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    SBS I 18th Edition

    SBS I 18th Edition

    Filing of Form 67 as specified in Rule 128(9) is directory in nature and provisions of Rule 128 cannot override the provisions of DTAA.


    Section 90 of the Income Tax Act, 1961 provides that the Central Government may enter into agreement with Government any country or territory outside India to eliminate double taxation of income.

    In this regard, Article 25 of DTAA provides mechanism for elimination of double taxation by way of allowing credit of tax paid in other country against the tax payable in India (in most cases).

    In order to streamline the process of claiming of credit under DTAA, Government of India has incorporated Rule 128 into the Income Tax Rules, 1962. Rule 128 states that in order to claim foreign tax credit, assessee is required to file Form 67 on or before the due date specified for filing return of income under section 139 (1).

    Facts of the case:

    Assessee[1] being a resident Individual has earned income from outside India. Since, his global income is taxable in India, he has offered such income in India and filed income tax return for the same on 31.08.2018.

    Further, in the return of income, assessee has claimed credit of tax paid in foreign jurisdiction as stipulated in Article 24 of DTAA read with section 90 of the Act. However, assessee has not filed the Form 67 before filing return of income as contemplated in Rule 128. On realizing the same, assessee has filed Form 67 in support of claim of FTC on 18.04.2020.

    The return of income is processed by the CPC and an intimation under Section 143(1) has been passed on 28.05.2020 by disallowing the claim of FTC.

    Against such intimation, assessee has filed rectification under Section 154 on 15.06.2020 and 25.02.2021. However, the AO has upheld the disallowance of FTC on the ground that the Form 67 is not filed on or before the due date for filing return of income under Section 139 (1) which is mandatory in accordance with Rule 128.

    Contention of the assessee:

    • Section 90 read with Article 24(4)(a) of DTAA provides that tax paid in foreign country shall be allowed as credit against Indian tax. Neither Section 90 nor Article 24 of DTAA provides that FTC shall be disallowed for non-compliance with any procedural requirement.
    • Board has powers under Section 295 to make Rules to provide procedure for granting relief under Section 90, Section 90A or Section 91. Hence, Board does not have power to prescribe a condition or provide for disallowance of FTC.
    • Rule 128 mandates the assessee to file Form 67 on or before the due date specified under Section 139(1). However, it no where provides that if Form 67 is not filed FTC would be denied. Rule 128 is different from Section 80AC, Section 80- IA(7),Section 10A(5) and Section 10B(5).
    • Filing of Form 67 is procedural requirement failing to do which shall not extinguish the substantive right provided in the Act.
    • Provisions of DTAA overrides provisions of the Act. Assessee can choose provisions of DTAA and the Act whichever is more beneficial to him. There is no such condition in DTAA for claiming FTC.
    • Form 67 is available before the AO while passing the intimation under Section 143 (1).

    Contention of the Revenue:

    • The provisions of Rule 128 are mandatory in nature.
    • The issue is debatable and cannot be a subject matter for rectification under Section 154.

    Ruling of Tribunal:

    • Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67.
    • Filing of Form No.67 is not mandatory but a directory requirement.
    • DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act.
    • The Tribunal held that issue in the proceedings under Section 154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings under Section 154 of the Act, can be resorted to.

    Our Comments:

    The judgment given by the Tribunal has removed some of the uncertainties Rule 128 while claiming FTC.

    Assessees are facing many practical problems while filing of Form 67 under Rule 128 as it is required to file Form 67 on or before the due date specified in section 139 (1).

    Some of the professional bodies have addressed the CBDT to remove such condition of filing Form 67 within the due date specified in section 139 (1).

    Equating such non-resident assessee with resident assessee for filing return of income under Section 139(1) may not be a correct proposition. Filing of return of income by a non-resident having foreign source income would take much time than normal resident and it is a cumbersome process.

    Asking such assessees to file return of income within the due date under Section 139(1) may not be possible and denying FTC to such assessee merely because Form 67 is not filed within the due date specified under Section 139(1) may demotivate such assessee to earn income from outside India.

    The argument put forwarded by the assessee and views expressed in the above case in substance is not just limited to Form 67 and may have substantive impact on other provisions of Rule 128.


    [1] Brinda RamaKrishna [TS-1059-ITAT-2021(Bang)]

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