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TMI Blog2003 (4) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the foreign currency notes cannot be said to be goods for the purpose of s. 80HHC and as such the deduction under s. 80HHC in respect of profits derived by export of foreign currency notes and bringing into the country the sale proceeds of such foreign currency notes in convertible foreign exchange is not eligible for deduction under s. 80HHC. 4. For that the learned CIT(A) failed to appreciate properly the true scope and effect of the several decisions set out in the representation before him in support of the contention that foreign currency notes are to be treated as goods for the purpose of allowing the deduction under s. 80HHC of the Act. 5. For that the learned CIT(A) erred in fact as well as in law in upholding the disallowance of 5 per cent of (1) tea and tiffin expenses and (2) telephone expenses." 2. The major ground is in respect of disallowance of claim of deduction under s. 80HHC which was confirmed by the CIT(A). 3. The facts of the case are that the assessee is a money changer within the meaning of s. 7 of the Foreign Exchange Regulation Act, 1973, and is authorised to deal in foreign currency. The activity of the assessee consists of purchasing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO is to be accepted, then export of primary agricultural product or primary mineral goods would not be covered by s. 80HHC. Actually, s. 80HHC may not cover some of such products which are barred by Sch. XII of the IT Act. According to him, other than those items barred by Sch. XII, all other trading goods should be considered for deduction under s. 80HHC as long as the export proceeds are received by convertible foreign exchange. 7. Regarding the objection of learned CIT(A), learned counsel submits that the expression "goods" or "merchandise" has not been expressly defined either in s. 80HHC or anywhere else in IT Act. He, however, referred to s. 2(22)(d) of the Customs Act which defines 'goods' to include the currency and the negotiable instrument. Therefore, export of foreign currency, according to Customs Act, is export of goods. It is submitted that when goods has been defined in Customs Act and such definition includes currency for the purpose of Customs Act, there is no reason why in IT Department, being another sister Department, the connotation of the term should be different. 8. The learned Authorised Representative has drawn our attention to the meaning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. (1982) 30 CTR (Cal) 85 : (1983) 143 ITR 848 (Cal) as also the decision of the said Court of Appeal in the case of Imperial Tobacco Co. has been received. It has further been submitted that the Tribunal, Bangalore Bench, in the case of Comfund Financial Services (I) Ltd. vs. Dy. CIT (1998) 67 ITD 304 (Bang) referred to the abovementioned judgment of the Court of Appeal holding the view that dollar was a commodity and that shares and securities as also units of UTI should be considered as commodity. 9. With these arguments, learned counsel sought to establish that foreign exchange dealt in by the assessee-firm has all the characteristic of goods or merchandise and since all the ingredients of export of goods or merchandise were satisfied and the assessee had made export earnings in dollars in convertible foreign exchange, the assessee should be considered to be entitled to deduction under s. 80HHC of the IT Act. 10. Learned Departmental Representative relied upon the orders of the authorities below. He also submitted that foreign currencies were neither goods or merchandise nor were they manufactured and processed and hence, profit from such activities cannot qualify for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under s. 80HHC does not appear to hold good in view of the provision of s. 80HHC(3)(b). Whereas s. 80HHC(3)(a) considers availability of deduction under this section of goods or merchandise manufactured (or processed) by the assessee, sub-cl. (b) of s. 80HHC(3) provides conditions in respect of export out of India of trading goods for the purpose of deduction under s. 80HHC. It is now clear that foreign currency is to be considered as "goods" and these are "traded goods". The provision of s. 80HHC applies to a resident of India engaged in the business of export out of India of any goods or merchandise to which this section applies. The kind of export qualifying under s. 80HHC(3) is elaborated in sub-cls. (a), (b) and (c) of s. 80HHC(3). In sub-cl. (b) of s. 80HHC(3), it is provided that "where the export out of India is trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export". A case has neither been made out by the AO nor has it been discussed in the appellate order that the assessee has not complied with the requirements of this sub-clause. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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