A software professional from Hyderabad received an Income Tax notice after claiming foreign tax credit (FTC) in India for the taxes he had already paid on his salary in Belgium (part of European Union (EU)) - without filing the mandatory Form 67. India’s Double tax Avoidance Agreement (DTAA) with Belgium entitled him to claim this credit, but the tax department rejected it solely because Form 67 was missing.
What is Foreign Tax Credit (FTC)?
If you earn income both in India and abroad, then you can claim credit for taxes already paid in a foreign country with which India has signed a DTAA. This reduces your tax liability in India and prevents you being taxed twice on the same income. But this benefit is given if you have filed Form 67, which this employee didn’t.
Where was he employed?
He worked with M/s Colruyt Consultancy India Pvt. Ltd. and in Belgium for ITC Infotech India Ltd. For his Belgium work in AY 2019-20, he earned a salary of Rs 14.42 lakh. For his India work he earned Rs 5 lakh. So in the India ITR, he declared Rs 19.19 lakh income (14.42+5).
However, for earning Rs 14.42 lakh salary in Belgium, he paid Rs 4.53 lakh income tax over there. Since he paid the tax in Belgium for his abroad salary, he claimed Rs 3 lakh (a lesser amount) as foreign tax credit (FTC) in India. However, the centralised processing centre (CPC), Bangalore disallowed his FTC claim as he had not filed Form 67.
On August 17, 2026, he (employee) won the case in Income Tax Appellate Tribunal (ITAT) Bangalore. He was represented by Chartered Accountant Lakshmikant Rathi.
Chartered Accoutant Gaurav Makhija said to ET Wealth Online that the Indian employee succeeded in the case because the substantive entitlement to Foreign Tax Credit was not in dispute.
In this particular case, the foreign income had been duly disclosed in India and the corresponding tax had actually been paid overseas. The Bangalore tax Tribunal has observed / recognised that a procedural lapse relating to Form 67 by itself should not be a reason to deny a rather legitimate claim of Foreign Tax Credit and result in unintended double taxation.
Makhija says that he would not say that this judgement would mean that Form 67 is optional. Form 67 is the prescribed reporting mechanism through which taxpayers furnish details of foreign income, foreign taxes paid and the Foreign Tax Credit being claimed. There are attachment that are furnished to substantiate the claim.
Makhija says: "While judicial authorities have protected taxpayers from denial of FTC claim merely due to some procedural lapses (for genuine reasons) - taxpayers should not rely on litigation as a remedy for non-compliance. Timely and accurate filing of Form 67 would ensure that a legitimate Foreign Tax Credit is claimed and processed smoothly."
Why did the employee win the case in ITAT Bangalore?
Chartered Accountant Suresh Surana explained to ET Wealth Online that in this case, ITAT Bangalore dealt with two connected issues:
- whether a substantial delay of 1,687 days in filing the first appeal should be condoned and
- whether Foreign Tax Credit (“FTC”) could be denied merely because Form 67 was filed belatedly.
ITAT Bangalore decided both procedural issues in the employee’s favour and restored the FTC claim to the Assessing Officer (“AO”) for verification on merits.
The employee had subsequently filed Form 67 and opted for Section 154 rectification, but did not file an appeal before CIT (A) because he really believed that denial of FTC could be corrected through rectification. After receiving a tax demand recovery notice in November 2025, he obtained fresh professional advice and filed an appeal before the CIT(A). By then, however, there was a delay of 1,687 days. So the CIT(A) refused to condone the delay and dismissed the appeal without examining the FTC claim on merits.
The ITAT Bangalore disagreed with this approach and observed that the power to condone delay under Section 249(3) should be exercised with a justice-oriented approach where the taxpayer demonstrates sufficient cause. According to the Tribunal, the length of the delay cannot be the sole determining factor. What matters is whether the taxpayer acted bona fide or whether the delay resulted from deliberate inaction or gross negligence.
On the FTC issue, the ITAT Bangalore observed that the employee, being an Indian resident, could claim foreign tax credit (FTC) under Section 90 read with Article 23(2)(a) of the India-Belgium DTAA for tax paid I Belgium on income that was also subjected to tax in India, subject to the applicable limitation on the amount of credit.
Surana says that the ITAT Bangalore further observed that Form 67 serves a procedural purpose of facilitating verification of the FTC claim. Citing earlier Tribunal decisions, including Brinda Ramakrishna v. ITO, the tribunal ruled that a legitimate substantive FTC claim should not be denied merely because Form 67 was filed after the prescribed time, particularly where the taxpayer subsequently furnished the relevant information and evidence.
Thus, the case rationale provides for the principle that substantive justice should ordinarily prevail over procedural lapses where the taxpayer has acted bona fide. ITAT Bangalore found that the delayed appeal resulted from the taxpayer pursuing an alternative remedy on professional advice rather than from deliberate negligence. Similarly, delayed filing of Form 67 was regarded as a procedural lapse which, by itself, should not extinguish an otherwise valid treaty-based FTC claim.
Accordingly, the employee won the procedural and legal issues, but the ITAT did not itself grant him the FTC of Rs 3,00,783. It set aside the CIT(A)'s order and referred the matter back to the AO for the limited purpose of verifying Form 67, the Belgian tax return and the supporting documents, and thereafter granting the appropriate FTC in accordance with Section 90 and the India-Belgium DTAA.
