The ITAT Pune has clarified that the late filing of Form 67 cannot be grounds to deny Foreign Tax Credit under the India-USA Double Taxation Avoidance Agreement, reinforcing that procedural non-compliance does not override substantive entitlements under international tax treaties.
Background & Facts
The Dispute
The assessee, Nikhil Balkrishna, was posted in the United States of America during the financial year 2021-22 and earned salary income subject to taxation in the U.S. He filed his original return of income for A.Y. 2022-23 on 28.07.2022, disclosing total income of Rs. 3,87,770. Subsequently, he filed a revised return under Section 139(5) on 01.11.2022, declaring U.S. salary income and claiming Foreign Tax Credit (FTC) of Rs. 1,76,456 under Sections 90 and 91 of the Income Tax Act, 1961, supported by the India-USA DTAA.
Key Facts
- The assessee paid U.S. taxes on his foreign income during F.Y. 2021-22
- Form 67, required under Rule 128 of the Income Tax Rules, was filed online on 27.08.2022 - after the due date of filing the original return under Section 139(1)
- The return was processed under Section 143(1) without granting FTC, resulting in a demand of Rs. 2,57,480
- The assessee filed a rectification application under Section 154, which was rejected on 28.05.2024 on the sole ground that Form 67 was filed belatedly
- The Commissioner of Income Tax (Appeals) upheld the Assessing Officer’s denial, citing non-compliance with Rule 128
Procedural History
- 28.07.2022: Original return filed for A.Y. 2022-23
- 01.11.2022: Revised return filed under Section 139(5), claiming FTC
- 27.08.2022: Form 67 submitted online
- 28.05.2024: Rectification order under Section 154 rejecting FTC claim
- Date unspecified: Appeal filed before CIT(A)
- Date unspecified: CIT(A) dismissed appeal, confirming denial of FTC
- Date unspecified: Appeal filed before ITAT Pune (I.T.A. No. 1623/PUN/2026)
- 30.06.2026: Hearing and pronouncement of order
Relief Sought
The assessee sought reversal of the CIT(A) order and allowance of the FTC claim of Rs. 1,76,456, arguing that Form 67, though filed late, contained accurate details and was submitted before any final assessment.
The Legal Issue
The central question was whether the failure to file Form 67 within the due date under Section 139(1) renders the claim for Foreign Tax Credit invalid under Sections 90 and 91 of the Income Tax Act, or whether such compliance is directory in nature and does not defeat substantive rights under a Double Taxation Avoidance Agreement.
Arguments Presented
For the Appellant
Although no advocate appeared for the assessee, the Tribunal noted that the assessee had consistently contended, both before the CIT(A) and in written submissions, that Form 67 was filed on 27.08.2022, prior to any final assessment, and contained complete and accurate details of foreign income and taxes paid. The assessee relied on binding precedents from Coordinate Benches of the Tribunal, including Sandeep Damodar Jadhav v. ITO and Ashish Agrawal v. ITO, which held that Form 67 filing is directory, not mandatory, and that DTAA provisions override procedural rules.
For the Respondent
The Revenue, represented by Shri Manish Mehta, JCIT, Sr.DR, did not dispute the factual accuracy of the Form 67 or the payment of foreign taxes. However, the Revenue relied on the literal interpretation of Rule 128, arguing that non-compliance with the prescribed timeline for filing Form 67 rendered the FTC claim invalid, regardless of the substance of the claim or the existence of a DTAA.
The Court's Analysis
The Tribunal examined the nature of Form 67 under Rule 128 and its relationship with Sections 90 and 91 of the Income Tax Act. It observed that while Rule 128 prescribes the procedure for claiming FTC, the substantive right to relief arises from the DTAA, which is given primacy under Section 90(1). The Tribunal emphasized that the purpose of Form 67 is evidentiary - to substantiate the claim - and not to create a condition precedent for entitlement.
"Filing of Form No. 67 is merely directory in nature and not mandatory and therefore, even if it is filed belatedly the same should be considered for allowing FTC."
The Tribunal relied on multiple Coordinate Bench decisions, including Ashish Agrawal v. ITO (Hyderabad Bench, 26.09.2023), Rameshwar Dnyaneshwar Bandewar v. ITO (Pune Bench, 23.12.2024), and Nandkumar Chandra v. ITO (Pune Bench, 23.12.2024), all of which held that the DTAA overrides domestic procedural rules. The Tribunal noted that the Revenue failed to produce any binding precedent contradicting this view.
It further held that the assessee had discharged the burden of proof by submitting valid tax payment documents from the U.S. and that the Form 67, though late, contained no discrepancies. The Tribunal concluded that denying FTC on the sole ground of procedural delay would defeat the very object of the DTAA - to eliminate double taxation - and would amount to elevating form over substance.
The Verdict
The appeal was allowed. The ITAT Pune set aside the order of the CIT(A) dated [date unspecified] and directed the Assessing Officer to allow the Foreign Tax Credit claim of Rs. 1,76,456 after verifying the supporting documents submitted with Form 67. The AO was instructed to compute and refund any excess tax demand of Rs. 2,57,480, along with interest under Section 244A, from the date of payment until the date of refund.
What This Means For Similar Cases
Form 67 Filing Is Directory, Not Mandatory
- Practitioners may now confidently argue that late filing of Form 67 cannot be grounds to reject FTC claims if the underlying tax payment is substantiated
- The burden shifts to the Revenue to prove fraud or material misstatement, not mere procedural delay
- Form 67 is an evidentiary tool, not a condition precedent for claiming relief under DTAA
DTAA Overrides Domestic Procedural Rules
- Any domestic rule that conflicts with the substantive benefit under a DTAA must yield to the treaty
- Taxpayers on international assignments should retain all foreign tax payment receipts and file Form 67 as soon as possible, but even belated filings are protected if substantiated
- Revenue authorities must assess FTC claims on substance - foreign tax paid, income declared, and treaty applicability - not on technical non-compliance
Procedural Non-Compliance Must Be Contextual
- Courts and tribunals will now examine whether the delay prejudiced the Revenue’s ability to verify the claim
- If the claim is otherwise genuine and supported by documents, procedural lapses should be condoned
- This judgment reinforces the principle that tax treaties are instruments of economic cooperation, not bureaucratic traps
