Court rules exchange rate gain on forward contracts as business income, not excluded from export turnover

The Court dismissed the Revenue's appeal for the assessment year 2003-04 without costs. The Tribunal upheld that exchange rate gain on forward contracts is business income and ruled that foreign exchange gain should be treated as export profit, not excluded from export turnover under section 80HHC of the Income Tax Act, 1961. The Court found no justification to entertain the issue of including exchange rate gain on forward contracts. Additionally, the Court noted that foreign exchange gain should be excluded from export turnover for computation under section 80HHC, based on previous judicial precedents.

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Issues involved: Interpretation of provisions u/s 80HHC of the Income Tax Act, 1961 regarding inclusion of exchange rate gain on forward contract and exclusion of foreign exchange gain in respect of export profit from export turnover.

Interpretation of exchange rate gain on forward contract:
The Tribunal upheld that exchange rate gain on forward contract is considered as business income based on the decision in Commissioner of Income Tax V/s. Badridas Gauridu (P) Limited (2003) 261 ITR 256 (Bom). Consequently, the Tribunal ruled that foreign exchange gain should be treated as export profit and cannot be excluded from export turnover u/s 80HHC of the Income Tax Act, 1961. Therefore, the Court found no justification to entertain the issue of inclusion of exchange rate gain on forward contract.

Exclusion of foreign exchange gain from export turnover:
The Court noted that the issue of exclusion of foreign exchange gain in respect of export profit from export turnover for computation u/s 80HHC is settled in favor of the assessee and against the Revenue as per the decision in Commissioner of Income Tax V/s. Gem Plus Jewellery India Limited (2011) 330 ITR 175. Consequently, the Court declined to entertain this question as well.

Conclusion:
The appeal by the Revenue for assessment year 2003-04 was dismissed with no order as to costs, as both issues were decided against the Revenue based on previous judicial precedents.

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