In a recent decision, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) addressed a crucial issue concerning the claiming of Foreign Tax Credit (FTC) under the Income Tax Act, 1961.
The tribunal’s ruling clarifies the procedural requirements related to Form 67 and underscores the substantive rights of taxpayers in claiming FTC.
Role of Form 67 in Claiming FTC: Key Takeaways from ITAT Delhi’s Judgment
Background and Legal Context
Under sections 90 and 91 of the Income Tax Act, 1961, Indian residents who have paid taxes in foreign countries are eligible to claim FTC.
The manner of claiming this credit includes filing Form 67, which is typically required to be submitted along with the income tax return.
Tribunal’s Decision
The ITAT bench, consisting of Mr. Sudhir Pareek (Judicial Member) and Ms. S. Rifaur Rahman (Accountant Member), deliberated on the issue of whether the submission of Form 67 is mandatory for claiming FTC.
The tribunal ruled that Form 67 is a procedural or directory provision, not a mandatory requirement. Therefore, the failure to submit Form 67 within the stipulated time does not negate the substantive right of the taxpayer to claim FTC.
Case Summary
In the case before the tribunal:
- The taxpayer had filed their income tax return for the Assessment Year 2020-2021, declaring no taxable income and claiming FTC under sections 90/91.
- The Assessing Officer (AO) disallowed the FTC claim citing non-compliance with the requirement to file Form 67 along with the return.
- The taxpayer subsequently filed Form 67 belatedly, along with a rectification application to accept the filing.
- Both the AO and the Commissioner of Income Tax (Appeals) upheld the disallowance due to late filing of Form 67.
- The taxpayer appealed to the ITAT, arguing that the failure to file Form 67 in time was a procedural lapse and should not invalidate their FTC claim.
ITAT’s Analysis
The ITAT carefully analyzed the nature of Form 67 filing requirement and concluded:
- Form 67 is procedural in nature and does not affect the substantive right of the taxpayer to claim FTC.
- Non-compliance with filing Form 67 within the due date does not justify disallowance of FTC if the form is subsequently filed.
Outcome of the Ruling
Based on its findings, the ITAT:
- Set aside the orders of lower authorities that disallowed FTC.
- Directed the AO to reconsider and validate the taxpayer’s claim for FTC after accepting the belatedly filed Form 67.
The ITAT’s decision provides clarity on the procedural aspect of claiming FTC under Indian tax laws. It emphasizes that while procedural requirements like Form 67 are important, they should not undermine the substantive rights of taxpayers.
This ruling serves as a reminder to tax authorities to consider the spirit of the law while evaluating tax claims, ensuring fair treatment to taxpayers.
In essence, taxpayers should be aware of their rights under the Income Tax Act, particularly regarding FTC, and ensure compliance with procedural requirements while understanding that substantive rights cannot be denied due to procedural lapses.
This ruling by the ITAT Delhi reinforces the principle that substantive tax benefits, such as FTC, should not be denied solely on procedural grounds, thereby promoting fairness and equity in tax administration.
