Filing of Form 67 is Procedural in Nature, FTC Credit Shall be Allowed if the Form 67 is Available at the time of Processing of ITR

The assessee filed his ITR for AY 2018-19 on 12th February, 2019, claiming foreign tax credit (“FTC”) of Rs. 6,39,970, which was paid in Kenya against salary income from Kenya. However, the Assessee inadvertently failed to file Form 67 for claiming FTP before filing the ITR, and the same was filed 2 days after filing the ITR.  However, while processing of ITR by the CPC, Bengaluru, the FTC was denied without any reasons, even though Form 67 was duly filed in the income tax portal. Therefore, a demand of Rs.8,83,450 was raised alongwith interest. 

Aggrieved by the order, the Assessee filed an appeal before Hon’ble CIT(A), wherein it was held that the requirements of Rule 128 for claiming FTC regarding filing of form 67 before the due date are mandatory in nature. Therefore, the AO has rightly rejected the claim of the FTC of the appellant. Aggrieved by the order, the assessee has filed the appeal before the Tribunal. 

The Appellant contended that Rule 128 is a procedural provision and not a mandatory provision. Rule 128(9) only provides that Form 67 should be filed on or before the due date of filing of ITR. However, the Rule nowhere provides that if the said Form 67 is not filed by the due date, the relief as sought by the assessee under section 90 of the Act would be denied. Provisions of Rule 128(9) are a procedural law and shall not control the claim of foreign tax credit. 

Hon’ble ITAT relied on the judgment of Swapan Bhattacharya vs. ACIT, Circle-61, Kolkata in ITA No. 242/KOL/2025 order dated 05.05.2025 wherein it was held that  Section 90 of the Act read with Article 25(2)(a) of the DTAA of India and USA provides that tax paid in USA shall be allowed as a credit against the tax payable in India but limited to the proportion of Indian tax. Neither section 90 nor the DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirement. FTC is an assessee's vested right as per Article 25[2](a) of the DTAA, read with Section 90, and the same cannot be disallowed for non-compliance with procedural requirements. Rule 128(9) nowhere provides if the Form 67 is not filed within the required time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. If the legislature intended to deny the FTC, either the Act or the rules would have specifically provided the same.

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Hence, relying upon the decision of the coordinate Bench in the case of Swapan Bhttacharya (supra), Hon’ble ITAT held that the filing of Form No. 67 is directory and not mandatory. Further, the provisions of DTAA override the provisions of the IT Act; the credit for foreign tax is allowable to the assessee. 

1. Brief Facts of the case:

• The assessee filed his return of income for AY 2018-19 on 12th February, 2019, claiming foreign tax credit (“FTC”) of Rs. 6,39,970, which was paid in Kenya against salary income from Kenya. 

• However, the Assessee inadvertently failed to file Form 67 for claiming FTP before filing the ITR.

• The same was filed on 14th February, 2019, i.e., 2 days after filing of ITR. Therefore, the assessee had correctly complied with the provision of Rule 128.

• However, while processing of ITR by the CPC, Bengaluru, the FTC was denied without any reasons, even though Form 67 was duly filed in the income tax portal. 

• Hence, a demand of Rs.8,83,450 was raised as per intimation under section 143(1) due to unjustified denial of foreign tax credit. The Demand is raised on account of the FTC not allowed and consequent interest u/s 234A, 234B, and 234C of the IT Act.

• Aggrieved by the order, the Assessee filed an appeal before Hon’ble CIT(A) wherein it was held that:

• The appellant has filed Form 67 on 14.02.2019, whereas the due date for filing the ITR u/s 139(1) was 31.08.2018. Thus, there is no dispute that Form 67 was filed by the appellant after the due date. 

• Hon'ble ITAT, Visakhapatnam, analyzing Rule 128(9) of the Act, it is amply clear that the requirements of Rule 128 for claiming FTC regarding filing of Form 67 before the due date are mandatory in nature.

• It is an undisputed fact that the appellant has failed to file Form No. 67 before the due date specified for furnishing of ITR u/s 139(1) of the Act. Therefore, the AO has rightly rejected the claim of the FTC of the appellant. Hence, there is no infirmity in the order of the AO.

• Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 

2. Relevant Legal Extract

Relevant provisions of the Act are reiterated below for ready reference:

• Rule 128 of the IT Rules is reiterated below:

"Foreign Tax Credit.  

128 (1) An assessee, being a resident shall be allowed 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 lax 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."

3. Contention of the Petitioner:

The Petitioner contended that:

• FTC is governed by Rule 128, which is a procedural provision and not a mandatory provision. 

• Rule 128(9) providesthat  Form 67 should be filed on or before the due date of filing of ITR 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 under section 90 of the Act would be denied. 

• If the intention was to deny the credit, either the Act or the Rules would have specifically provided that the credit would not be allowed if the assessee did not file Form 67 within the due date.

• In the given case, the assessee had filed Form 67 after the due date of filing of ITR. Therefore, FTC cannot be denied due to a violation of procedural norms because it does not extinguish the substantive right of claiming the foreign tax credit. 

• Provisions of Rule 128(9) are a procedural law and shall not control the claim of foreign tax credit. 

4. Findings and Analysis by the Hon’ble ITAT:

Hon’ble ITAT has made the following findings and analysis:

• The facts of the case are similar to those in the case of Swapan Bhttacharya vs. ACIT, Circle-61, Kolkata in ITA No. 242/KOL/2025 order dated 05.05.2025 (in which the Accountant Member was part of the Bench), in which the Coordinate Bench has held as under: 

• In such a case, the Form 67 was filed on 30th March, 2019, which was late and was filed beyond the due date of filing of Income Tax Return. During the year, the Income was earned in the USA, and Section 90 of the Income Tax Act, 1961 (“IT Act”) read with DTAA was applicable.

• Section 90 of the Act provides that the Government of India can enter into an agreement with other countries for granting relief in respect of income on which taxes are paid in a country outside India, and such income is also taxable in India. 

• Article 25 of the DTAA between India andthe  USA provides for FTC. Article 25(2)(a) is relevant in the present context, and the same is extracted below: 

"Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States." 

• Thus, Section 90 of the Act read with Article 25(2)(a) of the DTAA provides that tax paid in the USA shall be allowed as a credit against the tax payable in India, but limited to the proportion of Indian tax. 

• Neither section 90 nor the DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirement. 

• FTC is an assessee's vested right as per Article 25[2](a) of the DTAA, read with Section 90, and the same cannot be disallowed for non-compliance with procedural requirements as prescribed in the rules. 

• Further, Rule 128(9) provides that Form No. 67 should be filed on or before the due date of filing of ITR. However, the rule nowhere provides it is nowhere specified that if the Form 67 is not filed within the required time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. 

• If the legislature intended to deny the FTC, either the Act or the rules would have specifically provided the same.

• We further note that, as is judicially held, filing of Form No. 67 is a procedural requirement and is not a mandatory requirement, and violation of procedural norm does not extinguish the substantive right of claiming the FTC.

• Hon'ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, [1992 Supp (1) Supreme Court Cases 21] has held that there are conditions and conditions. Some may be substantive, mandatory, and based on considerations of policy, and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.

• We have gone through the decisions of the coordinate Benches and concur with their findings in this regard that filing of Form No. 67 is directory and not mandatory. The credit of FTC cannot be denied merely on the delay in filing the Form No. 67.  

• Further, the Hon'ble Madras High Court in the case of Duraiswamy Kumaraswamy us. PCIT (supra) has held that in the present case, the returns were filed without FTC, and the same was filed before the passing of the final assessment order. The filing of the FTC in terms of Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act, and it will always be directory in nature.

• In the given case, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the respondent, which is not proper and the same is not in accordance with the law. Therefore, the impugned order is liable to be set aside.

• Hence, relying upon the decision of the coordinate Bench in the case of Swapan Bhattacharya (supra), it is held that the filing of Form No. 67 is directory and not mandatory. 

• Further, the provisions of DTAA override the provisions of the IT Act; the credit for foreign tax is allowable to the assessee. 

5. Final Order by Hon’ble ITAT

Hon’ble ITAT has held that:

• Filing of Form No. 67 is directory and not mandatory.  Also, the provisions of DTAA override the provisions of the IT Act; the credit for foreign tax is allowable to the assessee. Therefore, the Ld. AO is directed to allow the credit for foreign taxes in accordance with the law.