2017 (12) TMI 814 - HC - Income Tax

Disallowance on account of fluctuation in rates on foreign exchange, from the deduction under section 10B - Held that - Section 10B of the Act provides for deduction of such profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles or things or computer software for the period and subject to the conditions stipulated there under. Therefore, the deduction is permissible if such profits and gains as are derived from the export of articles and things. As held exact remittance in connection with such export would depend on the precise exchange rate at the time when the amount is remitted. The receipt would be on account of the export made and therefore, the fluctuation thereof must also be said to arise out of the export business. Merely because of fluctuation in the international currencies, the income does not get divested of the character of income from export business. The Tribunal, therefore, did not commit any error in deleting the addition made on account of fluctuation in foreign exchange rates from the deduction under section 10B of the Act.

Summary

Issues:
Challenge to order under section 260A of the Income Tax Act regarding disallowance of fluctuation in rates on foreign exchange for deduction under section 10B.

Analysis:
1. The appellant revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance of ?34,50,445 on account of fluctuation in rates on foreign exchange for deduction under section 10B of the Income Tax Act, 1961.

2. The Assessing Officer denied the claim for deduction under section 10B as the income from exchange rate fluctuation was considered ineligible. The Commissioner (Appeals) later deleted the disallowance, which was upheld by the Tribunal, leading to the current appeal by the revenue.

3. The Senior Advocate for the appellant argued that income from exchange rate fluctuation cannot be considered as derived from the export business, thus challenging the Tribunal's decision to allow the deduction under section 10B.

4. The High Court referred to a previous case where it was held that foreign exchange gain arising from fluctuation in exchange rates is directly related to the export business of the assessee. The court emphasized that any fluctuation in exchange rates does not change the character of income derived from export business.

5. Citing a Supreme Court decision, the court reiterated that fluctuations in foreign exchange rates are part of the export business and do not alter the character of income derived from exports. The court emphasized that the exact remittance in connection with exports depends on the prevailing exchange rate at the time of remittance.

6. Section 10B of the Income Tax Act allows deduction for profits derived from export-oriented undertakings. The court held that income or loss due to fluctuation in foreign exchange rates is part of the export business and does not affect the character of the income derived from exports.

7. Ultimately, the court found no legal infirmity in the Tribunal's order and dismissed the appeal, stating that there was no substantial question of law warranting interference.