Mumbai: Income-Tax Appellate Tribunal (ITAT), Mumbai bench, has issued an order in favour of Bollywood actor Sonakshi Sinha, upholding her claim of foreign tax credit (FTC) — the taxes were paid in the UK of Rs 29 lakh. This claim had been denied by the tax officer as the relevant form was not filed in time. A similar order was passed in favour of Anuj Bhagwati, a salaried individual towards his foreign tax credit claim of over Rs 14. 2 lakh for taxes paid in the US.

The I-T Act provides that a tax resident of India is eligible for a credit for the taxes paid by him or her in another country. The foreign taxes could be against salary or professional income earned overseas or even relate to overseas assets. The credit against the Indian tax liability is allowed in the year in which such foreign income has been offered to tax in India. As a tax resident of India is subject to tax on his global income (India an d foreign source income), the objective of FTC is to mitigate double taxation.

Sinha’s I-T return for the financial year 2017-18 was selected for limited scrutiny to determine the correctness and eligibility of FTC claimed by her. The I-T officer ascertained that she had filed her tax return on September 22, 2018, but had filed form number 67 for claiming FTC much later on January 20, 2020. As per Rule 128 (9), this form was required to be filed on or before the date of filing the tax return. Owing to the belated filing, the FTC claim was denied and the litigation reached ITAT.

It should be noted that the Central Board of Direct Taxes has amended this rule. “The amended rules, which come into force from April 1, 2022, provide that the form can now be furnished on or before the end of relevant assessment year, as opposed to before the due date of filing the I-T return. This extension in time will apply to FTC claims for the current financial year 2022-23 and beyond,” said Puneet Gupta, partner, People Advisory Services at EY-India. But, the r ecent ITAT decisions will help strengthen the case of the taxpayers who were involved in similar litigation, for all FTC claims relating to earlier years.”

The ITAT agreed with Sinha’s submission that the filing of the form is a procedural requirement, and not mandatory. It also observed that Rule 128 does not prescribe for denial of credit of the FTC claim.