You are an Indian-origin US citizen and you pay your taxes in America. But a tax demand for your income is raised in India because of an error on your part. What happens then?In one such case, a woman paid income tax in the US and sought to claim credit for the tax under the India-USA DTAA while filing her taxes in India.Under the applicable rules, taxpayers who have paid taxes in a foreign country with which India has a Double Taxation Avoidance Agreement (DTAA) are required to submit Form 67 along with their ITR to claim credit in India for the foreign taxes already paid.
What the case is about
The woman failed to file Form 67, a mistake that resulted in the Income Tax Department refusing her foreign tax credit (FTC) claim. The department subsequently raised an income tax demand of Rs 30 lakh against her.She subsequently took steps to have the matter reconsidered. She approached the jurisdictional AO with a rectification application. She also belatedly submitted her Form 67 February 8, 2023, after the prescribed deadline. However both the tax officer and the commissioner of appeals (CIT A) rejected her claims.She then challenged the tax demand before the Income Tax Appellate Tribunal (ITAT) Delhi.The tribunal ruled in her favour on September 14, 2026.
How did the woman win the case in ITAT Delhi?
The ITAT Delhi noted that the woman had claimed a foreign tax credit of Rs 23.48 lakh in her ITR, but had not submitted Form 67 along with the return.The form was also not filed before the Income Tax Department processed her return under Section 143(1). Instead, she submitted Form 67 later, on February 8, 2023.By that time, the CPC, Bengaluru had already processed her ITR on March 21, 2020, while rejecting the foreign tax credit claimed by her.Before processing the return, however, the CPC had referred the case to the jurisdictional AO on May 9, 2019. This was because the tax department was unable to verify the credits for taxes paid outside India that she had claimed in her ITR.According to ITAT Delhi, the jurisdictional AO should have initiated proceedings to examine and verify the foreign tax credit claim. However, the material available on record indicated that no such proceedings were commenced by the AO.The tribunal further observed that the records showed no notice under Section 139(8) had been issued by either the AO or CPC before the foreign tax credit was disallowed.Similarly, the Income Tax Department did not issue a notice under the proviso to Section 143(1) before rejecting her claim for the foreign tax credit.Her subsequent rectification application filed under Section 154 was also rejected. Against this backdrop, and in the interest of justice, ITAT Delhi followed the Delhi High Court’s ruling in Real Time Data Services (P.) Ltd. v. PCIT, reported in [2026]183 taxmann.com 701 (Delhi).The tribunal directed the AO to allow the foreign tax credit claimed by the woman after carrying out the necessary verification. It also said that if the credit could not be granted for any reason, the AO would have to issue a speaking order explaining the basis for the decision.Karanjot Singh Khurana, Partner, DMD Advocates, told ET that the woman was a citizen of the United States who earned income there and paid tax on that income under US income tax laws.However, during the relevant period, she was a tax resident of India and was therefore liable to tax in India on her global income, including the income she had earned in the USA. Khurana explained that the India-USA tax treaty provides relief from such double taxation by allowing India to provide credit for taxes paid in the USA and tax only the differential amount payable in India. In this case, however, the taxpayer had not filed Form 67, which was required for claiming the foreign tax credit.The Income Tax Department initially turned down her claim for credit of the US taxes because Form 67 had not been filed.According to Khurana, the ITAT Delhi tax tribunal relied on a Delhi High Court ruling in Real Time Data Services (P.) Ltd. v. PCIT, reported in [2026]183 taxmann.com 701 (Delhi). The tribunal held that filing Form 67 is directory rather than mandatory. Consequently, a delay in filing the form, by itself, should not deprive a taxpayer of the right to claim credit for taxes that have already been paid in a foreign country.Khurana explained that a resident taxpayer who wants to claim credit in India for taxes paid or deducted in a foreign country on income that is also taxable in India must file Form 67. Under the Income-tax Act, 2025, the corresponding form is Form 44.
