2006 (1) TMI 174 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of the assessee to claim deduction under section 80HHC of the Income-tax Act, 1961.
2. Computation of deduction under section 80HHD of the Income-tax Act, 1961.

Analysis of the Judgment:

1. Eligibility of the Assessee to Claim Deduction under Section 80HHC:
The primary issue was whether the assessee, engaged in the business of tour operations and dealing in foreign currency, could claim a deduction under section 80HHC of the Income-tax Act, 1961. The assessee's claim was based on the contention that foreign exchange qualified as "goods" and thus, its export entitled them to the deduction.

The Assessing Officer (AO) rejected the claim on several grounds:
- The transfer of funds to foreign accounts was seen as a method for obtaining credit, not an export.
- The nature of the receipt did not change as it was foreign exchange transferred and credited.
- The assessee did not comply with section 80HHC(4) requirements, including the timely filing of the necessary report.

The CIT(A) upheld the AO's decision, noting the absence of evidence for actual export of foreign currency and the lack of material showing foreign exchange brought into India. The Tribunal needed to determine if foreign exchange could be considered "goods" under section 80HHC.

The assessee's counsel argued that foreign exchange should be treated as "goods" based on definitions from the Customs Act, 1962, and various judicial precedents. However, the Tribunal emphasized that the term "goods" must be understood in its legal sense, as defined in the Sale of Goods Act, 1930, which excludes money from its definition. The Tribunal concluded that foreign currency, being money, could not be considered "goods" for the purpose of section 80HHC. Consequently, the assessee was not entitled to the deduction under section 80HHC.

2. Computation of Deduction under Section 80HHD:
The second issue involved the computation of deduction under section 80HHD of the Income-tax Act, 1961. The assessee claimed the deduction based on net receipts from services to foreign tourists, including income from foreign exchange dealings. The AO, however, included the entire sale proceeds of foreign exchange as business receipts for applying the formula under section 80HHD(3)(b).

The CIT(A) found merit in the assessee's contention that certain figures were taken twice in the total business receipts and directed the AO to verify this. However, the CIT(A) upheld the AO's decision to consider the gross figures of foreign exchange receipts rather than the net profit on purchase and sale of currency.

The Tribunal agreed with the CIT(A), noting that section 80HHD(3)(b) refers to "receipts of the business" rather than "turnover." It concluded that the sale proceeds of foreign currency amounted to business receipts, akin to trading activities. Consequently, the Tribunal upheld the CIT(A)'s order, affirming that the gross figures of foreign exchange receipts should be considered for the computation of deduction under section 80HHD.

Conclusion:
The Tribunal concluded that foreign exchange could not be considered "goods" under section 80HHC, thereby denying the assessee's claim for deduction. Additionally, the Tribunal upheld the computation method for deduction under section 80HHD, affirming that the gross figures of foreign exchange receipts should be included in the business receipts.