ITAT Hyderabad: Foreign Tax Credit Cannot Be Denied for Delay in Filing Form 67; Requirement Held Directory

Sucharitha Reddy Mettu Vs ITO (ITAT Hyderabad)

ITAT Hyderabad: Foreign Tax Credit Cannot Be Denied for Delay in Filing Form 67; Requirement Held Directory

In this case, the assessee, an individual with foreign income from the USA, claimed foreign tax credit (FTC) under section 91 but filed Form 67 after the due date under section 139(1), though before completion of assessment. The AO denied FTC solely on the ground of delayed filing, and the CIT(A) upheld the denial.

The ITAT held that filing of Form 67 under Rule 128 is directory and not mandatory, and if the form is furnished before completion of assessment, it constitutes sufficient compliance. The Tribunal relied on judicial precedents including High Court rulings and earlier ITAT decisions.

It was emphasized that substantive benefit of FTC cannot be denied on procedural delay when the income has been offered to tax in India and taxes have been paid abroad, as the provisions aim to avoid double taxation.

Accordingly, the ITAT set aside the order of the CIT(A) and directed the AO to allow foreign tax credit as per Form 67. The appeal was allowed in favour of the assessee.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 18.09.2025, pertaining to the assessment year 2018-19.

2. The brief facts of the case are that, the assessee is an individual, a citizen of the United State of America (for short “USA”), and a person of Indian origin. She had been residing in the USA for several years on account of her employment and returned to India after retirement in the year 1995. The assessee had filed her return of income for the assessment year 2018-19 on 30.08.2019, declaring total income of Rs. 32,95,855/-, which included foreign income earned in the USA amounting to Rs. 23,34,400/-, on which the assessee had claimed relief on tax paid on income earned outside India i.e., in the USA, in terms of Section 91 of the Income Tax Act, 1961, for Rs. 4,79,776/-. The assessee has also filed Form 67 on 25.09.2020 in support of claim of foreign tax paid outside India for claiming credit in India. The assessment has been completed under Section 143(3) of the Income Tax Act, 1961 on 17.12.2020, wherein the A.O. determined the total income at Rs. 56,33,260/- by making addition of Rs. 23,34,400/- towards income earned outside India and further the A.O. did not give credit for tax paid outside India for Rs. 4,79,776/-.

3. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and challenged the additions made by the A.O. towards income earned from outside India and also denial of credit for tax paid in light of relevant Form 67 filed on 25.09.2020. The learned CIT(A) deleted the additions made by the A.O. towards income earned outside India for Rs. 23,34,400/-, however, denied credit for tax paid outside India on the ground that as per Rule 128(9) of Income Tax Rules, 1962, the assessee shall furnish relevant Form No. 67 within the due date provided under Section 139(1) of the Income Tax Act, 1961 for claiming credit for tax outside India.

4. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

5. The learned counsel for the assessee, Ms. Aluru V Sai Sudha, C.A., referring to dates and events, submitted that the extended due date for filing return of income for A.Y. 2018-19 was 31.08.2019 and the assessee had filed her return of income on 30.08.2019 and reported income earned outside India and also tax paid on said income. The assessee has furnished relevant Form 67 on 25.09.2020 and the A.O. has passed the order under Section 143(3) of the Act on 17.12.2020. Although the relevant Form No. 67 was made available to the A.O. at the time of the assessment proceedings, the A.O. denied credit of tax paid outside India only on the ground that Form No. 67 has been filed beyond the due date provided under Section 139(1) of the Act, even though various Courts and Tribunals held that the filing of Form No. 67 is not mandatory but directory in nature, and if such form is filed on or before completion of assessment proceedings, then the A.O. ought to have considered the relevant tax paid outside India as per Form No. 67 filed by the assessee. In this regard, she relied upon the decision of ITAT, Hyderabad Bench in the case of Loveen Babu Vuppala Vs. ITO in ITA No. 1121/Hyd/2024 dated 30.12.2024.

6. The learned Sr. A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the orders of the lower authorities, submitted that, as per Rule 128 of the Income Tax Rules, 1962, filing of Form No. 67 on or before the due date prescribed under Section 139(1) of the Act, is mandatory in nature. If relevant Form No. 67 has not been filed before the due date, then credit for tax paid outside India cannot be allowed. The A.O. and the Ld. CIT(A) after considering the relevant facts, have rightly denied the credit for tax paid outside India. In this regard, he relied upon the decision of ITAT, Visakhapatnam Bench in the case of Murali Krishna Vaddi Vs. ACIT reported in (2022) 196 ITD (Visakhapatnam) and also the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Siyaram Metal (P.) Ltd., reported in (2017) 245 taxmann.com 334. The learned Senior A.R. for the Revenue further submitted that the case laws relied upon by the learned counsel for the assessee in the case of Loveen Babu Vuppala Vs. ITO (Hyd Trib) (supra) is not applicable to the facts of the present case because the same relates to filing of Form No. 67 before processing of return of income under Section 139(1) of the Income Tax Act. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

7. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has furnished her return of income on or before the due date prescribed under Section 139(1) of the Act, and also declared income earned outside India and suffered tax as per US tax laws and also claimed credit for relevant tax paid as per US tax laws. However, the assessee did not file Form No. 67 on or before the due date under Section 139(1) of the Income Tax Act, but the relevant Form No. 67 has been filed on 25.09.2020 i.e., during the course of assessment proceedings and before the A.O. passed the order under Section 143(3) of the Act, on 17.12.2020. The A.O. denied credit for tax paid outside India as per Form No. 67 only on the ground that Form No. 67 has not been filed on or before the due date under Section 139(1) of the Act.

8. We find that, the above issue has been considered by the Coordinate Bench of the Tribunal in the case of Loveen Babu Vuppala Vs. ITO (supra), where the Tribunal, after considering the relevant case laws and also by considering the decision of Hon’ble Madras High Court in the case of Kuthoore Natarajan Venkatasubrahmanian Vs. PCIT in W.P. No. 12578 of 2024 dated 26.09.2024, held that filing of Form No. 67 in terms of Rule 128 of the Income Tax Rules, 1962 is directory in nature and if such form is filed on or before the assessment order is passed under Section 143(1)/143(3) of the Act, then it is sufficient compliance of Rule 128 of I.T. Rules, 1962, and the A.O. ought to have allowed credit for tax paid outside India. The relevant findings of the Tribunal are as under :

“7. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. As regards the delay in filing the appeal before the Ld.CIT(A), we find that the assessee has filed the appeal with the delay of days before the first appellate authority. The assessee has filed petition and explained the reasons for delay in filing of the appeal. According to the assessee, he was pursuing alternative remedy by filing application u/s 154 of the Act for rectification of mistake and hopeful of getting relief from the Assessing Officer, however, when the Assessing Officer rejected the application filed by the assessee u/s 154 of the Act, even though, it was a case for rectifying mistake, the assessee has filed appeal which caused delay of 159 days. In our considered view, the reasons given by the assessee that he was under the bonafide belief that the Assessing Officer would allow relief towards foreign tax credit on the application filed by the assessee u/s 154 of the Act is bonafide and reasonable and further, it comes under reasonable cause as provided under the Act for condonation of delay. Therefore, in our considered view, the Ld.CIT(A) ought to have condoned the delay in filing the appeal. Since the Ld.CIT(A) rejected the appeal filed by the assessee without assigning proper reasons, in our considered view, the delay in filing the appeal before the Ld.CIT(A) needs to be condoned. Thus, we condone the delay of 159 days before the Ld.CIT(A).

8. Having said so, let us come back to the issue involved in the appeal. Admittedly, the assessee derived income from salary and his global income from salary has been offered to tax in India. It is also an admitted fact that the assessee has earned income from outside India and on the said income, the country, from where the assessee earned income has deducted TDS and issued Form 67. The assessee had also filed Form 67 and proved that he has paid a sum of Rs.67,29,287/- towards taxes on income earned outside India and the same has been offered to tax in India. There is no dispute on these aspects. The dispute is only with regard to the date of filing the return of income and filing of Form 67 in terms of Rule 128(9) of Income Tax Rules, 1962. As per Rule 128 of Income Tax Rules, 1962, the assessee needs to file relevant Form 67 for claiming foreign tax credit on or before the due date for filing of the return of income u/s 139(1) of the Act. In the present case, the due date for filing the return of income for the A.Y.2021-22 was 31.12.2021, whereas, the assessee has filed his return of income on 31.01.2022. The assessee had also filed Form 67 on 31.01.2022. Admittedly, the assessee has not filed Form 67 on or before the due date for filing the return of income u/s 139(1) of the Act. However, the said Form 67 has been filed on 31.01.2022 before the Assessing Officer passed the order u/s 143(1) on 13.10.2022. Therefore, the issue needs to be decided, whether filing Form 67 for claiming foreign tax credit on or before the due date for furnishing return of income u/s 139(1) of the Act is mandatory or if such Form is filed on or before the Assessing Officer passed order u/s 143(1), is sufficient compliance under Rule 128 of Income Tax Rules, 1962. This issue is no longer res integra. The Hon’ble High Court of Madras in the case of Shri Kuthoore Natarajan Venkatasubramanian Vs. PCIT in W.P.No.12578 OF 2024 dated 26.09.2024 has considered a very similar issue of belated filing of Form 67 for claiming foreign tax credit and by following the decision of Hon’ble Supreme Court in the case of CIT Vs. G.M.Knitting Industries (P.) Ltd. in Civil Appeal No.10782 of 2013 and 4048 of 2014 dated 24.07.2015 held that filing of Form 67, in terms of Rule 128 is directory in nature and if such Form is filed on or before the Assessing Officer passed his order u/s 143(1)/143(2), then it is sufficient compliance of Rule 128 and the Assessing Officer should allow credit for taxes paid outside India. The relevant findings of the Hon’ble High Court are as under :

“4. I have considered the rival submissions made on either side and perused the materials available on record.

