Meena S.banerji v. Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.240 OF 2006 Meena S.BanerjiVs.Income Tax Officer ..Appellant ..Respondent Mr.A.K.Jasani for the Appellant.Mr.A.S.Shivsaran for the Respondent. P.C. CORAM :- DR.S.RADHAKRISHNAN &V.C.DAGA, JJ.DATE : 19TH NOVEMBER, 2008 . Heard the learned Counsel for the parties. By the above Appeal, the Appellant is seeking to raise the following substantial question of law: Whether on the facts and in the circumstancesof the case the Tribunal was justified in lawin holding that the Appellant was not entitledto deduction under the provisions of section80HHC/80HHC of the Income Tax Act,1961 on anamount of Rs.1,28,51,014/- being the value of3,01,667 shares of Pinkmoney.com Inc allottedto the Appellant in consideration of theexports of software in terms of the exportcontract?2.We have perused the judgment dated 16thJanuary, 2006 passed by the Income Tax AppellateTribunal, wherein in paragraph Nos.24 to 27 theTribunal has categorically observed that;24. The assessee had relied on the circularNo.731 dated 20th December,1995 and circularNo.711 dated 24th July, 1995, the copies ofthe same are placed on record at page 65 and66 of APB, for the proposition that if foreignexchange is not brought in India the same canbe retained outside India with the permissionof RBI. There is no dispute with thisproposition. The problem is that the assessee RESERVE BANK OF INDIA,EXCHANGE CONTROL DEPARTMENT,CENTRAL OFFICER, MUMBAI-400001 Ref.No.EC.CO.OID/635/19.33.01/2001-02, dated 28thmarch,2002.M.S.Meena Exports,P.O.Box No.16919,Santacruz (West),Mumbai - 400 054.Dear Sirs, Acquisition of shares in foreign companyPlease refer to the correspondence resting with yourletter dated 24th March, 2002 on the captionedsubject. We note that you have acquired 300,000shares (face value of US$ 1.00 per share) for a totalamount of US$3,00,000.00 from M/s.Pinkmoney Com.Inc,USA, against your export receivables from them.Please note that it was irregular on your part to haveacquired the shares without prior approval of the RBI.You are, therefore, advised to disinvest the sharesimmediately and repatriate the sale proceeds throughnormal banking channels and approach us with necessarydocumentary evidence in support of the repatriationfor further action of your end.Yours faithfully,(V.Venugopalan)Manager.25.From this, it is clear that the export, wheresale proceeds are received in shares in barter, it isnot approved by RBI. Therefore, it could not be saidthat this transaction is within scope of the circularsreferred above. The arguments of the learned Counselfor assessee was that it will not serve any usefulpurpose if foreign exchange is brought into India andthereafter it is remitted back to USA for investmentin shares. We are not convinced with this argument.Receiving shares in the customer company in lieu ofexport to the customer is not equivalent to receivingforeign exchange and its application in accordancewith the directions of RBI.26.The circular No.711, dated 24th July, 1995 wasissued under the special circumstances of war in Iraq,wherein bonds in lieu of foreign exchange realisationfrom the project completed in Iraq were given by RBIin the hope that the foreign exchange will eventuallybe repatriated into India by EXIM bank after the lifting of the UN sanction. The RBI/ECGC bonds soissued by way of settlement of claims of projects inIRAQ will be treated as convertible foreign exchangebrought into India for the purposes of section HHB.Thus, bonds were to be issued by RBI, ECGC and theywill be treated as convertible foreign exchangebrought into India for the purposes of section 80HHB.Certainly the facts of the present case are different.There is no permission from RBI to acquire shares inlieu of convertible foreign exchange.27.The learned Counsel for assessee had placedreliance on the decision of Hon’ble Supreme Court inthe case of JB Boda and Co. Vs. CBDT - 223 ITR 271(SC). We find that the decision of Hon’ble SupremeCourt in the case of JB Boda & Co.’s case does notsupport the assessee’s case but supports ourcontentions. In that case, gross premium was payablein foreign exchange. Remittance was made with thepermission of RBI in US$. However, the same wasretained as commission expressed n US$. It was heldthat commission retained is income received inconvertible foreign exchange. Formal remittance toforeign company and receipt thereafter not necessary.In that case, the commission retained was held as anapplication of convertible foreign exchange. In thepresent case, no convertible foreign exchange isreceived at all against sale proceeds. What itreceived was only shares, not approved by RBI. Inview of this, we are of the view that the conditionslaid down in section 80HHC are not satisfied andtherefore, the assessee is not entitled for deductionfor the sum equivalent to US$3,00,000 received in theform of shares in USA. Appeal is totally devoid of merits. Hence, the same stands dismissed. (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.)