Madras High Court grants Foreign Tax Credit (FTC) on delayed filing of Form 67

In the case of Duraiswamy Kumaraswamy^[1] (Taxpayer), the issue before the High Court was whether FTC can be allowed in a case where Form 67 for claiming FTC has been filed after the due date of filing of return of income (ROI) ^[2], but before such return is processed by the Income Tax Department (IT Dept^.[3]).

In the facts of this case, Taxpayer, a resident of India, earned income from India and Kenya and claimed FTC of the taxes paid in Kenya in accordance with the India-Kenya tax treaty in the ROI. Form 67, which is prescribed under Rule 128 of Income Tax Rules, 1962 (IT Rules) for claiming FTC benefit, was inadvertently not uploaded along with the ROI but was filed prior to the processing of the ROI. Tax authority disallowed the FTC claim on the ground that Rule 128 is mandatory and Form 67 should have been filed within the prescribed time limit (i.e. before the due date of filing ROI).

Before the Madras High Court (HC), the Taxpayer contended that the IT Rule which provides the time-limit for filing of Form 67, is directory in nature and not mandatory and the form was filed well before the completion of the assessment. In such circumstances, it was contended that the order processing the ROI should have given effect to the FTC claim.

The Madras HC concurred with the arguments of the Taxpayer and held that when the claim to avail benefit of FTC has been filed in Form 67 before the passing of final assessment order, it would be a sufficient compliance to allow such claim. The HC observed that a Rule is only for implementation of the provisions of the Income Tax Act and is only directory in nature and remitted the matter back for giving due credit of the FTC claimed.

[1] [TS-681-HC-2023(MAD)] dated 6 October 2023
[2] For the relevant year to which this decision pertains, Form 67 was required to be filed on or before the due date of filing of Return of Income. W.e.f. 1 April 2022, amended Rule 128(9) provides that Form 67 shall be filed on or before the end of the AY relevant to the FY in which income has been offered to tax or assessed to tax in India and the ROI for such AY is furnished within the due date prescribed u/s 139(1) or 139(4).   
[3] Central Processing Centre, Bangalore