Income Tax Appellate Tribunal - Pune
Bmc Software India Pvt.Ltd., vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench A , Pune
Before Shri Shailendra Kumar Yadav (JM)
and Shri D. Karunakara Rao (AM)
ITA No.1423/PN/2008 (Asstt. Year : 2004-05)
BMC Software India Private Limited, ..... Appellant
ICC Tech Park, Tower 'A'
Senapati Bapat Road,
Pune-411006
PAN : AABCB6110E
v.
ACIT, Circle 1(1), .... Respondent
PMT Building, Swargate,
Pune-411037
Appellant by :Shri. S.N. Inamdar
Respondent by : S/Shri R. Kaushal/Shishir Dhamija
ORDER
Per D. Karunakara Rao AM This is the appeal of the assessee against the order of the CIT(A)- I, Pune, dated 18.8.2008 for the A.Y. 2004-05. The Grounds read as under :
"Ground No 1 : The learned CIT(A) has erred in holding that the income on account of foreign exchange gain is taxable as "Income from other sources" and in disallowing the deduction under section 10A of the Act on such foreign exchange gain.
Ground No 2: The learned CIT(A) erred in holding that income from foreign exchange gain arising on advance received against exports in the EEFC account being adjusted against actual exports is due to application of income and not part of profits of the business of the Appellant's undertaking.
b. The learned CIT(A) should have appreciated the fact that the EEFC account is strictly operated as per the regulations issued by the Reserve Bank of India under the Foreign Exchange Management Act and that the advances received against exports have to be set off against actual exports and hence the learned CIT(A) erred in rejecting the contention of the assessee that the foreign exchange gains are part of the profits of the business.
Ground No 3: The learned CIT(A) has failed to recognise the effects of the amendments in section 10A brought in by Finance Act 2000. Including specifically the introduction of subsection (4) of section 10A which provides an artificial meaning to profits derived from export of computer software.
2 ITA No 1423/PN/2008 BMC Software India Pvt. Ltd., A.Y.2004-05 Page of 4 Ground No 4: a. The learned CIT(A) has erred in upholding the validity of the reassessment proceedings against the Appellant for AY 2004-05. b. The learned CIT(A) failed to appreciate the fact that the action of the Assessing Officer is merely recording the reasons for reopening the assessment under section 147 of the Act cannot be upheld as existence of "reasons to believe" for reassessment proceedings."
2. At the very outset, the Ld Counsel has referred to the above Grounds and mentioned that Ground 4 relating to re-opening of the assessment u/s. 148 is not pressed. Therefore, the same is dismissed as not pressed.
3. Referring to other Grounds 1 to 3, the Counsel mentioned that the core issue that arise from these Grounds relate to if the foreign exchange gains are to be allowed a deduction u/s. 10A against the finding of the lower authorities that the said gain constitute income from other sources. In this regard, Ld Counsel for the assessee argued stating that it is a decided issue at various judicial forums that such gains are held derived from the undertaking, and therefore, entitled for deduction u/s. 10A. To start with, the counsel relied on the Bombay ITAT judgment in the case of Renaissance Jewellery Pvt. Ltd., 104 TTJ 382 (Mum) and Bombay High Court judgment in the case of Rachna Udhyog, 230 CTR 72. The Ld D.R. relied on the orders of the Revenue.
4. We have heard both the parties and perused the orders of the Revenue, paper book and also the judicial pronouncements on the issue under consideration. To start with, we have perused the Mumbai Bench decision in the case of Renaisswance Jewellery (Pvt.) Ltd., placed at page 40 of the Paper Book. The conclusion of the Tribunal on this issue reads as under :
"Conclusion: Profit on account of foreign exchange gain is directly referable to the articles and things exported by the assessee and is, therefore, in the same nature as the sale proceeds, hence eligible for exemption under s. 10A."
5. Further, we have also perused the Jurisdictional High Court judgment in the case of Rachna Udhyog(supra) which is placed on page 113 of the Paper Book. Para 4 & 5 are relevant which reads as under :-
"4. However, in so far as the question of difference in the rate of exchange is concerned, the submission of the assessee before the assessing officer was that exchange rate fluctuation forms part of the sale proceeds 3 ITA No 1423/PN/2008 BMC Software India Pvt. Ltd., A.Y.2004-05 Page of 4 eligible for deduction u/s. 870IB. According to the assessee, the receipt was directly related to the process of carrying on the business of the industrial undertaking. The export invoices were made in US $ terms. When the sale proceeds of goods exported are received in India in convertible foreign exchange, the rupee equivalent of the sale proceeds is liable to vary consequent upon the fluctuation in the rate of foreign exchange between the date when the goods are exported and the date on which the sale proceeds are received in India. In other words, it was the contention of the assessee that the value of the goods exported remains the same but the rupee equivalent is liable to vary due to fluctuation in the rate of foreign exchange. Consequently, a book entry is made in order to ensure that the rupee equivalent of the value of the goods exported out of India is correctly reflected in the books of account, since the books are maintained in rupee terms.
5. Having heard the learned counsel appearing on behalf of the appellant and learned counsel appearing for the assessee, we are of the view that the difference on account of exchange rate fluctuation is liable to be allowed under Section 80IB. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial undertaking. The exchange rate fluctuation between the rupee equivalent of the value of the goods exported and the actual receipts which are realized arises on account of the sale transaction. The difference arises purely as a result of a fluctuation in the rate of exchange between the date of export and the date of receipt of proceeds, since there is no variation in the sale price under the contract. The view which we have taken is also consistent with the view taken by a Division Bench of the Court on 15th December 2009 in the case of Syntel Limited (Income Tax Appeal No. 1974, 1976 and 1978 of 2009). In the circumstances, we would affirm the judgment of the tribunal in so far as the question of exchange rate fluctuation is concerned."
6. Considering the above settled position at the level of both jurisdictional High Curt which is binding on us, we are of the considered opinion that assessee is entitled to deduction u/s. 10A in respect of the foreign exchange gains. Accordingly, Grounds 1 to 3 are allowed.
7. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 13th day of August, 2010.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (D. Karunakara Rao )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated the 13th August, 2010
us
4 ITA No 1423/PN/2008
BMC Software India Pvt. Ltd.,
A.Y.2004-05
Page of 4
Copy of the order is forwarded to :
1. The Assessee
2. The Department
3. The CIT -I, Pune
4. The CIT(A)-I, Pune
5. The D.R. "A" Bench, Pune
6. Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Pune