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TMI Blog2014 (3) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... ariety of reasons, the remission of the export sale consideration may not be made immediately - Under the accounting principles, the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates - The exact remittance in Indian rupees would depend on the precise exchange rate at the time when the amount is remitted. The Tribunal followed the judgement of assessee’s own case in PRIYANKA GEMS. Versus ASSISTANT COMMISSIONER OF INCOME TAX [2004 (12) TMI 288 - ITAT AHMEDABAD-B] was of the view that receipts on account of exchange rate difference is derived from the export sales and is part and parcel of export proceeds only, and by no stretch of imagination it can be given colour of income from other sources to be excluded from profits of the business in terms of Expln. (baa) below s. 80HHC(4A) of the Act - There is no distinction possible on the basis of different situations under which foreign exchange fluctuation may result - law permits hedging of foreign exchange fluctuation risk to an importer or an exporter - The exporter may take steps as found commercially prudent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. The Assessing Officer thereupon inquired with the assessee why the said amount of Rs.71.23 lakhs (rounded off) being the exchange rate difference relating to the exports of the earlier period should not be deducted from the export turnover and 90% thereof be not excluded from the business profit for the purpose of computation of deduction under section 80HHC of the Act. He was of the opinion that such amount should be treated as income from other sources. The assessee opposed such proposal relying on its earlier elaborate representation on the same issue for the Assessment Year 2001-02 and pointed out that for the said year Income Tax Appellate Tribunal ( the Tribunal for short) had already accepted the assessee s stand. It was pointed out that during the year under consideration it represented the exchange rate difference as on 31st March of the previous year, and the date of actual realization of the export proceeds. Since such proceeds were received during the previous year, the same had accrued only during that period. It was pointed out that according to the Accounting Standard-11, mandatory items, namely, cash, receivables, payables, etc should be reported at the closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (baa) of Explanation to section 80HHC. 5. The assessee carried the matter in appeal. CIT(Appeals) allowed the appeal relying on the decision of the Tribunal in the case of this very assessee in which the Tribunal had held that the exchange rate difference would not fall in clause (baa) to the explanation. It was held that such receipt on the ground of exchange rate difference was derived from the export sales and was part and parcel of the export proceeds. It cannot be treated as an income from other source to be excluded from the profits of the business. 6. Revenue carried the matter in appeal. The Tribunal by the impugned judgment dismissed the appeal relying on its own decision in case of the very assessee for assessment year 2001-02. That is how the Revenue has filed this appeal. 7. Though three different questions were framed by the Court while admitting the appeals, we have modified the question and framed a single question, which would serve the purpose for all appeals. We have also noticed that in many of the appeals, the facts are identical to those recorded hereinabove. In some cases, however, it is not clear whether the exchange rate fluctuation related to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under section 80HHC of the Act on the foreign exchange rate fluctuation gain primarily is on account of the realization of the sale proceeds happening in the year subsequent to the year during which the exports were made. In such a case, the question is whether the stand of the Revenue to exclude such receipt is justified. In the process we would also examine whether if the sale proceeds were received during the same year of the export, exclusion would be warranted. 12. Section 80HHC of the Act pertains to deduction in respect of profits retained for export business. Subsection( 1), which provides for such deduction reads as under:- Deduction in respect of profits retained for export business. 80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies,there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section(1B), derived by the assessee from the export of such goods o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation.-For the purposes of this clause, the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. (b) This section does not apply to the following foods or merchandise, namely:- (i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Explanation 1.- The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credits to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2.- For the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the competent authority, namely, the Reserve Bank of India or such other authority as may have been authorized for such purpose. For the purpose of claiming deduction under section 80HHC of the Act, therefore, one of the conditions would be that the foreign exchange remittance is made within six months from the end of the previous year during which the export was made or within such extended time as may be permitted. Once this condition along with other essential conditions are fulfilled the assessee would be entitled to deduction under the said provision to be computed in terms of sub-section(3) thereof. 17. In case of Commissioner of Income-tax vs. Amba Impex (supra), somewhat similar issue arose. In the said case the assessee received the sale consideration during the year subsequent to the year of export. The foreign exchange gain thus resulted during the later year. In this context the Revenue contended that the difference would not qualify for deduction under section 80HHC of the Act. Additional feature in the said case was that there was insufficient data to examine whether the exports were made in the immediately preceding year or the rate difference pertained to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs for consideration after verifying necessary facts. However, by no stretch can it be said that this judgment does not lay down the binding ratio. The Court in no uncertain terms held that the remittance which were covered within the period specified in sub-section(2) of section 80HHC or within the extended period if the period was so extended, cannot be treated as any other receipt stipulated in clause (baa) to the explanation. This is precisely how various Courts have approached the issue. 