Punjab-Haryana High Court
Commissioner Of Income Tax-I vs Sarin Industrial Corporation on 18 July, 2013
Author: Rajive Bhalla
Bench: Rajive Bhalla
ITA No.539 of 2008 -: 1 :-
IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA
AT CHANDIGARH
ITA No.539 of 2008
Date of decision: July 18, 2013.
Commissioner of Income Tax-I, Ludhiana
... Appellant
v.
Sarin Industrial Corporation
... Respondent
CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA
HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON
Present: Shri Rajesh Katoch, Advocate, for the appellant.
Shri Pankaj Jain, Advocate for the respondent.
Rajive Bhalla, J. (Oral):
The revenue, challenges order dated 14.11.2007 passed by the Income Tax Appellate Tribunal, Chandigarh Bench-A, Chandigarh on the following question of law:-
"Whether on the facts and law, the Hon'ble Income Tax Appellate Tribunal was justified in holding that exchange rate fluctuation was not in the nature of "other receipts" and could not be reduced from 'profit of business' under clause (baa) of Explanation below Section 80 HHC(3) of I.T. Act?"
Counsel for the revenue submits that the amount claimed on account of foreign exchange fluctuation is required to be reduced @ 90% as per explanation to clause (baa) to Section 80HHC(3) of the Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 2 :- Income Tax Act, 1961 (hereinafter referred to as the 1961 Act) and, therefore, the Tribunal is not justified in holding that receipts received on account of fluctuation in exchange rate are not in the nature of 'other receipts' stipulated in clause (baa) of explanation to Section 80 HHC (3). It is argued that such a receipt would necessarily fall within the meaning of words and expressions appearing in the aforementioned explanation thereby placing a statutory duty on the Assessing Officer to assess income, as prescribed under Section 80 HHC of the Act.
Counsel for the assessee, however, submits that any amount received on account of fluctuation in rates of foreign exchange would be credited to the export turnover of the assessee and as such would not fall within the words and expressions used in explanation (baa) to Section 80 HHC. The Income Tax Appellate Tribunal has not committed any error of jurisdiction while holding as such. It is further submitted that the question of law, may be answered in terms of a judgment of the Calcutta High Court reported as Raghu Nath Exports Pvt. Ltd. v. Commissioner of Income Tax, (2011) 240 CTR (Cal) 79.
We have heard counsel for the parties, perused the impugned order as well as all relevant statutory provisions. The Assessing Officer, vide order dated 31.1.2006, ordered that amount received by the assessee on account of fluctuation in rates of foreign exchange, shall be added back in accordance with Section 80 HHC of the 1961 Act. Aggrieved by this order, the assessee filed an appeal. The Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 3 :- Commissioner of Income Tax (Appeals) vide order dated 12.1.2007 after relying upon certain earlier decisions of Income Tax Appellate Tribunal, allowed the appeal by holding as follows:-
"7. I have considered the arguments of the ld. A.R. and find merit in it. In the plethora of decision, the ITAT have held that the amount realized on account of foreign exchange fluctuation is a part of export turnover in the year of its receipt. In the case of Smt. Sujata Grover (supra), it has been held by the Hon'ble ITAT that foreign exchange fluctuation gain pertaining to exports affected in earlier years cannot be said to be "any other receipts of a same nature", in terms of Explanation (baa) to Section 80 HHC(3) for calculating the profit of the business.
Respectfully following the decision of the ITAT this issue is decided in favour of the appellant, and the Assessing Officer is directed to compute the deduction u/s 80 HHC by including net amount of Rs.1,80,611/- in the export proceeds of the appellant firm."
Aggrieved by this order, the revenue filed an appeal. The Income Tax Appellate Tribunal dismissed the appeal by placing reliance upon its earlier judgments but without adding anything to the opinion recorded by the Commissioner of Income Tax (Appeals).
The question that arises for adjudication, as reproduced in a Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 4 :- preceding paragraph of the judgment, would require us to appraise Explanation (baa) appended to Section 80 HHC of the 1961 Act which reads as follows:-
"(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by--
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) 6[, (iiic), (iiid) and (iiie)] of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India ;"
Admittedly, the receipts in dispute were received, on account of fluctuation of foreign currency during the course of exports and, therefore, in our considered opinion would not fall within meaning of the words and expression used in Explanation (baa) appended to Section 80 HHC. The words and expression used in Explanation (baa) are receipts by way of "brokerage", "commission", "interest", "rent" and "charges"". The amount received on account of foreign exchange fluctuation is an amount paid to an assessee so as to offset the effects of fluctuation in foreign currency. The amount so received, cannot possibly fall within the meaning of words like brokerage, interest, rent and charges, but may, as suggested by counsel for the revenue, fall within the expression "any other receipt of a similar nature included in such profits". A careful perusal of this expression would indicate that for these receipts to fall within meaning Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 5 :- of the expression "any other receipt" they should be receipts of a "similar nature" to "brokerage", "commission", "interest", "rent" or "charge" or may we say, should be similar in form and content to these words. As referred to hereinabove, an amount received on account of fluctuation in foreign exchange is not similar to "brokerage", "commission", "interest", "rent" or "charge" and, therefore, can in no manner to be said to be similar in its form and content to any of the words that precede the words "any other receipt of a similar nature included in such profits". We draw support for our conclusion from a judgment of the Calcutta High Court reported as Raghu Nath Exports Pvt. Ltd. v. Commissioner of Income Tax, (2011) 240 CTR (Cal) 79. A relevant extract from the judgment of the Calcutta High Court reads as follows:-
"12. 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 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.10,61,326/- can be treated to be a part of export turnover or not. In our view, going by the definition of the of the export Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 6 :- 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.
13. 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 CIT(A) nor the Tribunal has gone into the question whether the export turnover was realised beyond six months or not. Hence, we do not think that this question should be decided but 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 Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 7 :- the Gujarat High Court in the case of Amba Impex (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 that 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 find ourselves in complete agreement with the ratio recorded in the above judgment, particularly as counsel for the revenue is not in a position to point out any distinguishing features, whether in fact or on law and even otherwise as we have already held that words appearing in Explanation (baa) do not support the argument of the revenue that amount received on account of foreign exchange fluctuation should not be included in the export income of the party, the Income Tax Appellate Tribunal was right in holding that amount received for exchange rate fluctuation does not fall within the expression "other receipts" and shall not be reduced from profit in terms of Explanation (baa) to Section 80 HHC of the Act. In this view of the matter, the question of law is answered in favour of the assessee and against the revenue by affirming the order passed by the Income Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh ITA No.539 of 2008 -: 8 :- Tax Appellate Tribunal.
The appeal is accordingly dismissed.
[ Rajive Bhalla ] Judge [Dr. Bharat Bhushan Parsoon] July 18, 2013. Judge kadyan Kadyan Vinod Kumar 2013.09.25 10:33 I attest to the accuracy and integrity of this document Chandigarh