5. In the present case, the petitioner, who was working in foreign country, had filed his ROI for the assessment year 2020-21 on 21.09.2020 in India, but due to Covid out break he could not get necessary documents from foreign country and file Form-67 along with ROI. But, the petitioner uploaded the Form-67 on 08.10.2022. The reasons stated by the petitioner appears to be reasonable and genuine and further this Court in a similar case reported in (2024) 460 ITR 615 (Duraiswamy Kumaraswamy vs. Principal Commissioner of Income Tax and Other) passed the following order.

“9. In the present case, the petitioner initially worked at Kenya and subsequently, he became the resident of India from the assessment years 2018-2019 and 2019-2020. The petitioner admitted the fact that he has filed his return in India on August 10,, 2019. The intimation under Section 143(1) was issued on March 26, 2020. However, he has filed the return without Form 67 which is required to be filed under Rule 128 to claim the benefit of foreign tax credit and the same came to be filed on February 2, 2021 which was well before the completion of the assessment year. The intimation under Section 143(1) was issued from the Centralized Processing Centre only on March 26, 2021.

10. According to the learned counsel appearing for the respondent, the procedure under rule 128 is mandatory and cannot be considered as directory in nature. The petitioner has filed his return including his Kenya income along with his Indian Income-tax and claimed the benefits of foreign tax credit. However, the petitioner would submit that it is not mandatory. The rule cannot make anything mandatory and it can be directory in nature, that too before the assessment, the claim to avail the benefits of foreign tax credit is filed. Therefore, it would amount to due compliance under the Act. The petitioner referred to the Judgment of the hon’ble Supreme Court in the case of CIT v. G.M.Knitting Industries (P.) Ltd. in Civil Appeal Nos.10782 of 2013 and 4048 of 2014 dated July 24, 2015, wherein it was held that Form 3AA is required to be filed along with the return of income to avail the benefit and even if it is not filed, but the same is filed during assessment proceedings but before the final order of assessment is made that would amount to sufficient compliance.

11. The law laid down by the hon’ble apex court in CIT v. G.M.Knitting Industries (P.) Ltd. in Civil Appeal Nos.10782 of 2013 and 4048 of 2014 dated July 24, 2015, which was referred above, would be squarely applicable to the present case. In the present case, the returns were filed without foreign tax credit, however the same was filed before passing of the final assessment order. The filing of foreign tax credit in terms of the rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature. This is what the hon’ble Supreme Court had held in the above cases when the returns were filed without furnishing Form 3AA and the same can be filed subsequent to the passing of the assessment order.

12. Further, in the present case, the intimation under Section 143(1) was issued on March 26, 2021, but the foreign tax credit was filed on February 2, 2021. Thus, the respondent is supposed to have provided the due credit to the foreign tax credit of the petitioner. However, the foreign tax credit was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore the impugned order is liable to be set aside.

13. Accordingly the impugned order dated January 25, 2022 is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the foreign tax credit filed by the petitioner on February 2, 2021. The respondent is directed to give due credit to the Kenya income of the petitioner and pass the final assessment order. Further, it is made clear that the impugned order is set aside only to the extent of disallowing of foreign tax credit claim made by the petitioner and hence, the first respondent is directed to consider only on the aspect of rejection of foreign tax credit claim within a period of 8 weeks from the date of receipt of copy of this order.

6. This Court, by following the judgment of the Hon’ble Supreme Court, held that filing of foreign tax credit in terms of Rule 128 is only directory in nature and not mandatory. In the present case the petitioner was working in United Kingdom and earned Rs.43,06,224/-. The petitioner filed return of income in India for the assessment year 2020-2021 on 21.09.2020 showing the income earned in the foreign country, in which he claimed Rs.6,27,023/-being TDS credit before United Kingdom, as FTC under Section 90 of the Income Tax Act. But the petitioner uploaded Form 67 with delay, which he suppose to upload while filing the return of income. It is to be noted that Section 90, Section 90A and Section 91 of the Income Tax Act of 1961 have been drafted specifically to avoid the burden of double taxation.

7. In the present case, even though the petitioner had not uploaded Form-67 while filing return of tax, later he uploaded the same with delay and that too due to Covid out break he was not able to get necessary documents from the foreign country, which appears to be genuine. Therefore this Court is inclined to condone the delay in filing Form 67 and the impugned order is liable to be set aside.

