Foreign Tax Credit Allowed Despite Delay in Form 67 Filing: ITAT Kolkata Offers Relief to Global Taxpayers
In a pivotal decision that could impact thousands of Indian taxpayers with foreign income, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has ruled that Foreign Tax Credit (FTC) cannot be denied solely on the ground of delayed filing of Form 67. The decision in Sanmoy Ray vs. ITO, Ward 24(2) (ITA No. 683/Kol/2025), delivered on July 24, 2025, reaffirms a critical legal principle: substantive treaty rights under the Double Taxation Avoidance Agreement (DTAA) override procedural lapses under domestic law.
Case Background:
The assessee, Mr. Sanmoy Ray, a resident Indian taxpayer, had foreign income from the United States during AY 2023–24 and paid taxes in the U.S. as per local laws. He filed his income tax return in India on 16.07.2023, declaring the foreign income and claiming credit for U.S. taxes under Section 90 of the Income-tax Act, 1961, read with Article 25 of the India–U.S. DTAA.
However, the Centralized Processing Centre (CPC) denied the FTC claim because Form 67—a mandatory form under Rule 128 of the Income-tax Rules, 1962—was not filed within the due date for filing the return under Section 139(1).
The assessee’s appeal to the CIT(A) failed, prompting him to approach the ITAT.
Tribunal’s Ruling: A Victory for Substantive Justice
The ITAT Kolkata Bench, comprising Shri Sanjay Awasthi (Accountant Member) and Shri George Mathan (Judicial Member), allowed the appeal in favor of the assessee, delivering a detailed and reasoned judgment that leaned heavily on the principle of substance over form.
Key Observations and Findings:
1. Form 67 Is Directory, Not Mandatory
The Tribunal held that while Rule 128(9) requires Form 67 to be filed on or before the due date of return, neither the Income Tax Act nor the DTAA prescribes disallowance of FTC for delay in filing this form.
Quoting the Supreme Court in Mangalore Chemicals & Fertilizers Ltd.:
“Violation of procedural norms does not extinguish the substantive right.”
2. DTAA Overrides Income Tax Rules
The Tribunal reiterated that as per Section 90(2) of the Act and multiple Supreme Court rulings (notably Engineering Analysis Centre of Excellence (P) Ltd.), provisions of the DTAA override conflicting domestic rules if they are more beneficial to the assessee.
Thus, Article 25(2)(a) of the India–U.S. DTAA mandates that India must allow a deduction for taxes paid in the U.S., without imposing procedural hurdles that are not stipulated in the treaty.
Supporting Precedents Relied Upon:
The Tribunal fortified its ruling by referencing a series of judgments from coordinate Benches and High Courts:
• Timirbaran Mazumder vs. ITO– ITA No. 1905/Kol/2024
• Jaspal Singh Bindra vs. DCIT– ITA No. 1826/Kol/2024
• Sukhdev Sen vs. ACIT– ITA No. 78/Kol/2014
• Vikash Daga vs. ACIT– ITA No. 2536/Del/2022
• Ashish Agrawal vs. ITO– ITA No. 337/Hyd/2023
• Duraiswamy Kumaraswamy vs. PCIT– Madras High Court W.P. No. 5834/2022
Each of these rulings clearly concluded that FTC cannot be denied merely due to delayed filing of Form 67, and the right to FTC is a vested legal right under tax treaties.
Why This Decision Matters:
1. Protects Taxpayers from Harsh Technical Disallowances: The decision confirms that honest taxpayers with genuine foreign income won’t lose their credit due to minor delays.
2. Clarifies Legal Position on Rule 128(9): Filing Form 67 is procedural and non-filing or late filing does not defeat the claim for FTC.
3. Provides Certainty Amid Digital Challenges: Many taxpayers face technical issues with uploading Form 67. This ruling ensures procedural delays don’t result in financial losses.
4. Strengthens DTAA Commitments: Reiterates that international treaties prevail over Indian procedural rules where applicable.
Conclusion: Adaptation Over Penalty
The ITAT Kolkata’s order in Sanmoy Ray vs. ITO is a welcome move toward ensuring taxpayer justice in the global income era. As foreign employment, overseas consulting, and remote work continue to rise among Indian residents, such rulings prevent genuine claims from being lost in the procedural maze.
The takeaway? While filing Form 67 on time is advisable, a delay won’t extinguish your right to claim FTC if your taxes are duly paid and supported by documentation. The tribunal has once again emphasized the golden rule of tax law: “Substance must prevail over form.”
The copy of the order is as under:
