Case Law Details

Case Name : The Commissioner of Income Tax Vs M/s. Pentasoft Technologies Ltd. (Madras High Court at Judicature)
Appeal Number : Tax Case (Appeal) No. 599 of 2010 (2012) 342 ITR 578 (Mad.)
Date of Judgement/Order : 13/07/2010
Related Assessment Year :
Courts : All High Courts (4417) Madras High Court (338)

CIT vs. M/s. Pentasoft Technologies Ltd. (Madras High Court)- In order to allow a claim under Section 10A of the Act, what all is to be seen is whether such benefit earned by the assessee was derived by virtue of export made by the assessee. The exchange value based on upward or downward of the Rupee value is not in the hands of the assessee. In other words, the assessee does not determine the exchange value of the Indian Rupee. It has to be remembered but for the fact that the assessee is an export house, there was no question of earning any foreign exchange. Therefore, when the fluctuation in foreign exchange rate was solely relatable to the export business of the assessee and the higher Rupee value was earned by virtue of such exports carried out by the assessee, there is no reason why the benefit of Section 10(A) should not be allowed to the assessee.

High Court of Judicature at Madras

Dated : 13.07.2010

Tax Case (Appeal) No. 599 of 2010

(2012) 342 ITR 578 (Mad.)

[2010- TIOL0525-HC-MAD-IT]

The Commissioner of Income Tax

vs.

M/s. Pentasoft Technologies Ltd.

Coram :- THE HON’BLE MR.JUSTICE F.M.IBRAHIM KALIFULLA and THE HON’BLE MR.JUSTICE M.M.SUNDRESH

Prayer: Tax Case Appeal filed under Section 260-A of the Income Tax Act, 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/2007.

For Appellant : Mr.K.Subramanian
Sr. Standing Counsel for Income-tax

Judgment

(Judgment of the Court was delivered by F.M.IBRAHIM KALIFULLA,J.) The Revenue has come forward with this appeal and the question of law raised reads as under:

“Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that gains on account of foreign exchange fluctuation held to have direct nexus with the export sales of the assessee and hence, is eligible for deduction under Section 10A of the Income Tax Act, 1961, is valid in law?”

2. The short question that arises for consideration is ‘whether due to diminish in Rupee value, the respondent-assessee gained a higher sum in Rupee value while earning foreign exchange and the said difference in Rupee value was allowable as a deduction under Section 10A of the Income-Tax Act, 1961.

3. Though the Assessing Officer as well as the Commissioner of Income-tax (Appeals) disallowed the said claim, the Tribunal dealt with the said issue as under in paragraph-10:

“10. … Having regard to the facts of the case and the above mentioned judgments, we are also of the opinion that the gain due to fluctuation in foreign exchange rate is directly related to the export sales of the assessee and, therefore, it cannot be treated as other than part of profit from export. The assessee need not do anything to earn this gain, but it is directly related to the export activity and sales and therefore it has a close and direct nexus with the export sales of the assessee. Accordingly, we allow this issue in favour of the assessee and the order of the Commissioner (Appeals) is set aside.”

4. In order to allow a claim under Section 10A of the Act, what all is to be seen is whether such benefit earned by the assessee was derived by virtue of export made by the assessee. The exchange value based on upward or downward of the Rupee value is not in the hands of the assessee. In other words, the assessee does not determine the exchange value of the Indian Rupee. It has to be remembered but for the fact that the assessee is an export house, there was no question of earning any foreign exchange. Therefore, when the fluctuation in foreign exchange rate was solely relatable to the export business of the assessee and the higher Rupee value was earned by virtue of such exports carried out by the assessee, there is no reason why the benefit of Section 10(A) should not be allowed to the assessee.

5. Viewed in that respect, the conclusion of the Tribunal, as held above, cannot be held to be illegal. We, therefore, do not find any question of law, much less substantial question of law, to be considered in this appeal. The appeal, therefore, fails and the same is rejected. Consequently, connected M.P.No.1 of 2010 is also dismissed.

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Category : Income Tax (28342)
Type : Judiciary (12648)

0 responses to “Section 10B Foreign exchange fluctuation includible in export turnover: HC”

  1. ASHUTOSH KUMAR PANDEY says:

    Decision is in accordance of law and is not intervening any law of tax.

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