9911796707
TMI Blog2010 (4) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the Revenue that the Tribunal ignored the plain meaning and intendment of the words used by Parliament while legislating upon Section 80HHC. The fluctuation in the present case is not on account of the sale proceeds or for that matter on account of a delayed realization of the sale proceeds. The fluctuation has arisen in the deposits maintained by the assessee in the EEFC Account in convertible foreign exchange after the completion of the export transaction. - The interest which accrued to the assessee on the deposits held in the EEFC Account cannot be treated as business income. – decided in favor of revenue and against the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue being that the gains on account of foreign currency fluctuation had no relationship with the exports made during the year and that these receipts were accordingly liable to be excluded from the export turnover for computing the deduction under Section 80HHC. 3. The assessee, it is common ground before the Court, had opened an Exchange Earners Foreign Currency (EEFC) Account in the earlier year. According to the assessee the balance sheet reflected the conversion of the balance at the end of the year into Indian rupees at the prevailing exchange rate. The fluctuation on account of foreign exchange rates was predicated to the foreign exchange account. 4. The Assessing Officer found that the Reserve Bank of India allows exporters to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation and this was distinct and independent from the transaction of export which already stood concluded. The Commissioner noted that the gains on account of exchange fluctuation arose subsequent to the transaction of export and it had no relationship with the export activity. Consequently, the gain was regarded as not amounting to business income. The Commissioner of Income Tax (Appeals) also noted that under Section 80HHC profits arising out of the export of goods could be claimed as a deduction. Hence, the income which arose on the subsequent user of the export proceeds would be altogether of a different nature and could not be said as derived from export activity. The Commissioner of Income Tax (Appeals) also clarified that this wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly buying and selling for the purposes of export, but all ancillary activities; (ii) The intention of the assessee in keeping a portion of the sale proceeds of export in the EEFC Account was not to gain from a foreign exchange fluctuation but, to facilitate the meeting of future business liabilities and (iii) The deposits held in the EEFC Account had arisen purely as a result of the export profits. 9. In evaluating the rival submissions, due regard must be had to the intendment of Parliament as evidenced by the language used in sub section (1) of Section 80HHC. The statute contemplates a deduction where an assessee, being an Indian company or a person resident in India, is engaged in the business of export out of India of any goods or merc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit with an electricity board for obtaining the supply of electricity and the submission of the assessee was that the undertaking itself could not run in the absence of electricity. Consequently, it was urged that the interest received on the deposits placed with the electricity board must be regarded as being derived from the industrial undertaking. The Supreme Court rejected this submission, holding that the expression derived from "must be understood as something which has direct or immediate nexus". The Court held that though electricity may be required for the industrial undertaking, the deposit required for such supply "is a step removed from the business" and the derivation of profits on the deposit made "cannot be said to flow di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he EEFC Account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression "derived" by the assessee in sub section (1) of Section 80HHC. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) have made a distinction, which merits emphasis. The exchange fluctuation, as both those authorities noted, arose subsequent to the transaction of export. In other words, the exchange fluctuation was not on account of a delayed realization of export proceeds. The deposit of the receipts in the EEFC Account and the exchange fluctuation which has arisen therefrom cannot be regarded as being part of the profits derived by the assessee fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
