Can a taxpayer claim foreign tax credit if Form 67 is filed after the due date under Section 139(1)?

Yes, if the taxpayer has paid foreign tax and disclosed the income in the return, the late filing of Form 67 does not extinguish the right to claim FTC under Section 90 or a DTAA, as Rule 128(9) is a directory, not mandatory, requirement.

Does the Double Taxation Avoidance Agreement override the procedural requirements of Rule 128?

Yes, under Section 90(2), where the DTAA provides more beneficial treatment than domestic law, its provisions prevail. Since DTAA does not require timely filing of Form 67, the procedural condition in Rule 128(9) cannot override the treaty right.

Is Section 154 rectification permissible to correct denial of FTC due to late Form 67 filing?

Yes, if the denial is based on a clear legal error-such as misapplying Rule 128(9) as mandatory-Section 154 proceedings are appropriate, even if the issue requires reasoning, as long as the correct legal position is unambiguous.

Foreign tax credit despite late Form 67 filing ITAT Agra

The Income Tax Appellate Tribunal, Agra Bench, has clarified that the failure to file Form 67 within the due date for filing the return of income does not extinguish an assessee’s right to claim foreign tax credit under a Double Taxation Avoidance Agreement. This ruling reinforces that procedural requirements under Rule 128 of the Income Tax Rules are directory, not mandatory, and cannot override substantive rights granted by tax treaties.

Background & Facts

The Dispute

The appellant, Arun Sarabhai, a resident of India, earned income in Germany during the assessment year 2018-19 and paid taxes thereon. He declared this foreign income in his original return of income filed on 31.10.2018 and claimed a foreign tax credit of Rs. 1,80,424 under Sections 90, 90A, and 91 of the Income-tax Act, 1961. However, the Centralized Processing Centre (CPC) denied the credit in its intimation dated 03.09.2019 on the ground that Form 67 - required under Rule 128 of the Income Tax Rules - had not been filed.

Key Facts

The appellant earned income in Germany and paid foreign tax of Rs. 1,80,424 during the financial year 2017-18 (corresponding to AY 2018-19)
He filed his original return of income on 31.10.2018, declaring total income of Rs. 42,73,060 and claiming FTC
Form 67 was not filed at the time of return filing due to ignorance of the procedural requirement
The appellant filed Form 67 belatedly on 04.01.2022 under Rule 128(8)
The CPC denied FTC in its intimation under Section 143(1) dated 03.09.2019
Rectification applications were filed under Section 154 on:
- 21.09.2019 (disposed 25.11.2019)
- 24.03.2021 (disposed 03.04.2021)
- 02.02.2024 (disposed 22.07.2024 by the Assessing Officer)
All three rectification orders denied FTC solely on the ground that Form 67 was not filed on or before the due date under Section 139(1)
The Joint Commissioner of Income Tax (Appeals)-1, Pune, upheld the denial in its order dated 26.08.2025

Procedural History

31.10.2018: Original return filed for AY 2018-19
03.09.2019: CPC intimation under Section 143(1) denying FTC
21.09.2019: First rectification application filed before CPC Bengaluru
25.11.2019: CPC order denying rectification
24.03.2021: Second rectification application filed before CPC Bengaluru
03.04.2021: CPC order denying rectification
02.02.2024: Third rectification application filed before jurisdictional AO, Agra
22.07.2024: AO order denying FTC under Section 154
26.08.2025: Order of JCIT(A) upholding AO’s denial
18.03.2026: Hearing before ITAT Agra
27.03.2026: Judgment pronounced

The Parties' Positions

Appellant (Arun Sarabhai): Argued that Form 67 is a procedural requirement, not a condition precedent to claiming FTC. Relied on the principle that substantive rights under DTAA cannot be defeated by procedural lapses. Cited Mangalore Chemicals & Fertilizers Ltd. and Sambhaji v. Gangabai to assert that procedure must serve justice, not obstruct it. Emphasized that DTAA provisions override domestic rules.

Respondent (Revenue): Contended that Rule 128(9) mandates filing of Form 67 on or before the due date under Section 139(1), and non-compliance renders the claim invalid. Relied on Muralikrishna Vaddi v. DCIT and argued that Section 154 proceedings cannot be used to resolve debatable issues.

