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TMI Blog2015 (8) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has to be allowed on the revenue account. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. - Decided against revenue. Computation of deduction under Section 80HHC - Held that:- Tribunal found that the Kerala High Court in Baby Marine (Eastern) Exports v. ACIT [2002 (4) TMI 19 - KERALA High Court] held that premium or service charge was part of the price settled by the assessee for sale of its merchandise. Therefore, it is neither brokerage nor commission. The Tribunal accepted the claim of the assessee since no contrary decision was brought to its notice. In the case before us, it is not the premium or service charges paid by the assessee, it is a case of insurance claim received on account of loss of stock and loss of machinery due to fire accident. The insurance claim relating to loss of stock may be on the revenue account, it would form part of total turnover. However, the insurance claim in respect of loss of machinery has to be treated as capital account, therefore, that will not form part of total turnover. The break-up details with regard to loss on account of machinery and loss on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy vis- vis other currency of the country as on 31.03.1999 as revenue loss. The Ld. D.R. submitted that the assessee explained before the Assessing Officer that the loan was borrowed towards working capital. Therefore, the loss suffered due to exchange fluctuation has to be allowed as revenue loss. According to the Ld. D.R., irrespective of the utilization of the loan, the fact is that what was received by the assessee as loan is a capital receipt, therefore, the loss due to foreign exchange fluctuation cannot be allowed as revenue loss. The Ld. D.R. placed his reliance on the judgment of Calcutta High Court in Bestobell (I) Ltd. v. CIT (1979) 117 ITR 789 and submitted that Calcutta High Court, on identical circumstances, found that the loss on account of devaluation of Rupee is a capital loss. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee as revenue loss. The Ld. D.R. further pointed out that the exact liability can be ascertained only at the time of actual discharge of liability. Therefore, the intermediary fluctuation in the rate of foreign exchange till the date of actual payment of liability is of no consequence to the assessee. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dward governor India P. Ltd. (2007) 294 ITR 451 and also on the judgment of Apex Court in Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1. 4. We have considered the rival submissions on either side and perused the relevant material on record. The assessee suffered a loss on the loan borrowed in foreign currency due to exchange rate fluctuation. The assessee claimed increase in liability due to foreign exchange fluctuation as an expenditure under Section 37 of the Act. The Revenue, however, contends that the liability due to exchange fluctuation is only intermediary and it is a contingent one. The Department s contention is that the liability as on the date of payment has to be taken and not in between. As rightly submitted by the Ld.counsel, this Tribunal examined an identical issue in assessee's own case for assessment years 1998-99 and 2000-01 and confirmed similar order of the CIT(Appeals). 5. We have carefully gone through the judgment of Apex Court in Sutlej Cotton Mills Ltd. (supra). In the case before the Apex Court, the assessee-company having its Head Office in Calcutta, had its cotton mill in West Pakistan. The textile mill was a prosperous unit and the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange would be a trading loss, but if the amount is held as a capital asset, the loss arising from depreciation would be a capital loss. After referring to various case laws on the subject, the Apex Court ultimately observed as follows: The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of ₹ 25 lakhs and ₹ 12,50,000 were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If these two amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), if the foreign currency was held by the assessee on conversion into another currency, ordinarily it has to be treated as trading profit or loss in case the foreign currency is held on the revenue account or as a trading asset or as a part of circulating capital embarked in the business. In this case, admittedly, the borrowed loan was used as a working capital / circulating capital. Therefore, the loss suffered by the assessee has to be allowed on the revenue account. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. 6. The next ground of the appeal is with regard to computation of deduction under Section 80HHC of the Act. 7. Shri S. Dasgupta, the Ld. Departmental Representative, submitted that while computing deduction under Section 80HHC of the Act, the assessee has not deducted 90% of the miscellaneous receipt of ₹ 4,65,802/- from the profit of the business. According to the Ld. D.R., this sum of ₹ 4,65,802/- does not form part of total turnover, therefore, in view of the Explanation (baa) to Section 80HHC, 90% of miscellaneous income needs to be reduced from the net profit to arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, submitted that the exchange loss claimed by the assessee on account of import and export of finished goods and exchange loss on account of forward contract was on the revenue field. However, while computing deduction under Section 80HHC of the Act, the assessee has not added the negative figure of profit of business to the export incentive figure. The assessee explained before the Assessing Officer that the profit of the business is a negative figure, therefore, the profit is to be treated as NIL and only 90% export incentive should be the deduction available under Section 80HHC of the Act. According to the Ld. D.R., the assessee has taken the net exchange fluctuation rate for the purpose of deduction under Section 80HHC of the Act. 11. On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee has received profit due to exchange fluctuation on export. Therefore, this has to be considered as profit on export, therefore, eligible for deduction under Section 80HHC of the Act. 12. We have considered the rival submissions on either side and perused the relevant material on record. The Ld.counsel for the assessee claims that due to exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X
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