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Direct Tax Alert - Bangalore ITAT allows FTC to employee on salary earned in Australia, holds the requirement to furnish Form 67 as directory

15 December 2021


India has signed Double Taxation Avoidance Agreements (DTAA) with various countries to mitigate double taxation on the said income. Section 90 of the Income-tax Act,1961 (the Act) read with Article 24(4)(a) of India – Australia DTAA empowers an individual to claim relief i.e., Foreign Tax Credit (FTC) for taxes paid in Australia against tax payable in India but is limited to proportion of India tax liability.

Rule 128 of Income tax Rules, 1962 (IT Rules) prescribes that a “statement of income earned outside India and foreign tax credit” is required to be furnish in Form No. 67 for claiming FTC. A question generally arises as to whether the furnishing of Form 67 is mandatory or directory in nature. In this regard, recently, the Bangalore Tribunal1 had an occasion to examine this issue. We, at BDO in India, have analysed and summarised the said ruling and provided our comments hereunder.

Facts of the Case

An employee, being a resident of India, claimed FTC in her India tax return for taxes paid in Australia for the period services rendered in Australia. However, she failed to submit form 67 before filing the tax return, which she submitted upon realisation subsequently. Centralised Processing Centre (CPC) of Income tax department processed the return electronically and intimation was issued disallowing the claim of FTC. The Taxpayer filed a rectification application which was rejected by the Tax Officer on the basis that filing of Form 67 before the due date was mandatory. The Revenue’s order was upheld by the First Appellate Authority (‘CIT(A)’) and taxpayer’s contention that “filing Form No. 67 is a procedural requirement and non-compliance did not disentitle her of the FTC”, was rejected by CIT(A) on the basis that the taxpayer has not filed Form 67 before the time allowed and therefore, Form 67 filed later, is non-est in law.

The Taxpayer approached the Income Tax Appellate Tribunal (ITAT)

Bangalore ITAT Ruling

While allowing the FTC, the Bangalore ITAT observed that:

  • The provisions of DTAA override the provisions of the Act and the Rules cannot be contrary to the IT Act. 
  • CBDT under Rule 128 of the IT Rules does not have a power to prescribe a condition for disallowance of FTC, thus provisions of Rule 128 of the IT Rules are only procedural in nature.
  • Rule 128 of the IT Rules nowhere stipulates that if Form 67 is not filed within the stipulated time, FTC claim would be denied.
  • Violation of procedural norm did not extinguish the substantive right of claiming FTC.
  • Rule 128 of the IT Rules did not provide for disallowance of FTC for delay in filing of Form No. 67
  • Filing of Form 67 was not mandatory for claiming FTC but only a directory requirement.
  • A reliance was placed on the decision of the Hon’ble Supreme court2 wherein it was held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions. Procedures are handmaid and not the mistress. The procedural law should not ordinarily be constructed as mandatory; the procedural law is always subservient to and is in aid to justice. Thus, basis this, ITAT held that filing of form 67, being a procedural law should not control the claim of FTC.

ITAT reiterated that DTAA overrides the provisions of the Act, and the Rules cannot be contrary to provisions of the Act, but an aid. Accordingly, as per ITAT order, the rectification procedure could be resorted to, by the taxpayer and thus FTC can be claimed.

BDO Comments

This ruling by the ITAT clarifies that if the Form 67 is not furnished before the due date, the same does not deprive the taxpayer of the FTC claim, if the same is done subsequently. Hence, we believe this could bring some relief to taxpayers that have faced a similar situation.  The judgement also reiterates the primacy of the DTAA and the Act and that Rules cannot override the Act by restricting a claim available under the DTAA or the Act.

1Ms. Brinda RamaKrishna vs ITO (ITA No. 454/Bang/2021)

2Sambhaji and Others v. Gangabai and Others [17 SCC 117 (2008)]