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TMI Blog2015 (7) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT vs Penatsoft (2010 (7) TMI 75 - MADRAS HIGH COURT ), we find that the Revenue’s challenge has to fail. The gain in the sale price as a result of fluctuation in the foreign currency has a direct nexus and is of the first degree and cannot be equated to situations where surplus funds are parked in Fixed Deposits yielding "interest income". The increase in sale price as a result of currency fluctuation impacts the sale price on which the exemption is to be calculated. The issue under consideration was whether on the ECB loan (external borrowings) which yielded a gain as a result of foreign exchange fluctuation was a capital receipt or a Revenue receipt. Considering the principle laid down by the Apex Court in Woodward Governo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. The relevant facts as per the assessment order are that the assessee company as in the past continued to derive income from the business of software development. The AO in the course of the assessment proceedings required the assessee to explain why foreign exchange gain and interest income may not be excluded for the purposes of section 10A. Considering the explanation of the assessee and relying upon various judgements, the AO held that the foreign exchange gain of ₹ 38,91,437/- was to be considered under the head income from other sources . Accordingly he excluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional High Court in the case of FAB India vs CIT 130 ITR 143, the CIT(A) directed the AO to re-compute the deduction u/s 10A. 5. Aggrieved by this, the Revenue is in appeal before the Tribunal. The ld. Sr. DR, Ms. Y.Kakkar vehemently relying upon the assessment order and the decisions cited in the assessment order submitted that the impugned order deserves to be set aside as the issue of derived from was well settled by the Apex Court in the case of CIT vs Sterling Foods Ltd. (cited supra) and Cambay Electric Supply Industrial Company Ltd. (cited supra) which view has continuously been followed by various Courts as referred to by the AO to the cases of Cement Distributors Ltd. (cited supra) and Buildwell Assam Pvt. Ltd. (cited s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguishable on facts. 7. We have heard the rival submissions and perused the material available on record. As far as the facts of the case are concerned there is no dispute as the assessee engaged in the business of software development realized a higher sale price on account of foreign exchange fluctuation. The assessee by way of a revised return included this gain also in its claim of exemption u/s 10A. The record shows that the AO denied the claim relying upon the various decisions referred to in para 2 of this order holding that the term derived from as interpreted by various Courts mandates that there must be direct connection with the activity and did not contemplate that exemption can be allowed to gains arising from foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue receipt on the principle that if a loss suffered on account of foreign exchange fluctuation is allowable as a Revenue expenditure then the gain on such a receipt would be a revenue receipt. The issue was in the content of utilization of the loan at the relevant point of time. In the facts of the present case, the gain due to foreign exchange fluctuation is in the sale price and not on account of external borrowing. The gain following the principle of FabIndia Overseas Ltd.(cited supra) can be considered to be arising on account of additional sale proceeds. The view is also supported by the decision of the Madras High Court. The following extract stated judgements brings out the crux of the issue:- In order to allow a claim unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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