Belated Submission of Form 67 Cannot Extinguish Substantive Foreign Tax Credit Rights: ITAT Hyderabad
In an increasingly globalized economic landscape, cross-border investments and international income streams have become commonplace. Consequently, the mitigation of double taxation through bilateral treaties and domestic statutory provisions is a critical component of international tax jurisprudence. A recurring point of friction between the revenue authorities and the assessee pertains to the denial of substantive treaty benefits due to procedural lapses.
Recently, the Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) delivered a pivotal ruling in the case of Rupesh Kumar Rasiklal Mehta Vs DCIT, reinforcing the legal doctrine that substantive rights granted under a Double Taxation Avoidance Agreement (DTAA) and the parent statute cannot be nullified by a mere delay in fulfilling procedural compliances. Specifically, the Tribunal adjudicated that the delayed filing of Form 67, as mandated under Rule 128 of the Income Tax Rules, 1962, does not disqualify an assessee from claiming Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act 1961.
Factual Matrix of the Dispute
The controversy stems from the income tax return filed by the assessee for the Assessment Year (AY) 2019-20. During the relevant financial period, the assessee reported a total income of Rs. 1,52,28,130. A portion of this declared income comprised dividends earned from investments in the United States of America (USA).
As per the tax laws of the USA, taxes were duly withheld at the source on this dividend income. Seeking to avoid being taxed twice on the same income stream, the assessee offered the foreign dividend to tax in India and simultaneously claimed a Foreign Tax Credit amounting to Rs. 85,842. This claim was rightfully anchored in the provisions of Section 90 of the Income Tax Act 1961, read in conjunction with the India-USA DTAA.
Initial Assessment and Rejection
The procedural hurdles began when the Centralized Processing Centre (CPC) processed the assessee's return under Section 143(1) of the Income Tax Act 1961. Vide an intimation dated 12/03/2021, the CPC outrightly rejected the FTC claim of Rs. 85,842. The sole foundation for this disallowance was the assessee's failure to furnish Form 67 within the statutory timeframe prescribed under Rule 128.
Realizing the procedural omission, the assessee promptly filed the requisite Form 67 on 18/03/2021. Subsequently, to cure the anomaly in the intimation, the assessee moved a rectification application under Section 154 of the Income Tax Act 1961. However, the revenue authorities maintained a rigid stance, dismissing the rectification plea on the strict ground that the mandatory form was not submitted prior to the stipulated deadline.