8. Accordingly, this Court passes the following order:-

(i) The impugned order dated 07.03.2024 is set aside subject to the payment of Rs.10,000/- to the Principal Government Naturopathy Medical College and Hospital, Account No.7883022723, IFSC Code: IDIB000M157, within a period of 2 weeks from the date of receipt of copy of this order. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the foreign tax credit filed by the petitioner.

(ii) Upon production of proof with regard to the payment of a sum of Rs.10,000/- as stated above, the respondent is directed to give due credit to the United Kingdom income of the petitioner and pass the final assessment order. Further, it is made clear that the impugned order is set aside only to the extent of disallowing of foreign tax credit claim made by the petitioner and hence, the respondent concerned is directed to consider only on the aspect of rejection of foreign tax credit claim within a period of 8 weeks from the date of receipt of copy of this order.

9. With the above directions, this writ petition is allowed.

9. Similar view has been taken by ITAT Hyderabad Benches in the case of CES Ltd. Vs. DCIT (supra), wherein, it has been held that foreign tax credit cannot be disallowed for delay in filing Form 67 as filing of Form 67 is directory requirement.

10. In view of this matter and considering the facts and circumstances of the case and also by respectfully following the decision of Hon’ble High Court of Madras in the case of Kuthoore Natarajan Venkatasubramanian Vs. PCIT (supra), we are of the considered view that, where Form 67 is filed on or before the Assessing Officer passed the order u/s 143(1) of the Act, then the Assessing Officer should consider relevant Form 67 filed by the assessee and allow credit for taxes paid outside India, if the other conditions are satisfied. In this case, there is no dispute with regard to the fact that the assessee has satisfied the conditions for claiming foreign tax credit. Therefore, we are of the considered view that the Ld.CIT(A) erred in not allowing foreign tax credit as claimed by the assessee by filing Form 67 in terms of Rule 128 of Income Tax Rules, 1962. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to allow foreign tax credit as claimed by the assessee in accordance with Form 67 filed in terms of Rule 128 of Income Tax Rules, 1962.”

9. Insofar as the arguments of the learned Senior A.R. for the Revenue, in light of the decision of ITAT, Visakhapatnam in the case of Muralikrishna Vaddi Vs. ACIT (supra), we find that although the Coordinate Bench of ITAT, Visakhapatnam Bench has taken a contrary view, in our considered view, the above decision is not binding, because the Coordinate bench of the Tribunal has not considered the decision of Hon’ble Madras High Court in the case of Kuthoore Natarajan Venkatasubrahmanian Vs. PCIT (supra). In the above judgment, the Hon’ble Madras High Court had followed the decision of Hon’ble Supreme Court in the case of CIT Vs. G.M. Knitting Industries (P.) Ltd. in Civil Appeal No. 10782 of 2013, dated 24.07.2015 reported in (2016) 71 taxmann.com35 (SC), where it has been clearly held that filing of relevant forms or declarations along with the return of income to avail the benefit is required to be filed. However, if said form is not filed along with the return of income, but the same is filed during the assessment proceedings, that would amount to sufficient compliance. The Hon’ble Madras High Court, by following the above decision of the Hon’ble Supreme Court, categorically stated that filing of Form No. 67 is directory in nature and if, such form is filed before the completion of assessment proceedings, then it is sufficient compliance of Rule 128 of the Income Tax Rules, 1962. Therefore, in our considered view, the case laws relied upon by the Revenue are not applicable to the facts of the present case and thus, the same are rejected.

10. Insofar as the case law relied upon by the Revenue in the case of CIT(TDS) Vs. Siyaram Metal Udyog (P.) Ltd., we find that, the Hon’ble Supreme Court had only admitted the SLP filed by the Revenue against the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Siyaram Metal Udyog (P.) Ltd., (2017) 78 taxmann.com 295 (SC), however, not decided the issue involved in the appeal. Therefore, in our considered view, the reliance placed by the learned Senior A.R. for the Revenue on this case is misplaced and cannot be accepted.

11. In this view of the matter and considering the facts and circumstances, we are of the considered view that, the A.O. has erred in denying the credit for tax paid outside India, even though the income declared by the assessee has been taxed in India, for not filing Form No. 67 on or before the due date under Section 139(1) of the Act. Since the assessee has furnished relevant Form No. 67 to prove the claim of FTC and such form has been filed before the assessment proceedings were completed on 17.12.2020, in our considered view, the A.O. ought to have allowed credit for FTC as per Form No. 67 filed by the assessee. The Ld. CIT(A) without appreciating the relevant facts, simply denied credit for tax paid outside India. Thus, we set aside the order of the Ld. CIT(A) on this issue and direct the A.O. to allow credit for the tax paid outside India as per Form No. 67 filed by the assessee.

12. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 17th April, 2026.