For Determination v. Amba Impex

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 534 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== ============================================================== COMMISSIONER OF INCOME TAX-III - Appellant(s) Versus AMBA IMPEX - Opponent(s) ============================================================== Appearance : MR MANISH R BHATTfor Appellant(s) : 1, MRS SWATI SOPARKAR for Opponent(s) : 1, ================================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 20/12/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.The appellant-revenue has proposed the following threequestions. “(A)Whether on the facts and circumstances of the case,and in law the Tribunal was justified in holding that theexchange rate difference pertaining to exports made inearlier years was ' profit business' within the meaning ofSec.80-HHC of the Act ? (B)Whether on the facts and in the circumstances of thecase, and in law the Tribunal was justified in holdingthat the issue was squarely covered by the decision of thejurisdictional High Court in the case of Hindustan TradingCorporation ( 160 ITR 15 (Guj) ) when the issue before theHigh Court in the said case was totally different ? (C)Whether on the facts and in the circumstances of thecase, and in law the Tribunal was justified in holdingthat “any other receipt of a similar nature “as mentionedin explanation (baa) to Section 80-HHC (4B) would notinclude receipt on account of exchange rate difference ?”1.After hearing Mr. M.R.Bhatt, the learned Senior StandingCounsel for the appellant on 15[th] November, 2005, noticehad been issued to the respondent and accordingly Mr.T.P.Hemani appears on behalf of the respondent and hasbeen heard. Considering the fact that the controversybetween the parties lies in a narrow compass, and inlight of the view that the Court is inclined to take,the appeal is taken up for final hearing and disposaltoday after order of admission. 2.Admit. The following substantial questions of law arisesfor determination. “Whether, on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in lawin holding that exchange rate difference pertaining toexports made in earlier years would be “profits ofbusiness” within the meaning of Section 80-HHC of theIncome Tax Act, 1961 ?1.The assessment year is 2001-2002 and relevant accountingperiod is financial year 2000-2001. While framing theassessment order under Section 143 (3) of the Income TaxAct, 1961 (the Act ) the Assessing Officer came to theconclusion that the exchange rate difference on exportrealisation for prior period i.e. up to 31[st]March, 2000,being Rs.13,18,068/=, was not an allowable deduction.The assessee carried the matter in appeal but did notsucceed. Hence, the assessee preferred Second Appealbefore the Tribunal. The Tribunal has upheld the claimmade by the assessee on the basis of decision of thisHigh Court in the case of Hindustan Trading Corporationvs. CIT (1986) 160 ITR 15 (Guj) by treating the receiptin question as being on revenue account. Tribunal hasalso placed reliance on various other decisions ofdifferent Benches of Tribunal. 2.Assailing the impugned order of Tribunal Mr. M.R.Bhatt,the learned Senior Standing Counsel for the appellantplaced reliance on Explanation (baa) to Section 80-HHCof the Act to submit that profits of the business haveto be computed and understood as provided in the saidclause of the Explanation and no other receipts can betreated as profits of the business. It was furthersubmitted that even if the said receipt, received onaccount of exchange rate difference, has been shownunder the head “profits and gains of business orprofession”, the same has to be reduced as required bysub clause (1) of clause (baa) of the Explanation as itamounts to 'any other receipts'. He therefore urged thatTribunal had misdirected itself in holding that as thereceipt was on revenue account, the same had to betreated as part of the business profits and theExplanation (baa) did not apply to such receipt. 3.As against that Mr. Hemani appearing on behalf of therespondent submitted that the case of the revenue wasrestricted to applicability of clause (baa) of theExplanation and in such circumstances the only disputewas as to whether the amount in question could betreated as other receipts of the nature envisaged byclause (baa) of the Explanation. According to him allother requirements of the provision stood satisfied andone had to proceed on the presumption that the amountreceived by way of exchange rate difference was relatable to the exports made by the assessee. 4.The entire case of revenue is built on the fact that theamount has been received in a year subsequent to theyear of exports. As can be seen from the assessmentorder it talks of export realisation for exports made upto 31[st] March, 2000. There is nothing to indicate, andnone of the authorities have applied their mind, as towhether the sum of Rs.13,18,068/= is relatable toexports made during only one financial year or more thanone financial year preceding 31[st] March, 2000. Thiswould have a material bearing, taking into considerationthe provisions of sub Section (2) of Section 80-HHC ofthe Act as was applicable during the year underconsideration. relatable to the exports made by the assessee. 4.The entire case of revenue is built on the fact that theamount has been received in a year subsequent to theyear of exports. As can be seen from the assessmentorder it talks of export realisation for exports made upto 31[st] March, 2000. There is nothing to indicate, andnone of the authorities have applied their mind, as towhether the sum of Rs.13,18,068/= is relatable toexports made during only one financial year or more thanone financial year preceding 31[st] March, 2000. Thiswould have a material bearing, taking into considerationthe provisions of sub Section (2) of Section 80-HHC ofthe Act as was applicable during the year underconsideration. 5.Under sub Section (2) of Section 80-HHC of the Act, saleproceeds of goods or merchandise exported out of Indiaand received in convertible foreign exchange becomeentitled to the deduction subject to fulfillment ofother requisite conditions. Clause (a) of sub Section(2) of Section 80-HHC of the Act provides that such saleproceeds have to be received in convertible foreignexchange within a period of six months from the end ofprevious year or, within such further period as thecompetent authority may allow in this behalf. Thus, aplain reading of the provision makes it clear that oncethe competent authority has extended the time, in a casewhere it is necessary, or, where the sale proceeds havebeen received within a period of six months from the endof the previous year, such sale proceeds are directlyrelatable to the exports made and no further inquiry isnecessary. Therefore, the entire controversy as towhether such receipt amounts to “any other receipt “stipulated in Explanation (baa) (1) need not be takenup for consideration. Once legislature has provided fortreating a receipt within a period of six months afterthe end of the previous year, or within further extendedperiod, as sale proceeds relatable exports, it would notbe open to revenue to raise such a controversy. Thelegislature in its wisdom has taken into considerationthe fact that in case of exports made, sale proceeds arenot necessarily realisable immediately within theaccounting period in which exports have been made. As acorollary, by the time such sale proceeds are receivedwithin the prescribed time, by virtue of exchange ratedifference there might be a situation where a largeramount is received than the amount as reflected in theshipping bill. Hence, merely because an amount isreceived in a year subsequent to the year of export byway of exchange rate difference, it does not necessarilyalways follow that the same is not relatable to theexports made. 6.As can be seen from the impugned order of Tribunal aswell as the orders of Commissioner (Appeals) and theAssessing Officer, none of the authorities haveapproached the issue in light of provisions of subSection (2) of Section 80-HHC of the Act. No evidence isavailable on record to establish fulfillment orotherwise, of the conditions stipulated by sub Section(2) of Section 80-HHC of the Act. In thesecircumstances, it would not be fair and just to eitherside to resolve the controversy in absence of therelevant facts and evidence being available on record. 7.In light of what is stated hereinbefore, the question isleft unanswered and the appeal is restored to the fileof the Tribunal only in relation to the issue relatableto deduction under Section 80-HHC of the Act withoutexpressing any final opinion on merits of the matter.The Tribunal shall, after hearing both the sides, decidethe appeal on this count, after permitting additionalevidence on record, if necessary. It would also be opento the Tribunal to restore the issue to the file of theAssessing Authority to ascertain proper facts in thecircumstances. 8.The appeal is accordingly disposed of. There shall be noorder as to costs. ( D.A.MEHTA, J.) ( HARSHA DEVANI, J.) *mithabhai