Calcutta High Court
Raghunath Exports (P) Ltd vs Commissioner Of Income Tax on 1 July, 2010
Author: Sengupta
Bench: Sengupta, Kanchan Chakraborty
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
I.T.R. No.88 of 2002
Raghunath Exports (P) Ltd.
Versus
Commissioner of Income Tax,
West Bengal - II, Kolkata
Mr. J. P. Kahaitan, Sr. Adv.
..for the appellant
Mr. L. K. Chatterjee, Adv.
..for the respondent
BEFORE :
The Hon'ble Justice Sengupta And The Hon'ble Justice Kanchan Chakraborty __________________________________________________________________ Date: 1st July, 2010 __________________________________________________________________ The instant appeal was admitted on the following substantial questions of law by this Court by an order dated 4th September, 2002:
"(i) Whether in a case where export invoices are raised and realised in foreign currency, the difference between the Indian Currency equivalent at the time of raising of the invoices and the Indian Currency equivalent at the time of their realisation due to fluctuation in foreign exchange rates is part and parcel of the export-turnover and total turnover of the business for the purposes of Section 80HHC of the Income-tax Act, 1961?2
(ii) Whether the Tribunal was justified in law in holding that the sum of Rs.10,61, 326?- was not integral part of the appellant's export-turnover/sale proceeds and its purported findings in this behalf are arbitrary, unreasonable and perverse?"
On bare reading of the two questions as above, it appears to us that the answer to question no.1 is depending upon the answer of question no.2.
In this appeal, the basic question is whether a gain of Rs.10,61,326/- because of fluctuation in foreign exchange rate in course of export of the goods can be treated to be an export- turnover in order to get the benefit of exemption under Section 80HHC of the Income Tax Act (hereinafter referred to as the 'said Act').
The fact of the case is that the assessee-company had exported tea and on the date of shipment, the value of the said goods was less than what was actually realised later on. The export was made in terms of the foreign currency undisputedly. However, the export proceeds was received at a later date when foreign exchange rate varied in upward direction so far as the Indian currency is concerned. The Assessing Officer held that the said amount of Rs.10,61,326/- in Indian currency cannot be said to be an export-turnover. It is observed that a portion of the export 3 proceeds was not received within time mentioned in the said Section.
In view of the aforesaid fact, it has now to be examined as to what are the preconditions to get the benefit of deduction under Section 80HHC of the said Act in respect of export-turnover. Sub- section 2(a) of Section 80HHC provides as follows:
"(2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are [received in, or brought into, India] by the assessee [(other than the supporting manufacturer)] in convertible foreign exchange within a period of six months from the end of the previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf."
It has been explained therein the meaning of 'export-turnover' which reads as follows:
"export-turnover means the sale proceeds [received in, or brought into India] by the assessee in convertible foreign exchange [in accordance with clause (a) of sub-section(2)] of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962."4
It appears from the records that the Assessing Officer had observed that a portion of Rs.5,61,098/- was not received in India within time. It was held by the Assessing Officer correctly and in principle that the aforesaid surplus amount received by the assessee because of fluctuation of foreign exchange rate cannot be treated to be an export-turnover. The appellant-assessee took this matter to the appellate authority being the Commissioner of Income Tax (Appeals) who held that the said sum of Rs.10,61,326/- was an export realisation and was required to be included as export- turnover as well as total turnover. Hence, the said amount was deductible under Section 80HHC of the said Act.
The Revenue being dissatisfied with the said order approached the learned Tribunal who held otherwise. The learned Tribunal held that the said amount cannot be regarded as an integral part of the turnover, since the same accrued to the assessee due to time gap between the export bill and realisation of the foreign currency.
It is appropriate to mention that the Tribunal has not held whether the export bill was realised within the time or not.
Mr. J.P. Khaitan, Senior Advocate, appearing for the appellant, submits that export was made in terms of foreign 5 currency. Had it been realised at a later point of time because of the fluctuation of the foreign exchange rate fortuitously the appellant company would get the amount out of the said export. He further clarified that the said amount of Rs.5,61,098/- as observed by the Assessing Officer is relatable to some other item which is not the subject matter and in any event, due and proper extension had been granted. He also pointed out that this surplus owing to fluctuation of foreign exchange rate in connection with export is always treated to be an export-turnover within the meaning and, as such, is deductible. He has cited a judgment of Gujarat High Court in case of Commissioner of Income Tax v. Amba Impex reported in [2006] 282 ITR 144.
Mr.L.K. Chatterjee, appearing for the Revenue, on the other hand, contends that it has been recorded by the Assessing Officer that the entire turnover includes the export-turnover which was not realised within the stipulated period as mentioned in Section 80HHC of the said Act which is a precondition of getting benefit of exemption.
We have considered the contentions of learned Advocates for the parties and checked the records. It is not disputed that tea was exported and payment was received in foreign currency and it is 6 also admitted that when realisation of the export was made there has been fluctuation of foreign currency, as such, there was a surplus realisation in terms of Indian currency. The question is whether the aforesaid surplus realisation of Rs.5,61,098/- can be treated to be a part of export-turnover or not. In our view, going by the definition of the export-turnover, the aforesaid amount was realised in connection with the export followed by payment of the price, by the foreign buyer, unless there has been an export the aforesaid surplus would not have been realised. Hence, this surplus realisation is certainly relatable to the export. Therefore, we hold that this is an export-turnover.
Here, the payment was made in foreign currency, not in terms of the Indian currency. According to us, consideration of export- turnover has to be considered in the context of mode of payment being made by foreign buyers, not in the mode of convertible exchange.
However, the legislature in its wisdom has cleared that in case of convertible foreign exchange, a time limit of six months has been prescribed. Therefore, this aspect cannot be ignored. Factually, neither the Commissioner of Income Tax (Appeals) nor the Tribunal have gone into the question whether the export- 7 turnover was realised beyond six months or not. Hence, we do not think that this question should be decided by us as no such point has been formulated by this Court, nor any cross-appeal has been filed in this case. We are of the view that this amount received in a year or subsequent year by virtue of exchange rate difference cannot be said to be unrelatable to the export made. The same view has also been taken by the Gujarat High Court in the case of Commissioner of Income Tax (supra) and it has been held almost on the identical fact that "As a corollary, by the time such sale proceeds are received within the prescribed time, by virtue of exchange rate difference there might be a situation where a larger amount is received than the amount as reflected in the shipping bill. Hence, merely because an amount is received in a year subsequent to the year of export by way of exchange rate difference, it does not necessarily always follow that the same is not relatable to the exports made."
We, therefore, hold that the learned Tribunal erred in upsetting the decision of the Commissioner of Income Tax (Appeals). Accordingly, we restore. We, therefore, answer question no.1 in favour of the assessee-appellant and in the affirmative. 8 Question no.2 is also held in favour of the assessee and in the negative.
We allow the appeal.
We, accordingly, direct the Assessing Officer to act in terms of the judgment and order of the Commissioner of Income Tax (Appeals).
There will, however, be no order as to costs.
All parties are to act on a signed photocopy of this order on the usual undertakings.
( Sengupta, J. ) ( Kanchan Chakraborty, J. ) AKGoswami