Amit, who is resident in India, worked with Ernst & Young Australia during the financial year and. Since he is an Indian resident, his global income is subject to taxation in India. While Amit earned his salary income in India, he also paid income tax in Australia. To avoid double taxation, Amit utilized the benefits of the Double Taxation Avoidance Agreement (DTAA) between India and Australia, claiming a foreign tax credit in India for the tax paid in Australia as per the DTAA.
When Amit filed his income tax return in India to claim the foreign tax credit, he overlooked a crucial legal requirement. According to the Income Tax Act, taxpayers must file Form 67 to claim a foreign tax credit. This form must be submitted on or before the due date for filing the income tax return. The relevant portion of Rule 128(9) states:
“The statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income.”
The wording of Rule 128(9) has been modified starting from April 1, 2022. A provision for additional time has been introduced, allowing taxpayers to submit Form 67 to claim foreign tax credit. This extension applies from April 1st, 2022. Now, Form 67 can be filed until the end of the relevant assessment year. Additionally, if an updated Income Tax Return (ITR) is filed, Form 67 can be submitted before furnishing the updated ITR. The relevant extract of amended provision reads as follows:
(9) The statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the end of the assessment year relevant to the previous year in which the income referred to in sub-rule (1) has been offered to tax or assessed to tax in India and the return for such assessment year has been furnished within the time specified under sub-section (1) or sub-section (4) of section 139.
Provided that where the return has been furnished under sub-section (8A) of section 139, the statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) to the extent it relates to the income included in the updated return, shall be furnished on or before the date on which such return is furnished.]
Amit claimed the Foreign Tax Credit (FTC) amounting to Rs. 473,779 under Section 90 of the Income Tax Act, in conjunction with Article 24 of the India-Australia tax treaty, without initially filing Form 67. Subsequently, he revised his income tax return. Upon realizing the negligence on his part, he promptly filed Form 67. However, the revised income tax return in which FTC claimed, was processed electronically by the Centralized Processing Centre (CPC), disallowing the FTC.
In response, Amit pursued another avenue to rectify his error. He filed a rectification of income tax return under Section 154 of the Income Tax Act, 1961. Nevertheless, the assessing officer, citing Rule 128(9), once again disallowed the FTC, asserting that Form 67 was not filed by the due date, a mandatory requirement.
Dissatisfied with the assessing officer’s decision, Amit escalated the matter to the Commissioner of Income Tax Appeal (CIT(A)). However, the CIT(A) upheld the assessing officer’s decision, rejecting Amit’s appeal and affirming the disallowance of the FTC due to the non-filing of Form 67.
Unhappy with the CIT(A)’s ruling, Amit appealed to the Income Tax Appellate Tribunal (ITAT), the final fact-finding authority. The Assessee’s counsel contended that the disallowance of the FTC was legally flawed. He argued that Section 90 of the Act empowers the Government of India to negotiate agreements with other countries to provide relief concerning income on which taxes are paid outside India and are also taxable in India. Article 24 of the India-Australia Double Taxation Avoidance Agreement (DTAA) specifically addresses credit for foreign taxes. Of relevance is Article 24(4)(a), the text of which is provided below:
“4. In the case of India, double taxation shall be avoided as follows:
(a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;”
The counsel representing the assessee argued that the foreign tax credit is permitted according to the provisions of the treaty. The FTC should be granted in India for the tax paid in Australia, limited to the proportion of Indian tax. Neither Section 90 of the Income Tax Act nor the Double Taxation Avoidance Agreement (DTAA) stipulates that the FTC shall be disallowed due to non-compliance with domestic income tax laws.
Furthermore, the counsel emphasized that Rule 128(9) of the Income Tax Rules does not specify that the FTC shall be disallowed for failure to file Form 67. They highlighted that while there are sections in the Income Tax Act where non-fulfillment of legal requirements results in exemptions, deductions, or relief being denied, such restrictions are not explicitly outlined in Rule 128(9). Filing Form 67 is considered a procedural, rather than a mandatory, requirement. Simply failing to file for the foreign tax credit should not disqualify the assessee from claiming it.
The assessee pointed out that the central government has entered into DTAA agreements with other countries under Section 90(2), and the provisions of the DTAA should be applicable to the assessee to the extent that they are more beneficial. The Act does not override the provisions of the DTAA; therefore, the FTC should be allowed to the assessee.
The argument was supported by reference to the following judgment in favor of their claim for the foreign tax credit:
- Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC)
- CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505 (SC)
- GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC)
- Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 taxmann.com 42 (SC) (Pg 106-109 of PB 2-Para 25 & 26)
- CBDT Circular No 333 dated 2/4/82 137 ITR (St.)
- CIT vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi)
- PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 taxmann.com 16 (Allahabad)
- CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 taxmann.com 379 (Karnataka)
- CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi)
- CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka).
Finally, the tribunal issued its decision in favor of the assessee, stating the following in response to submissions from both the assessee and the department representative:
- Rule 128(9) of the Rules 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 and
- DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act.
The judgment discussed in the article is titled “Brinda-RamaKrishna-Vs-ITO-ITAT-Bangalore ITA No. 454/Bang/2021” for the Assessment Year 2018-19.
The link of the judgement discussed above: https://itat.gov.in/files/uploads/categoryImage/1637564087-ITA%20No.%20454-Bang-2021-Ms.%20Brinda%20RamaKrishna.pdf
Form 67 FAQ
- Why is Form 67 necessary?
Form 67 is required if you wish to claim credit for foreign tax paid in a country or specified territory outside India. It is also necessary when carrying back losses from the current year, resulting in a refund of foreign tax previously claimed in any earlier years.
- How can I submit Form 67?
Form 67 can only be submitted online through the e-Filing portal. Log in to the portal, select Form 67, fill out the form, and submit it.
- How can Form 67 be e-verified?
You can e-verify Form 67 using Aadhaar OTP, Electronic Verification Code (EVC), or Digital Signature Certificate (DSC). Refer to the “How to e-Verify” user manual for detailed instructions.
- Do I need a CA certificate to submit Form 67?
No, it is not mandatory to obtain a CA certificate to verify and confirm the details of the foreign tax credit you’re claiming.
- Can I appoint an Authorized Representative to file Form 67 on my behalf?
Yes, you can designate an Authorized Representative to file Form 67 on your behalf.
- What is the deadline for filing Form 67?
Now, Form 67 can be filed until the end of the relevant assessment year. Additionally, if an updated Income Tax Return (ITR) is filed, Form 67 can be submitted before furnishing the updated ITR.
Documents and information required to file Form 67 to claim Foreign Tax Credit
The assessee is eligible for the credit of any foreign tax upon providing the following documents:
- A statement of income from the country or specified territory outside India, submitted for taxation in the previous year, along with details of foreign tax deducted or paid on such income in Form No. 67, verified as specified therein.
- A certificate or statement indicating the nature of income and the amount of tax deducted or paid by the assessee, which can be obtained from:
- the tax authority of the country or specified territory outside India,
- The entity responsible for deducting such tax, or
- Signed by the assessee.
It’s important to note that the statement provided by the assessee will be considered valid if accompanied by:
(a) An acknowledgment of online payment, bank counter foil, or challan for tax payment made by the assessee.
(b) Proof of deduction where tax has been deducted at the source.
