2010 (7) TMI 418 - HC - Income Tax

Export Special deduction Export turnover Fluctuation in foreign exchange rates Surplus owig to difference between Indian currency equivalent at time of raising invoices and Indian currency equivalent at time of realization part and parcel of export turnover and total turnover - 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.

Summary

Issues:
1. Interpretation of export turnover for the purpose of exemption under section 80HHC of the Income-tax Act, 1961.
2. Treatment of gain due to fluctuation in foreign exchange rates as part of export turnover.

Analysis:
1. The primary issue in this case revolves around the interpretation of export turnover for claiming exemption under section 80HHC of the Income-tax Act, 1961. The court was tasked with determining whether the gain of Rs. 10,61,326 resulting from fluctuation in foreign exchange rates during the export of goods could be considered as part of the export turnover to qualify for the exemption. The case involved an assessee-company that exported tea, with the value of the goods being less at the time of shipment compared to the actual realization due to a subsequent increase in foreign exchange rates. The Assessing Officer contended that the surplus amount could not be classified as export turnover as a portion of the export proceeds was not received within the stipulated time frame as per the Act.

2. The court delved into the provisions of section 80HHC, particularly sub-section (2)(a), which outlines the conditions for claiming the deduction. It was highlighted that the export turnover is defined as the sale proceeds received in convertible foreign exchange for goods exported out of India. The court noted that the Assessing Officer correctly observed that the surplus amount due to fluctuation in foreign exchange rates could not be considered as export turnover. However, the Commissioner of Income-tax (Appeals) took a different stance, considering the amount as export realization and eligible for deduction under section 80HHC.

3. The dispute escalated to the Tribunal, which ruled against considering the surplus amount as an integral part of the turnover, emphasizing that it accrued to the assessee due to a time gap between the export bill and the realization of foreign currency. The court analyzed the arguments presented by both parties, with the appellant's counsel citing a judgment of the Gujarat High Court to support the contention that surplus due to exchange rate differences should be treated as export turnover. On the other hand, the Revenue's representative highlighted the non-realization of the entire turnover within the prescribed period as a hindrance to claiming the exemption.

4. Ultimately, the High Court held that the surplus amount resulting from fluctuations in foreign exchange rates could indeed be considered a part of the export turnover. The court emphasized that the surplus realization was directly linked to the export transaction and would not have occurred without the export taking place. The court also noted that the mode of payment in foreign currency should be the determining factor for assessing export turnover. While acknowledging the time limit of six months for realization in convertible foreign exchange, the court pointed out that the specific timeline aspect had not been addressed by the lower authorities or the parties involved, leading to a decision in favor of the assessee.

5. In conclusion, the High Court allowed the appeal, directing the Assessing Officer to comply with the order of the Commissioner of Income-tax (Appeals) regarding the treatment of the surplus amount in question. The court's decision favored the assessee on both substantial questions of law, emphasizing the relevance of the surplus realization to the export turnover and the absence of specific considerations regarding the realization timeline within the statutory period.