The Income Tax Appellate Tribunal (ITAT) Kolkata has delivered a significant ruling that foreign tax credit cannot be denied solely due to belated filing of Form 67. In a case involving an individual taxpayer who filed Form 67 on March 31, 2018 (after the due date of August 5, 2017), the Tribunal held that procedural requirements cannot override substantive statutory entitlements. The Tribunal emphasized that Rule 128(9) prescribes procedures but does not provide that delayed filing automatically results in forfeiture of foreign tax credit benefits. This ruling establishes that where taxpayers have actually paid taxes in foreign jurisdictions and are otherwise eligible for relief under double taxation avoidance agreements, benefits cannot be denied merely due to technical procedural delays.
Indian residents working for foreign clients face the challenge of being taxed in both the foreign country and India, depending on their residential status and applicable tax laws. However, eligible taxpayers can prevent double taxation through Form 67, which allows them to claim credit for taxes paid abroad. According to reports from Mint, residents must submit this form on or before the due date for filing their income tax returns to claim credit for foreign taxes paid. The latest ITAT ruling reinforces that this procedural requirement is directory and not mandatory, with delayed filing constituting a curable procedural defect rather than an absolute bar to claiming foreign tax credit. This mechanism becomes particularly crucial for US-resident NRIs who invest in Indian mutual funds, as they face complex taxation under both jurisdictions requiring careful coordination of Form 67 filing with other compliance requirements.
Under Indian tax laws, Sections 90 and 91 of the Income-tax Act govern foreign tax credit provisions. Section 90 applies where India has entered into a double taxation avoidance agreement (DTAA) with another country, while Section 91 deals with claiming FTC in scenarios where India has not entered into a DTAA with the country where the income arises. As reported by Mint, Indian resident taxpayers who have paid taxes outside India can claim credit for such foreign taxes against their tax payable on the same income in India. The latest ITAT ruling specifically applies these provisions, noting that procedural requirements should not defeat substantive claims if prescribed documents are furnished before assessment completion. For US-resident NRIs, this framework becomes even more critical as they must navigate both Indian and US tax systems, with Form 67 serving as the primary mechanism to claim foreign tax credits under the India-US DTAA.
Key rules for claiming foreign tax credit have been notified under Rule 128 effective April 1, 2017. According to Mint, FTC can be claimed if India has a DTAA with the foreign country, or if India does not have a DTAA but the nature of income is similar to income taxable in India. The credit is available only in the year when corresponding income is offered to tax in India, and it cannot be claimed against interest, fee, or penalty. FTC is also available against tax payable under Section 115JB (Minimum Alternate Tax), and is computed separately for each source of income from each foreign country. The ITAT ruling reinforces that these eligibility conditions remain paramount, with procedural compliance being secondary to substantive entitlements under the Act and applicable DTAA provisions.
The foreign tax credit system demonstrates its effectiveness through practical scenarios, as reinforced by the latest ITAT ruling. The Tribunal relied on several precedents including the Supreme Court judgment in CIT v. G.M. Knitting Industries (P.) Ltd., which established that procedural requirements should not defeat substantive claims when documents are furnished before assessment completion. The ruling also cited the Madras High Court decision in Duraiswamy Kumaraswamy, which held that Rule 128 is intended to facilitate implementation rather than curtail substantive rights. Multiple coordinate bench decisions including Surendra Kumar Goenka, Anindya Sarkar, Mahua Bagchi, Deepak Shimoga Padmaraju, and Brinda Rama Krishna consistently held that belated filing of Form No. 67 is a curable procedural defect. This legal precedent provides crucial guidance for taxpayers facing similar situations where procedural delays may have initially been used to deny legitimate foreign tax credit claims, particularly relevant for US-resident NRIs managing complex cross-border investment portfolios.
