Gujarat High Court
Commissioner Of Income Tax vs Deversons Industries ... on 18 December, 2014
Author: Ks Jhaveri
Bench: Ks Jhaveri, K.J.Thaker
O/TAXAP/400/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 400 of 2007
With
TAX APPEAL NO. 462 of 2007
With
TAX APPEAL NO. 463 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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COMMISSIONER OF INCOME TAX....Appellant(s)
Versus
DEVERSONS INDUSTRIES LTD.....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1
Page 1 of 7
O/TAXAP/400/2007 JUDGMENT
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 18/12/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. The assessee is in appeal against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ITAT) dated 07.07.2006 passed in ITA No. 1267/Ahd/99 for the Assessment Year 1995-96 as well as order dated 18.08.2006 passed in ITA Nos. 1899/Ahd/1999 and 2027/Ahd/2004 for the assessment years 1996-97 and 2000-01 respectively.
1.1 This Court while admitting these appeals formulated the following questions for consideration:
"Whether, the Appellate Tribunal is right in law on facts in holding that while computing deduction u/s. 80IA exchange rate difference and duty draw back should be treated to be 'derived' from the industrial undertaking?"
2. The assessee firm is engaged in the business of manufacturing and sale of dyes. During the years under consideration, the assessee claimed deduction u/s 80HHC qua sales tax amount. The Assessing Officer worked out the deduction u/s 80HHC after considering the sales tax and excise duty. On appeal the CIT (Appeals) confirmed the action of the Assessing Officer.
Page 2 of 7O/TAXAP/400/2007 JUDGMENT 2.1 On appeal before the ITAT by the assessee, by impugned order, ITAT has set aside the decision of CIT (Appeals) and allowed the appeal of the revenue. Being aggrieved and dissatisfied with the impugned order passed by the ITAT, the assessee has preferred the present Tax Appeals for consideration of the aforesaid substantial question of law.
3. The tribunal while passing the impugned order has relied on the decisions of the Calcutta High Court in the case of CIT vs. Chloride India Ltd reported in 256 ITR 625 as well as decision of the Special Bench of the ITAT in the case of IFB Agro Industries vs. DCIT reproted in 83 ITD 96 (Cal) and concluded that octroi, sales tax and excise duty should be excluded from the figure of 'total turnover'. The Tribunal has committed an error in concluding that duty draw backs should be treated as 'derived' from industrial undertakings.
4. With regard to the question relating to duty drawbacks, we are further supported by the decision of the Apex Court in this regard in the case of Liberty India vs. Commissioner of Income Tax reported in (2009) 317 ITR 218 (SC) wherein the Apex Court has held that duty drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of deduction u/s 80-I/80I-A/80I-B of the Act. We therefore answer the question in the negative so far as duty drawback is concerned.
5. So far as question regarding foreign exchange difference is concerned, the same is squarely governed by the decision of this Court in the case of Commissioner of Income-Tax vs. Page 3 of 7 O/TAXAP/400/2007 JUDGMENT Priyanka Gems reported in [2014] 367 ITR 575 (Guj) wherein this Court has answered the question in favour of the assessee and held that 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 and once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately and that all foreign currencies received by the assessee need not be converted into Indian Rupees on the last date of the accounting period. This Court in the said decision has observed as under:
"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 Income-tax 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 Page 4 of 7 O/TAXAP/400/2007 JUDGMENT 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 pre-decided in the foreign exchange 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 assessees export business. In that view of the matter, the Revenues 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 sub-section(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 assessees export business is concerned. Clause (baa) to the Explanation to section 80HHC provides for exclusion of certain incomes for computation of export Page 5 of 7 O/TAXAP/400/2007 JUDGMENT profit under section 80HHC. Sub-clause (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. 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 sub-clause(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. Sub-rule (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 Explanation-2 to the said sub-rule (1). Rule 115 of the Income-tax 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 Income-tax 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 Page 6 of 7 O/TAXAP/400/2007 JUDGMENT 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.
6. Having heard learned advocates for both the sides and having considered the question posed for consideration before us reproduced hereinabove and considering the decision of the Apex Court in the case of Liberty India (supra) as well as this Court in the case of Priyanka Gems (supra), question raised in the present appeals is required to be answered partly in favour of the Department and partly in favour of the assessee. We are not giving further elaborate reasons for the same as the question raised has already been answered by this Court as well as the Apex Court.
7. Accordingly, we hold that the Tribunal is justified in holding that while computing deduction u/s. 80IA exchange rate difference should be treated to be 'derived' from industrial undertaking whereas the Tribunal has committed an error in holding that duty draw back should be treated as 'derived' from industrial undertaking. The questions are answered accordingly. The impugned orders passed by the Tribunal are modified to the aforesaid extent. In the result, Tax Appeals are partly allowed.
(K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 7 of 7