Gujarat High Court
Commissioner Of Income TaxI vs Bloom Decor Private ... on 26 March, 2014
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/457/2009 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 457 of 2009
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COMMISSIONER OF INCOME TAXI....Appellant(s)
Versus
BLOOM DECOR PRIVATE LTD....Opponent(s)
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Appearance:
Mrs MAUNA M BHATT, ADVOCATE for the AppellantRevenue
Mr SN SOPARKAR Sr Advocate with Mrs SWATI SOPARKAR, Advocate for Opponent
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CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Ms. JUSTICE SONIA GOKANI
26th March 2014
ORAL ORDER (PER : HONOURABLE Ms. JUSTICE SONIA GOKANI)
Challenging the order of the Income Tax Appellate Tribunal, Ahmedabad {"Tribunal" for short} dated 6th June 2008, the present Tax Appeal is preferred. While admitting the same on 1st March 2011, the following substantial questions of law have been framed :
{A} Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer not to exclude interest income while calculating deduction u/s. 80IA and 80HHC of the Act ?"
{B} Whether the Appellate Tribunal is right in law and Page 1 of 6 O/TAXAP/457/2009 ORDER on facts in directing the Assessing Officer not to exclude foreign exchange fluctuation while calculating deduction u/s. 80IA and 80HHC of the Act ?"
{D} Whether the Appellate Tribunal is right in law and on facts in holding that sales tax and excise duty do not form part of total turnover for the purpose of computation of deduction u/s. 80HHC despite insertion of section 145A of the Act ?"
We have heard learned counsel Ms. Mauna Bhatt for the Revenue and learned counsel Shri S.N Soparkar for the respondentassessee.
As far as Question {A} is concerned, we noticed that the question pertains to directions issued by the Tribunal to the Assessing Officer not to exclude the interest income while calculating deduction under Section 80IA and Section 80HHC of the Act. It is urged that as far as deduction under section 80HHC is concerned, the issue is covered by the decision of the Apex Court rendered in ACG Associated Capsules Private Limited v. CIT, reported in 343 ITR 89 (SC), and in relation to deduction under Section 80IA, the decision of this Court rendered in Tax Appeal No. 810 of 2013 wherein the issue is held against the assessee and in favour of the revenue would hold the field. As can be noted from the findings of the Tribunal, the net in the instant case is negative. The Tribunal, therefore, noted that after netting of interest nothing Page 2 of 6 O/TAXAP/457/2009 ORDER remains either to be included or excluded. The issue is accordingly answered.
With regard to Question {B} which concerns exclusion of foreign exchange fluctuation while calculating the deduction under Section 80IA and 80HHC, this Court in Tax Appeal No. 1468 of 2006 and allied appeals has held this issue in favour of the assessee and against the Revenue by a detailed judgment. Relevant findings on the issue are reproduced profitably hereinafter.
"25. Under the circumstances, we have no hesitation in upholding the view of the Tribunal. Quite apart, the issue is substantially covered by the decision of the Commissioner of Incometax vs. Amba Impex (supra). Consistent and at times independent trend of the judicial pronouncements of Courts across the country need not be disturbed. Even independently, we are of the view that the foreign exchange gain arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee. As noted, once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately. Under the accounting principles, therefore, the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the same year of the export, the remission is also made, the difference in the rate recorded in the accounts of the assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. May be the accounting standards require that the same may be recorded in separate foreign exchange fluctuation account. Nevertheless any deviation either positive or negative must have direct relation to the export actually made. Payment would be due to the assessee on account of the factum of export. Current price of the goods so exported would also be predecided in the foreign exchange Page 3 of 6 O/TAXAP/457/2009 ORDER currency. The exact remittance in Indian rupees would depend on the precise exchange rate at the time when the amount is remitted. This fluctuation and possibility of increase or decrease, in our opinion, can have no bearing on the source of such receipt. Primarily and essentially, the receipt would be on account of the export made. If this is so, any fluctuation thereof also must be said to have arisen out of the export business. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from assessee's export business. In that view of the matter, the Revenue's contention that such income cannot be said to have been derived from the export business must fail. If this is the position when the remittance is made during the same year of the export, we fail to see what material change can it bring about if within the time permitted under subsection(2) of section 80HHC, the remittance is made but in the process accounting year has changed. To our mind mere change in the accounting year can have no real impact on the nature of the receipt. The conclusion of the Assessing Officer that since the year during which such sale proceeds were received by the assessee export was not made, would not in any manner change the situation. The assessee being engaged in the business of export and having made the export, mere fact of the remittance being made after 31st of March of the year when export was made, would not change the situation insofar as, relation of such income to the assessee's export business is concerned. Clause (baa) to the Explanation to section 80HHC provides for exclusion of certain incomes for computation of export profit under section 80HHC. Subclause (1) of clause (baa) thereof pertains to 90% of the sum referred to in clauses (iiia), (iiib),(iiic),(iiid) and (iiie) of section 28 or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. The term "foreign exchange difference" is not specified in any of the categories specifically mentioned in the said clause. The Revenue, however, contended that the same must be included by necessary implication as part of other receipts.Page 4 of 6
O/TAXAP/457/2009 ORDER Legislature, however, has used the term "any other receipt of similar nature". This expression "similar nature" would have considerable bearing on the ultimate conclusion that we arrive in this respect. What is to be excluded under the said subclause(1) of clause (baa) is any other receipt of a nature similar to the brokerage, commission, interest, rent or charges. The receipt by way of foreign exchange fluctuation not being similar to any of these receipts mentioned above, application of clause (baa) must be excluded. Subrule (1) of rule 115 only provides for adopting the rate of exchange for calculation of value of rupee of any income accruing or arising in case of an assessee and provides that the same shall be telegraphic transfer of buying rate of such currency on the specified date. The term "specified date" has been defined in Explanation2 to the said subrule (1). Rule 115 of the Incometax Rules, 1962 thus has application for a specific purpose and has no bearing while judging whether foreign exchange rate fluctuation gain can form part of the deduction under section 80HHC of the Act. In case of Commissioner of Incometax and others vs. Chowgule and Co.Ltd. reported in [1996]218 ITR 384, the Court held that rule 115 does not lay down that all foreign currencies received by the assessee will be converted into Indian rupees only on the last date of the accounting period. Rule only fixed the rate of conversion of foreign currency. If there is no foreign currency to convert on the last date of accounting period, then no question of invoking rule 115 will arise."
Question {D} had come up before this Court in Tax Appeal No. 884 of 2006 and allied appeals, wherein, relying on the decisions of the Apex Court in Commissioner of Incometax v. Lakshmi Machine Works, reported in 290 ITR 667 as well as in case of Commissioner of Incometax v. Shiva Tex Yan Limited, reported in (2012) 25 Taxmann.com 302 (SC), upheld the issue in favour of the Page 5 of 6 O/TAXAP/457/2009 ORDER assessee and against the Revenue. Therefore, Question (D) is accordingly answered.
Tax Appeal, resultantly, stands disposed of.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash* Page 6 of 6