Tax Dispute: ITAT Delhi Grants Relief After Six-Year Battle Over Rs 30 Lakh Demand Due to Missed Form 67

The Income Tax Appellate Tribunal (ITAT) in Delhi has ruled in favor of a woman who faced a tax demand of Rs 30 lakh after failing to submit Form 67 while claiming a foreign tax credit of Rs 23.48 lakh. The woman, a US citizen, had paid taxes in the United States and sought to claim credit for these under the India-USA Double Taxation Avoidance Agreement (DTAA). The tribunal’s decision came after she challenged the Income Tax Department’s refusal to grant her the credit.

Case Background

The woman initially filed her income tax return in India without the required Form 67, which is necessary for claiming foreign tax credits. Following the omission, the Income Tax Department denied her claim and issued a tax demand. After submitting a rectification application and belatedly filing Form 67 on February 8, 2023, her claims were rejected by both the tax officer and the Commissioner of Appeals.

The woman then escalated the matter to the ITAT, which reviewed the circumstances surrounding her case. The tribunal noted that the Income Tax Department had processed her return without verifying her foreign tax credit claim, despite having referred the case to the jurisdictional Assessing Officer (AO) for further examination.

Tribunal’s Findings

The ITAT found that the jurisdictional AO failed to initiate proceedings to verify the foreign tax credit claim. Additionally, there was no notice issued under Section 139(8) or the proviso to Section 143(1) before the denial of her claim. The tribunal referenced a previous ruling by the Delhi High Court, which established that the requirement to file Form 67 is directory rather than mandatory.

As a result, the ITAT directed the AO to allow the foreign tax credit after conducting the necessary verification. If the credit could not be granted, the AO was instructed to provide a detailed explanation for the decision. Karanjot Singh Khurana, a partner at DMD Advocates, clarified that the woman was liable to pay taxes in India on her global income, including earnings from the US, and that the tax treaty allows for credits to prevent double taxation.

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