regard to the assessee’s rectification application, the ITAT opined that the issue of allowability of Foreign Tax Credit in this case was not a debatable one and only one view was possible, being the one set out above, and thus, the rectification proceedings could be resorted to by the assessee. The ITAT disagreed with the rejection of the rectification application by the revenue on merits.

In summary, the ITAT in this case held that Form No. 67 is a directory requirement, and not a mandatory one. The ITAT also held that the provisions of Rule 128 are procedural in nature, and non-compliance of these provisions does not disentitle the assessee of Foreign Tax Credit. The ITAT also overruled the revenue’s rejection of the assessee’s rectification application.

What is Foreign Tax Credit?

A foreign tax credit is a tax credit available to taxpayers in a country who have paid foreign taxes on foreign-sourced income. The credit is intended to prevent double taxation of the same income by both the foreign country and the taxpayer’s home country. The foreign tax credit can be claimed by the taxpayer on their home country tax return, reducing the amount of home country tax owed on the foreign-sourced income. It is also possible that a country has a Double Taxation Agreement with another country, which can define the way taxes are applied on cross-border transactions

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