Foreign-currency conversion under Rule 115(1) and exclusion of service tax from section 44B gross receipts

Rule 115(1) requires foreign-currency income to be converted into rupees using the telegraphic transfer buying rate on the specified date, and the proviso concerning tax deduction at source does not control business-income computation. On that basis, a mismatch with Form 26AS did not justify an addition, subject to verification of the correct exchange rate. For presumptive taxation under section 44B, service tax is excluded from gross receipts and does not form part of the computation base. The commentary therefore records that the assessee's conversion method and exclusion of service tax were sustained, with the Revenue's challenge failing on both issues.

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Issues: (i) Whether revenue from foreign currency receipts was required to be converted into rupees under Rule 115(1) of the Income-tax Rules, 1962 by applying the telegraphic transfer buying rate on the specified date, and whether the proviso could control computation of income; (ii) Whether service tax was includible in gross receipts for computation of income under section 44B of the Income-tax Act, 1961.

Issue (i): Whether revenue from foreign currency receipts was required to be converted into rupees under Rule 115(1) of the Income-tax Rules, 1962 by applying the telegraphic transfer buying rate on the specified date, and whether the proviso could control computation of income.

Analysis: Rule 115(1) prescribes the rate of exchange for calculating the value in rupees of income accruing or received in foreign currency by reference to the telegraphic transfer buying rate on the specified date. The proviso relied upon by the Assessing Officer is confined to deduction of tax at source and does not govern computation of business income. Since income computation and tax deduction at source operate in different fields, variation between the assessee's conversion and the figures reflected in Form 26AS did not justify addition, subject to verification of the correct TT buying rate.

Conclusion: The conversion adopted by the assessee under Rule 115(1) was upheld, and the Revenue's challenge failed.

Issue (ii): Whether service tax was includible in gross receipts for computation of income under section 44B of the Income-tax Act, 1961.

Analysis: The issue was treated as covered by the coordinate bench and by the principle that service tax is not part of the amounts received for the purposes of presumptive computation under section 44B. Gross receipts for that provision do not include service tax, and the exclusion of the service tax component was therefore sustained.

Conclusion: Service tax was held to be excludible from gross receipts under section 44B, in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on both substantive grounds, and the order of the first appellate authority was sustained.

Ratio Decidendi: Foreign-currency income must be converted under Rule 115(1) by applying the telegraphic transfer buying rate on the specified date, and service tax does not form part of gross receipts for presumptive computation under section 44B.

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