Form No. 67 filling for availing Foreign Tax Credit is a directory nature & not Compulsory.
In Matter of Ms. Brinda Ramakrishna v. Income tax Office [2022], it was determined that Rule 128(9) of the Rules does not provide for disallowance of Foreign Tax Credit in the event of a delay in completing income tax Form No. 67, and that income tax Form No. 67 filing is not needed rather than voluntary.
The necessity to file Form 67 along with the return is ‘Directory’ & not required. It is a well-established law that Double Taxation Avoidance Agreement supersedes provisions of the Income Tax Act & Rules, as held by several High Courts and confirmed by the Hon’ble Supreme Court in the matter of Engineering Analysis Centre of Excellence (P) Ltd. Rule 128(9) does not provide for Foreign Tax Credit disallowance due to a delay in filing income tax Form No. 67.
Based on the above case laws & reasoning you’ve outlined; it can be argued that an assessee is eligible for Foreign Tax Credit even if Form No. 67 is filed after the due date of filing the return but before the completion of the assessment. The key points you have highlighted are:
- Directory Requirement vs. Mandatory: Filing of Form No. 67 for availing Foreign Tax Credit under Rule 128(9) of the Income Tax Rules is a directory requirement and not mandatory. There is no provision in Rule 128(9) that disallows Foreign Tax Credit for a delay in filing Form 67. This implies that non-compliance with this procedural requirement does not automatically lead to disallowance of FTC.
- DTAA and Section 90: The DTAA overrides the provisions of the Income Tax Act. Section 90 of the Income Tax Act allows the Govt of India to enter into agreements with other countries to provide relief on income that is taxable in both countries. Article 24 of the India-Australia Double Taxation Avoidance Agreement provides for the credit of foreign taxes. The DTAA takes precedence over the provisions of the Income Tax Act and the Rules. This principle has been upheld by various High Courts and the Supreme Court, particularly in the case of Engineering Analysis Centre of Excellence (P) Ltd. The provisions of DTAA ensure that taxes paid in the foreign country are allowed as a credit against Indian tax, and this right cannot be nullified by procedural lapses.
- Taxpayer’s Vested Right: Section 90 & Article 24(4)(a) of the Double Taxation Avoidance Agreement provide that Australian tax paid shall be allowed as a credit against Indian tax, limited to the proportion of Indian tax. Neither Section 90 nor Double Taxation Avoidance Agreement stipulates that Foreign Tax Credit shall be disallowed for non-compliance with procedural requirements. Foreign Tax Credit is a taxpayer’s vested right and cannot be disallowed due to non-compliance with procedural requirements prescribed in the Rules.
- CBDT’s Authority: Section 295(1) of the Income Tax Act empowers the Central Board of Direct Taxes to prescribe rules for various purposes. Section 295(2)(ha) empowers the Central Board of Direct Taxes to issue rules for Foreign Tax Credit. The Central Board of Direct Taxes can prescribe the procedure for granting Foreign Tax Credit but cannot impose a condition or provide for disallowance of Foreign Tax Credit. Rule 128 should be interpreted as a procedural provision, not a mandatory provision.
- Indore ITAT’s Conclusion: The Indore Income Tax Appellate Tribunal recently concluded that Rule 128(9) does not provide for disallowance of Foreign Tax Credit for a delay in filing Income Tax Form No. 67. Rule 128(9) does not explicitly provide for the disallowance of Foreign Tax Credit due to the delay in filing Income Tax Form No. 67. Therefore, the absence of such a provision implies that Foreign Tax Credit should not be denied solely on this basis.
These points collectively support the argument that the assessee retains eligibility for Foreign Tax Credit despite delays in procedural compliance, provided the filing is completed before the assessment is finalized. This interpretation ensures that the substantive right to claim Foreign Tax Credit, as provided by the Double Taxation Avoidance Agreement & Section 90 of the Income Tax Act, is upheld.
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