Case at a Glance
An Infosys employee deputed to the USA paid about Rs 95,537 in US tax on his salary and also included that salary in his Indian return. His foreign tax credit (FTC) was denied by the CPC because Form 67 under Rule 128(9) was not filed with the revised return. It was filed only on 1 April 2021. ITAT Bangalore followed its coordinate bench in Deepak Shimoga Padmaraju and held that the time limit for Form 67 is directory, not mandatory. FTC is a substantive right that cannot be denied only because the form was late. The AO was directed to allow the credit after verification.
The assessee was employed with Infosys and was deputed to the USA during the year. His US salary was taxed in the USA, and he paid tax of about Rs 95,537 there. He included the salary in his Indian total income, but in the original return he mistakenly claimed the credit under Section 89 instead of Section 90. He revised the return on 9 November 2019 to claim FTC under Section 90 read with the India-USA tax treaty, but did not file Form 67 with it.
The CPC disallowed the credit while processing the return under Section 143(1). He filed Form 67 on 1 April 2021 and applied for rectification under Section 154, without success. The CIT(A) held that the prescribed due dates had to be followed and upheld the denial. Before the Tribunal, the assessee argued that the time requirement for Form 67 is procedural and directory. The Department said that the form was admittedly late, so the CPC was right.
The Key Question Before the Court
Can foreign tax credit under Section 90 and the India-USA tax treaty be denied only because Form 67 was filed after the due date prescribed by Rule 128(9)?
Why the Tribunal treated Form 67 timing as directory
The Tribunal framed the core issue as whether FTC of Rs 95,537 could be denied solely because Form 67 was filed late. It noted that the revised return was filed on 9 November 2019 and Form 67 on 1 April 2021, and that the denial rested only on the lateness of the form. It relied on the coordinate bench decision in Deepak Shimoga Padmaraju ([2024] 206 ITD 803 (Bangalore Trib.)). That decision held that Rule 128(9) does not authorise disallowing FTC merely because Form 67 was filed late, and that the timing requirement is directory. Deepak Shimoga Padmaraju had itself relied on Vinodkumar Lakshmipathi, another Bangalore bench ruling.
Treating FTC as a substantive claim, the Tribunal said that “FTC, being a substantive claim, cannot be denied” because of a procedural lapse of this kind. It set aside the CIT(A)’s order and directed the AO to allow FTC of Rs 95,537 as claimed, subject to verification of the claim and of Form 67.
What the Court Actually Held
- The requirement to file Form 67 by the due date under Rule 128(9) is directory, not mandatory.
- Foreign tax credit under Section 90 is a substantive claim and cannot be denied merely because Form 67 was filed late.
- The CIT(A)’s order upholding the denial was set aside.
- The AO was directed to allow FTC of Rs 95,537, subject to verification. The appeal was allowed.
Why This Judgment Matters
- Thousands of salaried Indians on overseas deputation pay tax abroad and lose credit in India because Form 67 is late. This ruling adds to the line of Tribunal decisions protecting the credit.
- It prevents double taxation of the same salary because of a filing slip.
- It also shows the value of correcting a wrong section claim quickly by revising the return.
What Should Advocates Take Away From the Judgment?
For Salaried Taxpayers Abroad
- File Form 67 before or with the return to avoid disputes. But if it is late, the credit is not automatically lost.
- Claim the credit under Section 90 or 91, not Section 89, which deals with salary arrears.
- Keep proof of foreign tax paid, because the AO will verify the claim.
For Counsel
- Cite Deepak Shimoga Padmaraju ([2024] 206 ITD 803) and Vinodkumar Lakshmipathi on Form 67 being directory.
- Present FTC as a substantive treaty right that a procedural rule cannot defeat.
- Seek a direction to allow the credit subject to verification, rather than only a remand.
Key Takeaways
- Late filing of Form 67 alone does not defeat a foreign tax credit claim.
- Rule 128(9) timing was treated as directory, following coordinate benches.
- The AO must allow FTC of Rs 95,537 after verification.
- Taxpayers should still file Form 67 on time to avoid litigation.
Frequently Asked Questions
What is Form 67?
It is the statement under Rule 128(9) of the Income-tax Rules for claiming credit for tax paid in another country. The Rule prescribes when it must be filed.
Is foreign tax credit lost if Form 67 is filed late?
ITAT Bangalore held that it is not. The time requirement is directory, and FTC as a substantive claim cannot be denied only because the form was late.
What did the Tribunal direct?
It directed the AO to allow FTC of Rs 95,537 as claimed, subject to verification of the claim and Form 67.
Conclusion
The Tribunal followed its settled line that procedure serves substance. Where salary has genuinely been taxed abroad and the claim is otherwise in order, a late Form 67 should not lead to double taxation.
Practical takeaway: If your FTC was denied for a late Form 67, file the form, seek rectification and appeal, citing the Bangalore bench rulings that treat the deadline as directory.
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