Relief Sought

The appellant sought:

Setting aside of the JCIT(A) order dated 26.08.2025
Grant of foreign tax credit of Rs. 1,80,424
Recomputation of tax liability accordingly
Costs of litigation

The Legal Issue

Is the requirement to file Form 67 on or before the due date under Section 139(1) a mandatory condition for claiming foreign tax credit under Sections 90/90A/91, or is it a directory procedural requirement that does not extinguish the substantive right to FTC under a Double Taxation Avoidance Agreement?

Arguments Presented

For the Appellant

The appellant’s counsel argued that Rule 128(9) prescribes a procedure, not a substantive condition for entitlement. He emphasized that neither Section 90 nor the relevant DTAA provisions contain any language disqualifying FTC for late filing of Form 67. He cited Mangalore Chemicals & Fertilizers Ltd. and Sambhaji v. Gangabai to establish that procedural norms are servants of justice, not its masters. He further contended that Section 295(1) empowers the CBDT to prescribe procedure, not to create conditions that negate statutory rights. He relied on Union of India v. Azadi Bachao Andolan and CIT v. Eli Lilly & Co. to assert that DTAA provisions override domestic rules when more beneficial. He also pointed out that other provisions like Sections 80IA(7) and 10A(5) explicitly deny deductions for non-filing of audit reports, but Rule 128(9) lacks such language.

For the Respondent

The Revenue argued that Rule 128(9) is mandatory and non-compliance renders the claim invalid. It relied on the Vizag Tribunal’s decision in Muralikrishna Vaddi and contended that the issue was debatable and thus beyond the scope of Section 154 rectification proceedings. It maintained that the legislature intended strict compliance with Form 67 filing timelines to ensure administrative efficiency and prevent fraudulent claims.

The Court's Analysis

The Tribunal undertook a detailed analysis of the statutory framework governing foreign tax credit. It observed that while Rule 128(9) requires Form 67 to be furnished on or before the due date under Section 139(1), it does not state that failure to do so will result in denial of FTC. The absence of explicit disqualification language was critical. The Court noted that other provisions of the Act, such as Sections 80AC, 80-IA(7), 10A(5), and 10B(5), contain express disallowance clauses for non-compliance, but Rule 128(9) does not.

"The mere fact that it is statutory does not matter one way or the other. 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."

The Tribunal relied on the Supreme Court’s observation in Mangalore Chemicals & Fertilizers Ltd. to distinguish between mandatory and directory requirements. It held that the purpose of Form 67 is evidentiary and procedural - to substantiate the claim - not to create a condition precedent to entitlement.

The Court further emphasized that under Section 90(2), where a DTAA provides more beneficial treatment, its provisions prevail over domestic law. Since the India-Germany DTAA contains no condition requiring timely filing of Form 67, the assessee’s right to FTC under the treaty cannot be denied on procedural grounds. The Tribunal also noted that multiple coordinate benches - including those in Hyderabad and Bengaluru - had consistently held that Form 67 filing is directory.

The Tribunal rejected the Revenue’s argument that Section 154 proceedings were inappropriate, noting that the AO had adjudicated the issue on merits, not on jurisdictional grounds. The Court concluded that the only legally tenable view was that the claim must be allowed.

The Verdict

The appeal was allowed. The Tribunal directed the Assessing Officer to grant the foreign tax credit of Rs. 1,80,424 to the appellant and recompute his tax liability for AY 2018-19 accordingly. The order of the JCIT(A) dated 26.08.2025 and the AO’s order dated 22.07.2024 were set aside. No costs were awarded.

What This Means For Similar Cases

Procedural Non-Compliance Cannot Override Treaty Rights

Practitioners must now argue that any denial of FTC based solely on late filing of Form 67 is legally unsustainable
The burden shifts to the Revenue to prove that the claim is fraudulent or that the taxpayer acted in bad faith
DTAA-based rights are substantive and cannot be negated by administrative rules lacking express statutory backing

Form 67 Is Directory, Not Mandatory

Filing Form 67 after the due date does not invalidate a claim if the underlying tax payment and income disclosure are established
Taxpayers who missed the deadline can still seek rectification under Section 154 if they have supporting documents
Revenue authorities must evaluate the substance of the claim, not merely the timing of document submission

Rectification Proceedings Are Permissible for Clear Legal Errors

Section 154 can be invoked even for complex issues if the correct legal position is unambiguous
The fact that an issue has been litigated elsewhere does not make it "debatable" if the law is settled by higher authorities
Practitioners should not hesitate to file rectification applications where the denial is based on misinterpretation of Rule 128(9)