18. In the case of Raghunath Exports (P) Ltd. vs. Commissioner of Income-tax reported in [2011]330 ITR 57(Cal), the Calcutta High Court followed the decision of this Court in the case of Commissioner of Incometax vs. Amba Impex(supra). It was a case where the tea was exported and the payment was received in foreign currency. There was higher realization of the export proceeds due to fluctuation in the foreign currency. The Court considered whether surplus realization can be treated to be part of the export turnover. It was held as under:- 14.However, the Legislature in its wisdom has cleared that in case of convertible foreign exchange, a time limit of six months has been prescribed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher sum while earning foreign exchange. The question arose whether such difference in rupee value should be allowed as deduction under section 10A of the Act. The Court upheld the decision of the Tribunal making following observations:- 4. In order to allow a claim under section 10A of the Act, what all is to be seen is whether such benefit earned by the assessee was derived by virtue of export made by the assessee. The exchange value based on upward or downward of the rupee value is not in the hands of the assessee. In other words, the assessee does not determine the exchange value of the Indian rupee. It has to be remembered but for the fact that the assessee is an export house, there was no question of earning any foreign exchange. Therefore, when the fluctuation in foreign exchange rate was solely relatable to the export business of the assessee and the higher rupee value was earned by virtue of such exports carried out by the assessee, there is no reason why the benefit of section 10A should not be allowed to the assessee. 21. In the case of Commissioner of Income-tax and another vs. Infosys Technologies Ltd.(No.4) reported in [2012] 349 ITR 606 (Karn), the Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee or the Revenue, it does affect the actual value of the exported goods either way. We are of the opinion that the Tribunal has not committed any error on this aspect. Therefore, there is no occasion to exclude 90 per cent of the amount attributable to export gains from the foreign exchange rate fluctuation and, accordingly, we answer the first question against the Revenue and in favour of the assessee. 23. Unreported decision of Punjab and Haryana High Court has been brought to our notice in case of Commissioner of Income Tax vs. Roadmaster Industries of India dated 27.11.2006 passed in IT Reference No.13 of 1996, in which also similar view has been taken in the following manner:- 7. It is not disputed before us that, in the present case, the amount received in excess on account of fluctuations in foreign exchange by the assessee was on account of export of goods out of India. This being the undisputed factual position, considering the scheme of the provision, there is no escape from the conclusion that the amount received by the assessee for export of goods on account of fluctuations in foreign exchange has to be treated as part of the gross turnover, resultantly entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially, the receipt would be on account of the export made. If this is so, any fluctuation thereof also must be said to have arisen out of the export business. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from assessee s export business. In that view of the matter, the Revenue s contention that such income cannot be said to have been derived from the export business must fail. If this is the position when the remittance is made during the same year of the export, we fail to see what material change can it bring about if within the time permitted under sub-section(2) of section 80HHC, the remittance is made but in the process accounting year has changed. To our mind mere change in the accounting year can have no real impact on the nature of the receipt. The conclusion of the Assessing Officer that since the year during which such sale proceeds were received by the assessee export was not made, would not in any manner change the situation. The assessee being engaged in the business of export and having made the export, mere fact of the remittance being made after 31st of March of the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Reference to Explanation-2 below sub-section (2) of section 80HHC also is of no avail. Such explanation covers the cases where any goods or merchandise are transferred by an assessee to its branch office, warehouse or any other establishment situated outside India and thereafter sold from such branch, office, warehouse or establishment. In such a case, it is provided that transfer shall be deemed to be export out of India and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of 50 of the Customs Act, 1962 shall, for the purpose of section 80HHC, be deemed to be sale proceeds thereof. Two things thus emerge. Firstly, the explanation would have application only if it is a case of transfer of goods or merchandise by an assessee to its branch office, warehouse or establishment situated outside India before the sale of goods to the foreign importer. In none of the cases, it is even contended by the Revenue that such facts arise and that, therefore, the explanation would apply. Second aspect is that even in such a case what is to be adopted for the purpose of value of goods or merchandise is that declared in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the present case, however, we find that the source of the income of the assessee was the export. On the basis of accrual, income was already reflected in the assessee s account on the date of the export on the prevailing rate of exchange. Further income was earned merely on account of foreign exchange fluctuation. Such income, therefore, was directly related to the assessee s export business and cannot be said to have been removed beyond the first degree. 30. In case of Commissioner of Income-tax vs. Shah Originals reported in [2010] 327 ITR 19(Bom), the Bombay High Court considered a case where the assessee, an exporter, was given an option to keep a specified percentage of the receipts on account of the export in its Exchange Earners Foreign Currency (EEFC) Account. The assessee realized the full amount on account of the export but kept the portion thereof in EEFC Account. The assessee received higher amount in Indian rupees on such amount so set apart due to the fluctuation in the foreign exchange rate. Conscious of the fact that the assessee had received the entire proceeds of the export transaction and thereafter, gained due to the foreign fluctuation on the account ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits derived by the assessee from the export of goods or merchandise. 31. In the case of Universal Radiators vs. Commissioner of Income-tax reported in [1993]201 ITR 800, the assessee was engaged in the business of manufacturing radiators. For such purpose the assessee would import ingots. In transit the goods were seized by Pakistan authorities. The Insurance company settled the claim. On account of devaluation of Indian rupee, the assessee received in Indian currency amount higher than that computed on the date of settlement of claim. The assessee claimed that the difference was not taxable. In this background, the Court held that the assessee was not engaged in the business of buying and selling of ingots and, therefore, compensation paid by the insurer to the assessee was not for any trading or business activity, but a just equivalent in money of the goods lost, nevertheless such receipt was taxable. 32. Under the circumstances, we find no error in the judgments of the Tribunal. 33. Learned counsel Mr. Nitin Mehta for the Revenue, however, contended that the foreign exchange fluctuation gain may arise under various circumstances, not all of them may be covered unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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