The Commissioner Of Income Tax Chennai v. M/S. Pentasoft Technologies Ltd

In the High Court of Judicature at Madras Dated : 13.07.2010 Coram :- THE HON'BLE MR.JUSTICE F.M.IBRAHIM KALIFULLAandTHE HON'BLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal) No.599 of 2010 The Commissioner of Income TaxChennai. .. Appellantvs. M/s. Pentasoft Technologies Ltd.25, I Main Road, United India ColonyChennai-600 024. .. Respondent Prayer: Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961, against the order of the Income Tax Appellate Tribunal,Madras 'B' Bench, dated 14.03.2008 passed in I.T.A.No.228/Mds/2007against ITA.No.330/04-05 dated 30.11.2006 on the file of theCommissioner of Income Tax (Appeals)-VI, Chennai againstPA.No./S.I.No.AAACP.1895r/34104-p dated 31.3.2004 on the file of theDeputy Commissioner of Income-Tax, Central Cricle III(4) Chennai -34. For Appellant : Mr.K.Subramanian Sr. Standing Counsel for Income-tax Judgment The Revenue has come forward with this appeal and the questionof law raised reads as under: "Whether on the facts and in the circumstancesof the case, the Income-tax Appellate Tribunal wasright in law in holding that gains on account offoreign exchange fluctuation held to have directnexus with the export sales of the assessee andhence, is eligible for deduction under Section 10Aof the Income Tax Act, 1961, is valid in law?" 2. The short question that arises for consideration is 'whetherdue to diminish in Rupee value, the respondent-assessee gained a https://hcservices.ecourts.gov.in/hcservices/ higher sum in Rupee value while earning foreign exchange and the saiddifference in Rupee value was allowable as a deduction under Section10A of the Income-Tax Act, 1961. 3. Though the Assessing Officer as well as the Commissioner ofIncome-tax (Appeals) disallowed the said claim, the Tribunal dealtwith the said issue as under in paragraph-10: "10. ... Having regard to the facts of the case and theabove mentioned judgments, we are also of the opinion thatthe gain due to fluctuation in foreign exchange rate isdirectly related to the export sales of the assessee and,therefore, it cannot be treated as other than part of profitfrom export. The assessee need not do anything to earn thisgain, but it is directly related to the export activity andsales and therefore it has a close and direct nexus with theexport sales of the assessee. Accordingly, we allow thisissue in favour of the assessee and the order of theCommissioner (Appeals) is set aside." 4. In order to allow a claim under Section 10A of the Act, whatall is to be seen is whether such benefit earned by the assessee wasderived by virtue of export made by the assessee. The exchange valuebased on upward or downward of the Rupee value is not in the handsof the assessee. In other words, the assessee does not determine theexchange value of the Indian Rupee. It has to be remembered but forthe fact that the assessee is an export house, there was no questionof earning any foreign exchange. Therefore, when the fluctuation inforeign exchange rate was solely relatable to the export business ofthe assessee and the higher Rupee value was earned by virtue of suchexports carried out by the assessee, there is no reason why thebenefit of Section 10(A) should not be allowed to the assessee. 5. Viewed in that respect, the conclusion of the Tribunal, asheld above, cannot be held to be illegal. We, therefore, do not findany question of law, much less substantial question of law, to beconsidered in this appeal. The appeal, therefore, fails and thesame is rejected. Consequently, connected M.P.No.1 of 2010 is alsodismissed. ATR To 1. The Asst.Registrar, Income Tax Appellate Tribunal Madras 'B' Bench Madras.2. The Commissioner of Income Tax (Appeals)-VI No.121, Mahathma Gandhi Road, Chennai 600034.3. The Deputy Commissioner of Income Tax Central Circle III(4), Chennai 600 034.4.The Commisioner of Income Tax, Chennai.1 cc To Mr.K.Subramanian, Advocate, SR.50255TC (A) No.599 of 2010klt(co)pmk.28.7.2010