2013 (7) TMI 931 - HC - Income Tax

Deduction u/s 80 HHC(3) - whether 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? - Held that - 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

Summary

Issues:
Interpretation of Section 80 HHC of the Income Tax Act regarding the treatment of receipts on account of foreign exchange fluctuation.

Analysis:
The judgment dealt with a challenge to an order passed by the Income Tax Appellate Tribunal regarding the treatment of receipts on account of foreign exchange fluctuation under Section 80 HHC of the Income Tax Act. The main question was whether such receipts should be reduced from the profit of the business as per the explanation under Section 80 HHC(3) of the Act. The revenue contended that the receipts should be reduced by 90% as per the explanation, while the assessee argued that the receipts should be credited to the export turnover and not reduced. The Tribunal had initially held in favor of the assessee, prompting the revenue to file an appeal.

The Court analyzed the relevant statutory provisions and previous decisions to interpret the meaning of "profits of the business" under Explanation (baa) of Section 80 HHC. The Court observed that the receipts in question, received due to fluctuation in foreign currency during exports, did not fall within the meaning of the words and expressions used in Explanation (baa). The Court noted that the receipts were not similar to items like brokerage, commission, interest, rent, or charges as specified in the explanation. The Court also referred to a judgment of the Calcutta High Court to support its conclusion that such receipts should be included in the export income of the party.

Based on the interpretation of the relevant provisions and case law, the Court held that the amount received for exchange rate fluctuation did not fall within the expression "other receipts" in Explanation (baa) to Section 80 HHC. Consequently, the Court affirmed the decision of the Income Tax Appellate Tribunal in favor of the assessee and dismissed the appeal filed by the revenue. The judgment provided a detailed analysis of the legal principles and reasoning behind the decision, emphasizing the specific wording and intent of the statutory provisions involved.