Foreign Tax Credit Cannot Be Denied for Delayed Form 67 Filing: ITAT Mumbai Rules Procedural Compliance as Directory Under Rule 128
Introduction
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has delivered a significant judgment clarifying that delayed submission of Form 67 cannot result in the denial of Foreign Tax Credit (FTC). The Tribunal categorically held that compliance requirements under Rule 128 are procedural and directory in nature, not mandatory. This landmark decision reinforces the principle that substantive rights under Double Taxation Avoidance Agreements (DTAA) and statutory provisions under Section 90 of the Income Tax Act, 1961 cannot be defeated merely due to procedural delays.
In the matter of Tabassum Abdulla Inamdar vs DCIT, the ITAT Mumbai examined whether non-filing or delayed filing of Form 67 can be a ground for rejection of foreign tax credit when the assessee had legitimately paid taxes abroad and disclosed such income along with the credit claim in the original Return of Income (ROI).
Case Background and Factual Matrix
Filing of Original Return
The assessee submitted her return of income on 29.08.2018, well within the prescribed due date of 31.08.2018 under Section 139(1) of the Income Tax Act, 1961. The total income declared in the return amounted to Rs. 1,43,43,890/-.
Within this declared income, the assessee had specifically reported foreign dividend income aggregating to Rs. 3,58,649/- received from shares held in foreign companies. This income was duly disclosed in Schedule OS (Income from Other Sources) of the income tax return.
Disclosure of Foreign Tax Credit Details
The assessee had meticulously furnished complete details regarding:
- Taxes paid in foreign jurisdictions amounting to Rs. 90,208/- in Schedule TR
- Income from sources outside India along with tax relief claimed in Schedule FSI
All these schedules were part of the original return filed electronically and remained uncontroverted throughout the proceedings. The assessee claimed relief under the provisions of Section 90 of the Income Tax Act, 1961 and also invoked Article 25 of the India-US Double Taxation Avoidance Agreement (DTAA).
Processing by CPC and Denial of FTC
The Central Processing Centre (CPC), Bengaluru processed the return under Section 143(1) and issued an intimation dated 14.06.2020. In this intimation, the CPC raised a demand of Rs. 1,18,190/-, which arose solely on account of denying the foreign tax credit claim of Rs. 90,208/-.
The primary reason cited for this denial was the non-submission of Form 67 along with or before the filing of the return of income.
Rectification Proceedings Initiated
First Rectification Application
On 03.03.2025, the assessee filed a rectification application under Section 154 of the Income Tax Act, 1961, simultaneously uploading Form 67 on the income tax e-filing portal. The objective was to rectify the apparent mistake in denying the legitimate foreign tax credit claim.
However, this rectification application was rejected by CPC on 25.03.2025 with the observation that rectification rights had been transferred to the Jurisdictional Assessing Officer (JAO). The assessee was directed to approach the JAO for such relief.
Second Rectification Before JAO
Following the CPC's directive, the assessee filed another rectification application under Section 154 before the Jurisdictional Assessing Officer on 01.04.2025, providing comprehensive explanations and supporting documentation. This application remained pending for disposal during the appellate proceedings.