Form 67 Delay is Procedural, Not Fatal to Foreign Tax Credit Under DTAA : ITAT Delhi

The ITAT Delhi has reaffirmed that a technical delay in filing Form 67 cannot override the substantive right to claim Foreign Tax Credit under a Double Taxation Avoidance Agreement. This ruling provides critical relief to taxpayers who have paid taxes abroad but missed the procedural deadline for documentation, reinforcing the principle that substance must prevail over form in tax matters.

Background & Facts

The Dispute

The appellant, Nitin Khurana, filed his income tax return for Assessment Year 2023-24 on 31.10.2023, declaring global income of Rs. 43,67,660, including Rs. 2,25,209 earned as salary, interest, and dividends in Canada. He claimed Foreign Tax Credit (FTC) of Rs. 47,309 under Section 90 of the Income Tax Act, 1961, for taxes paid in Canada pursuant to the India-Canada DTAA. However, the Central Processing Centre (CPC) disallowed the FTC on the ground that Form 67, required for claiming FTC, was not filed before the due date of the return.

Key Facts

• The appellant’s return was filed on 31.10.2023
• Form 67 was submitted on 09.04.2024, nine days after the due date of filing the return
• The CPC processed the return under Section 143(1) and disallowed the FTC claim on 01.02.2024
• The appellant filed a rectification application under Section 154, which was rejected
• The Commissioner of Income Tax (Appeals), Coimbatore, upheld the disallowance in an order dated 30.06.2025 (DIN & Order No. ITBA/APL/S/250/2025-26/1078027661(1))
• The appellant appealed to the ITAT Delhi on 18.07.2025
• The appeal was heard on 10.03.2026 and pronounced on 18.03.2026

Procedural History

• 31.10.2023: Assessee filed ITR for AY 2023-24
• 01.02.2024: CPC disallowed FTC due to non-filing of Form 67
• 09.04.2024: Assessee filed Form 67 belatedly
• 15.04.2024: Rectification application under Section 154 filed
• 20.05.2024: Rectification application rejected by CPC
• 30.06.2025: Ld. CIT(A) dismissed appeal, upholding disallowance
• 18.07.2025: Appeal filed before ITAT Delhi
• 10.03.2026: Hearing held
• 18.03.2026: ITAT pronounced order

Relief Sought

The appellant sought: (1) reversal of the disallowance of FTC of Rs. 47,309; (2) deletion of interest under Sections 234B and 234C arising from the disallowed FTC; and (3) direction to the Assessing Officer to allow the FTC claim upon verification of Form 67.

The Legal Issue

The central question was whether the failure to file Form 67 within the prescribed time under Rule 128(9) of the Income Tax Rules, 1962, operates as a statutory bar to claiming Foreign Tax Credit under Section 90 of the Income Tax Act, 1961, or whether such delay is a procedural irregularity that can be overlooked when the substantive right to FTC is otherwise established.

Arguments Presented

For the Appellant

The appellant’s representative, Shri Suresh Kumar Gupta, CA, argued that Rule 128(9) is directory and not mandatory, citing multiple judicial precedents including the Delhi High Court’s decision in Real Time Data Services Private Limited (W.P.(C) 959/2024, dated 13.02.2026). He emphasized that the taxpayer had paid taxes in Canada, the DTAA was applicable, and the delay of nine days was trivial. He contended that denying FTC on this ground would amount to unjust enrichment of the Revenue and violate the principle of equitable taxation under international tax treaties. He further argued that Section 119 of the Act empowers the Commissioner to condone delays, and Section 264 allows revision of erroneous orders.

For the Respondent

The Revenue, represented by Shri Ankush Kalra, Sr. DR, contended that Rule 128(9) is mandatory and non-compliance disqualifies the claim. He argued that the statutory framework requires strict adherence to procedural timelines, and the absence of an express provision for condonation in Rule 128 precludes any relaxation. He relied on the literal interpretation of the Rules and cited past departmental circulars to assert that Form 67 must be filed before the return to be eligible for FTC.

The Court's Analysis

The Tribunal acknowledged that the assessee had indeed filed Form 67 nine days after the due date, constituting a procedural lapse. However, it emphasized that procedural non-compliance cannot extinguish a substantive right conferred by statute or treaty. The Court placed decisive reliance on the Delhi High Court’s reasoning in Real Time Data Services Private Limited, which held that denying a substantial tax credit due to a minor delay would result in unjust enrichment and lack legal authority.

"We are of the view that may be the petitioner omitted or failed to upload Form No. 67 by the due date of return but simply because of this technical or venial breach, its substantial right of getting Foreign Tax Credit... cannot be denied. If that be so, it would amount to withholding of a substantial amount of an assessee without there being any authority of law which would amount to unjust enrichment in turn."

The Tribunal noted that the assessee had paid the foreign tax, disclosed the income, and submitted Form 67 before any final assessment. The delay was neither intentional nor prejudicial to the Revenue. The Court further observed that Section 119 empowers the Commissioner to condone delays, and Section 264 permits revision of erroneous orders - both mechanisms were available to the Ld. CIT(A) but were not invoked. The Tribunal held that the High Court’s directive to the Assessing Officer to verify and allow the FTC upon submission of Form 67 was binding and applicable to the facts of this case.

The Tribunal also rejected the Revenue’s argument that Rule 128(9) is mandatory, noting that the absence of an express penalty clause for non-filing supports a directory interpretation. It reaffirmed the settled principle that in matters of international tax treaties, domestic procedural rules must yield to the substance of the taxpayer’s entitlement under the DTAA.

The Verdict

The appeal was allowed. The ITAT Delhi set aside the order of the Ld. CIT(A) dated 30.06.2025 and directed the Assessing Officer to consider the Form 67 filed on 09.04.2024 and allow the claim of Foreign Tax Credit of Rs. 47,309 after verification of the foreign tax paid in Canada. The interest levied under Sections 234B and 234C on the disallowed FTC amount is to be deleted. The matter is restored to the Assessing Officer for limited purposes of verification and compliance within 45 days.

What This Means For Similar Cases

Procedural Delays Cannot Override Substantive Rights

• Practitioners may now confidently argue that delays in filing Form 67, even beyond the due date, do not automatically disqualify FTC claims if the taxpayer has paid foreign tax and disclosed income
• The burden shifts to the Revenue to prove prejudice or mala fide intent, not merely non-compliance
• Cases involving minor delays (e.g., days or weeks) should be challenged on grounds of unjust enrichment and treaty obligations

DTAA Supersedes Domestic Procedural Rules

• The judgment reinforces that Double Taxation Avoidance Agreements are binding international instruments
• Domestic rules like Rule 128(9) must be interpreted harmoniously with treaty obligations
• Taxpayers can invoke the principle of pacta sunt servanda to argue for relief where domestic enforcement is rigid

Remedies Under Sections 119 and 264 Are Available

• Assessing Officers and Commissioners must proactively consider condonation of delay under Section 119

• Revision applications under Section 264 remain viable avenues to correct erroneous disallowances

• Practitioners should file applications under Section 119 or 264 as alternative remedies even if Form 67 is filed late

• Always retain proof of foreign tax payment (e.g., tax certificates, bank statements)

• File Form 67 as early as possible, but if delayed, immediately file a written request for condonation

• Cite Real Time Data Services and this ITAT order in objections and appeals