2014 (4) TMI 168 - HC - Income Tax

High Court rules in favor of assessee on section 80HHC interpretation, granting relief on forward currency contract gain.

The High Court ruled in favor of the assessee regarding the interpretation of section 80HHC of the Act, excluding excise duty and sales tax for deduction ... Deduction u/s 80HHC of the Act – Exclusion of excise duty and sales tax from computation – Held that:- The decision in Commissioner of Income-tax vs. Pogagen AMP Nagarsheth Powertronics Ltd. [2014 (3) TMI 934 - GUJARAT HIGH COURT ] followed – Decided against Revenue. Relief u/s 80HHC of the Act - Gain of forward currency contract – Speculative Transaction - Held that:- The decision in Commissioner of Income-tax-I vs. Friends and Friends Shipping Pvt.Ltd. [2013 (5) TMI 458 - GUJARAT HIGH COURT] followed -the assessee was entitled to claim deduction as a business loss – Decided against Revenue. Deduction u/s 80HHC of the Act – Receipts arising out of fluctuation of rate of foreign exchange – Held that:- The decision in Commissioner of Income Tax Versus M/s. Priyanka Gems [2014 (3) TMI 938 - GUJARAT HIGH COURT ] followed - The foreign exchange gain arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee - once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately – Decided against Revenue. Issues:1. Interpretation of section 80HHC of the Act regarding exclusion of excise duty and sales tax.2. Justification of granting relief under section 80HHC for gain on forward currency contract.3. Exclusion of foreign exchange fluctuation gain from profits eligible for deduction under section 80HHC.Analysis:1. The High Court framed a substantial question of law regarding the interpretation of section 80HHC of the Act in relation to the exclusion of excise duty and sales tax for computing the deduction. The Court referred to previous decisions and ruled in favor of the assessee based on the judgment in Tax Appeal No.884 of 2006, stating that the question is answered in favor of the assessee.2. Following an order from the Supreme Court, two additional questions were framed concerning the relief under section 80HHC for gain on a forward currency contract. The Court considered previous judgments, including the case of Commissioner of Income-tax-I vs. Friends and Friends Shipping Pvt.Ltd., and ruled against the Revenue, stating that the question is answered against them.3. The issue of deduction under section 80HHC for foreign exchange fluctuation gain was also addressed by the Court based on the case of Commissioner of Income Tax-III vs. M/s. Priyanka Gems. The Court decided in favor of the assessees, concluding that all questions raised were decided against the Revenue. As a result, the Tax Appeal was dismissed.