2013 (5) TMI 107 - SC - Income Tax

Whether Tribunal was justified in granting relief u/s 80HHC to assessee on the issue of gain on forward currency contract without appreciating the fact that the gain on exchange difference is nothing but speculation profit and not related to the business of the assessee? - Whether Tribunal justified in directing AO not to exclude this income from the profits eligible for deduction u/s. 80HHC without appreciating that when the assessee enters into a forward contract the assessee stands to benefit by the fluctuations in foreign exchange irrespective of the fact whether the trade agreement exists or not? - Held that - Considering the finding of the High Court on the aforesaid questions in 2010 (6) TMI 668 - GUJARAT HIGH COURT those questions would certainly need consideration and decision by the High Court. Therefore, without expressing any opinion on those questions on merits, remand the matter to the High Court with a request to the High Court to examine Questions as proposed by the appellant,

Summary

Issues:
1. Delay condonation and leave granted for appeal.
2. High Court's refusal to consider Question Nos. 'B' and 'C'.
3. Appellant's contentions on the issues related to gain on forward currency contracts.
4. Supreme Court's decision to remand the matter to the High Court for consideration of the questions.

Analysis:

The Supreme Court dealt with the delay condonation and leave granted for the appeal in this case. The Court noted that the High Court had refused to consider Question Nos. 'B' and 'C' raised by the appellant, stating that no question of law would arise on these issues. The appellant had raised concerns regarding the grant of relief under section 80HHC of the Income Tax Act on the gain from forward currency contracts. The Court observed that these questions required consideration and decision by the High Court. Therefore, without expressing any opinion on the merits of the questions, the Supreme Court remanded the matter back to the High Court for a detailed examination of Question Nos. 'B' and 'C'. The Court emphasized that both parties should be given a hearing during the examination of these questions.

The appellant had questioned the justification of the Appellate Tribunal in granting relief under section 80HHC for the gain on forward currency contracts, arguing that such gains were speculative profits unrelated to the business. Similarly, the appellant contested the Tribunal's direction to the Assessing Officer not to exclude this income from the profits eligible for deduction under section 80HHC. The appellant highlighted that entering into forward contracts could result in benefits from foreign exchange fluctuations, irrespective of trade agreements. These contentions formed the basis of the questions 'B' and 'C' proposed by the appellant before the High Court.

In conclusion, the Supreme Court ordered the remand of the matter to the High Court for a thorough examination of the questions raised by the appellant. The Court clarified that it had not expressed any opinion on the merits of the questions and stressed the importance of providing both parties with a fair hearing during the proceedings. The High Court was directed to consider and decide on Questions Nos. 'B' and 'C' while finally disposing of the Tax Appeal filed under Section 260A of the Income Tax Act, 1961.