Principal Commissioner of Income-tax-1 v. Asahi Songwon Colors Limited
[Citation -2017-LL-1129-13]

Citation 2017-LL-1129-13
Appellant Name Principal Commissioner of Income-tax-1
Respondent Name Asahi Songwon Colors Limited
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 29/11/2017
Judgment View Judgment
Keyword Tags rate of foreign exchange • foreign exchange gain • exchange fluctuation • foreign currency • export business • export sale
Bot Summary: Mr. M.R. Bhatt, Senior Advocate, learned counsel for the appellant submitted that the income derived on account of fluctuation in the exchange rate cannot be said to be derived from export of articles or things as provided in section 10B of the Act and hence, the Tribunal has erred in allowing such deduction under section 10B of the Act. Once export is made, due to a variety of reasons, the remission of the export sale consideration may not be made immediately. Under accounting principles the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the year of the export, the remission is made, the difference in the rate recorded in the accounts of the assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from the assessee s export business. As held in the above decision, the exact remittance in connection with such export would depend on the precise exchange rate at the time when the amount is remitted. The receipt would be on account of the export made and therefore, the fluctuation thereof must also be said to arise out of the export business.


O/TAXAP/879/2017 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 879 of 2017 PRINCIPAL COMMISIONER OF INCOME TAX 1....Appellant(s) Versus ASAHI SONGWON COLORS LIMITED....Opponent(s) Appearance: MR MR BHATT, SR. ADVOCATE with MRS MAUNA M BHATT, ADVOCATE for Appellant CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR.JUSTICE A.S. SUPEHIA Date : 29/11/2017 ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ), appellant- revenue has challenged order dated 7.2.2017 made by Income Tax Appellate Tribunal, Ahmedabad Bench C (hereinafter referred to as Tribunal ) in ITA No.2633/Ahd/2013, by proposing following question, stated to be substantial question of law: Whether Appellate Tribunal has erred in law and on facts by deleting disallowance of Rs.34,50,445/- made on account of fluctuation in rates on foreign exchange, from deduction under section 10B? Page 1 of 5 HC-NIC Page 1 of 5 Created On Sat Dec 16 10:10:06 IST 2017 O/TAXAP/879/2017 ORDER 2. assessment year is 2008-09 and relevant accounting period is previous year 2007-08. During course of assessment proceedings, Assessing Officer found that in claim for deduction under section 10B of Act, assessee had considered Rs.34,50,445/- being exchange rate fluctuation as eligible for claim for deduction under section 10B of Act. Assessing Officer was of opinion that this income was not eligible for deduction under section 10B of Act as it was not derived from such industrial undertaking and accordingly, denied claim to this extent. 3. assessee carried matter in appeal before Commissioner (Appeals), who deleted disallowance made by Assessing Officer. revenue carried matter in further appeal before Tribunal, which dismissed appeal and upheld order passed by Commissioner (Appeals). Being aggrieved, revenue has filed present appeal. 4. Mr. M.R. Bhatt, Senior Advocate, learned counsel for appellant submitted that income derived on account of fluctuation in exchange rate cannot be said to be derived from export of articles or things as provided in section 10B of Act and hence, Tribunal has erred in allowing such deduction under section 10B of Act. 5. In opinion of this court, controversy involved in present case is no longer res integra inasmuch as this court in Commissioner of Income-tax v. Priyanka Gems, [2014] 367 ITR 575 (Guj), has, in context of provisions of section 80HHC of Act, held that foreign exchange gain arising out of fluctuation in rate of foreign exchange Page 2 of 5 HC-NIC Page 2 of 5 Created On Sat Dec 16 10:10:06 IST 2017 O/TAXAP/879/2017 ORDER cannot be divested from export business of assessee. Once export is made, due to variety of reasons, remission of export sale consideration may not be made immediately. Under accounting principles, therefore, assessee, on basis of accrual, would record sale consideration at prevailing exchange rate on quoted price for exported goods in foreign currency rates. If during year of export, remission is made, difference in rate recorded in accounts of assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. May be accounting standards require that same may be recorded in separate foreign exchange fluctuation account. Nevertheless, any deviation either positive or negative must have direct relation to export actually made. Payment would be due to assessee due to factum of export. Current price of goods so exported would also be pre- decided in foreign exchange currency. exact remittance in Indian rupees would depend on precise exchange rate at time when amount is remitted. court was of opinion that this fluctuation and possibility of increase or decrease can have no bearing on source of such receipt. Primarily and essentially, receipt would be on account of export made. If that be so, any fluctuation thereof must also be said to have arisen out of export business. Mere period of time and vagaries of rate fluctuation in international currencies cannot divest income from character of income from assessee s export business. court, accordingly, turned down revenue s contention that income cannot be said to be derived from export business. Page 3 of 5 HC-NIC Page 3 of 5 Created On Sat Dec 16 10:10:06 IST 2017 O/TAXAP/879/2017 ORDER 6. Thus, what is held in above decision is that income or loss in case of fluctuation in exchange rate of foreign currency arises out of export business of assessee and does not change character of income from assessee s export business. 7. above view of court finds support in decision of Supreme Court in Oil and Natural Gas Corporation Ltd. v. Commissioner of Income-tax, [2010] 322 ITR 180 (SC), wherein court held that loss suffered by assessee, maintaining accounts regularly on mercantile system and following accounting standards prescribed by Institute of Chartered Accountants of India (ICAI), on account of fluctuation in rate of foreign exchange as on date of balance sheet was item of expenditure under section 37(1) of Act, notwithstanding that liability had not been discharged in year in which fluctuation in rate of foreign exchange occurred. 8. Section 10B of Act provides for deduction of such profits and gains as are derived by hundred per cent export- oriented undertaking from export of articles or things or computer software for period and subject to conditions stipulated there under. Therefore, deduction is permissible if such profits and gains as are derived from export of articles and things. As held in above decision, exact remittance in connection with such export would depend on precise exchange rate at time when amount is remitted. receipt would be on account of export made and therefore, fluctuation thereof must also be said to arise out of export business. Merely because of fluctuation Page 4 of 5 HC-NIC Page 4 of 5 Created On Sat Dec 16 10:10:06 IST 2017 O/TAXAP/879/2017 ORDER in international currencies, income does not get divested of character of income from export business. Tribunal, therefore, did not commit any error in deleting addition made on account of fluctuation in foreign exchange rates from deduction under section 10B of Act. 9. In light of above discussion, it is not possible to state that there is any legal infirmity in impugned order passed by Tribunal so as to give rise to any question of law, much less, substantial question of law, warranting interference. appeal, therefore, fails and is summarily dismissed. (HARSHA DEVANI, J.) (A. S. SUPEHIA, J.) parmar* Page 5 of 5 HC-NIC Page 5 of 5 Created On Sat Dec 16 10:10:06 IST 2017 Principal Commissioner of Income-tax-1 v. Asahi Songwon Colors Limited
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