The Income Tax Act allows residents of India to deduct the income tax paid in the United States from their tax liability, as per the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the United States. Rule 128(9) of the Rules, which does not provide for the disallowance of Foreign Tax Credit (FTC) in case of delay in filing Form 67, must be read in conformity with the DTAA.
According to Article 25(2)(a) of the DTAA, if a resident of India earns income that can be taxed in the United States as per the provisions of the DTAA, India will allow a deduction from the tax on the income of the resident equal to the income tax paid in the United States, whether directly or by deduction. This provision overrides the provisions of the Indian Income Tax Act.
Rule 128(9) of the Rules must be read in the context of the Act and the DTAA. The context includes the impact of the Act and the DTAA on the rights, liabilities, and disabilities of the parties. Therefore, a delay in filing Form 67 does not result in the disallowance of FTC, and filing Form 67 is a directory requirement, not a mandatory one.
In the case of Purushothama Reddy Vankireddy v. ADIT (International Taxation), the Income Tax Appellate Tribunal (ITAT) of Hyderabad held in favour of the assessee, citing the DTAA’s supremacy over the Act and the Rules. The ITAT concluded that Rule 128(9) of the Rules must be read in conformity with the DTAA, and does not conflict with it. Therefore, a delay in filing Form 67 does not result in the disallowance of FTC.
In summary, residents of India can deduct income tax paid in the United States as per the provisions of the DTAA, and Rule 128(9) of the Rules must be read in conformity with the DTAA. Filing Form 67 is a directory requirement, not a mandatory one, and a delay in filing Form 67 does not result in the disallowance of FTC. The DTAA’s supremacy over the Act and the Rules was confirmed in the case of Purushothama Reddy Vankireddy v. ADIT (International Taxation).
