LIONBRIDGE TECHNOLOGIES P. LTD, MUMBAI V. ACIT RG 8(30 (OSD), MUMBAI

ITA 1952/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55003 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 11-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARSHASARTHI NAIR
• Assessee Lawyers: J D MESTRY
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI. PRAMOD KUMAR (A.M.) AND SHRI. VIJAY PA L RAO (J.M) ITA NO.1952/MUM/2010 ASSESSMENT YEAR : 2005-2006 LIONBRIDGE TECHNOLOGIES P. LTD. 5 TH & 6 TH FLR., SPECTRA, HIGH STREET, HIRANANDANI GARDEN, MUMBAI 400 076. PAN: AABCT3380Q VS. A.C.I.T. RG.8(3) (OSD) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.D. MESTRY RESPONDENT BY : SHRI PARSHASARTHI NAIR O R D E R PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.12.2009 OF CIT(A)-XVIII, MUMBAI FOR THE A.Y.2005 -06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HONBLE CIT(A)-18{THE CIT(A)}, ERRED I N UPHOLDING THE TREATMENT BY THE AO OF THE GAIN ON FOREIGN EXCH ANGE FLUCTUATION OF RS.10,61,258/- ARISING ON ACCOUNT OF REVALUATION OF BANK BALANCE AS INCOME FROM OTHER SOURCES AND NO T ALLOWING DEDUCTION U/S.10A OF THE ACT ON THE SAME. 2. IN VIEW OF THE ABOVE, THE LD ACIT BE DIRECTED T O TREAT THE GAIN ON FOREIGN EXCHANGE FLUCTUATION ON ACCOUNT OF REVALUATION OF BANK BALANCE AS BUSINESS INCOME AND TO ALLOW THE DEDUCTION U/S.10A OF THE ACT ON THE SAME. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND EN GAGED IN THE BUSINESS OF EXPORT OF SOFTWARE RELATED SERVICES. THE ASSESSEE HAD CLAIMED DEDUCTION U/S.10A ON FOREIGN EXCHANGE GAIN OF RS.69 .21 LACS, HOWEVER THE AO DISALLOWED THE CLAIM OF THE ASSESSEE WITH RESPEC T TO FOREIGN EXCHANGE GAIN AND TREATED THE SAME AS INCOME FROM OTHER SOUR CES. ON APPEAL, THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXT ENT OF FOREIGN EXCHANGE ITA NO.1952/MUM/2010 A.Y. : 2005-2006 2 FLUCTUATION OF RS.58,60,227/- AND CONFIRMED THE DIS ALLOWANCE U/S.10A TO THE EXTENT OF FOREIGN EXCHANGE GAIN OF RS.10,61,258 /- ON ACCOUNT OF REVALUATION OF BANK BALANCE. 4. WE HAVE HEARD THE LEARNED SR. COUNSEL SHRI J.D. MESTRY, AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUT SET, WE NOTE THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SH AH ORIGINALS [327 ITR 19 (BOM)]. THE LD SR. COUNSEL HAS FAIRLY CONCEDED TH AT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT (SUPRA) HOWEVER, HE HAS SUBMITTED THAT THE LD CIT(A ) AT THE END OF PARA 4 HAS MENTIONED THAT THE ASSESEE HIMSELF HAS ACCEPTED THAT THE FOREIGN EXCHANGE GAIN ON ACCOUNT OF REVALUATION OF BANK BAL ANCE IS NOT ENTITLED TO DEDUCTION U/S.10A WHEREAS THE ASSESSEE DID NOT CONC EDE SO. HE HAS OBJECT TO THE SAID STATEMENT OF THE LD CIT(A). THE LEARN ED CIT(A) IN PARA 4 OF THE IMPUGNED ORDER ADJUDICATED THE ISSUE AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE INFORMATION OF RECORD. THE ASSESSING OFFICER RELIED ON SEVERAL DECISIONS A S LISTED ABOVE WHEREIN THE EMPHASIS WAS MAINLY ON THE ISSUE OF WHETHER THE INCOME WAS ATTRIBUTABLE TO OR DERIVE D FROM FROM THE INDUSTRIAL UNDERTAKING MAINLY IN CONNECTIO N WITH SUB.SEC.80HH, 80J ETC OF SECTION 80. NONE OF THESE CASE LAWS DEALS WITH THE ISSUE OF FOREIGN EXCHANGE GAIN. THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE HONBLE ITAT SPECI AL BENCH, MUMBAI IN THE CASE OF ACIT VS. PRAKASH I. SHAH (SUP RA) WHEREIN IT WAS CLEARLY HELD THAT FOREIGN EXCHANGE G AIN IS PART OF EXPORT TURNOVER AND ALSO BY THE DECISION OF HON BLE ITAT BANGALORE IN THE CASE OF INFORMATION TECHNOLOGIES L TD. VS. JCIT 109 TTJ 631 WHEREIN IT WAS CLEARLY HELD THAT EXCHAN GE RATE DIFFERENCE IS PART AND PARCEL OF EXPORT PROCEEDS AN D CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. IN VIEW OF T HE JUDICIAL PRECEDENTS, THE ASSESSING OFFICER IS DIRECTED TO AL LOW 10A DEDUCTION ON FOREIGN EXCHANGE FLUCTUATION OF RS.58, 60,227/-. IT IS ALSO PERTINENT TO MENTION THAT THE APPELLANT HIM SELF HAD CONCEDED THAT THE FOREIGN EXCHANGE GAIN OF RS.10,61 ,258/- ON ACCOUNT OF REVALUATION OF BANK BALANCE IS NOT ENTIT LED TO 10A DEDUCTION OUT OF 69.21 LACS OF FOREIGN EXCHANGE GAI N. 5. SINCE THE ISSUE IS NOW COVERED AGAINST THE ASSES SEE THEREFORE WE DO NOT PROPOSE TO GO INTO THE CORRECTNESS OF THE ALLEG ED CONCESSION RECORDED BY ITA NO.1952/MUM/2010 A.Y. : 2005-2006 3 THE LEARNED CIT(A) IN HIS IMPUGNED ORDER. IT IS TO BE NOTED THAT THE ISSUE IS NOW SETTLED BY THE DECISION OF HONBLE JURISDICIONA L HIGH COURT IN THE CASE OF CIT VS. SHAH ORIGINALS (SUPRA) IN WHICH THE HON BLE HIGH COURT HELD IN PARA 11 & 12 AS UNDER: 11. THE ASSESEE ADMITTEDLY IN THE PRESENT CASE REC EIVED THE ENTIRE PROCEEDS OF THE EXPORT TRANSACTION. TH E RESERVE BANK OF INDIA, HAS GRANTED A FACILITY TO CERTAIN CA TEGORIES OF EXPORTERS TO MAINTAIN A CERTAIN PROPORTION OF THE E XPORT PROCEEDS IN AN EEFC ACCOUNT. THE PROCEEDS OF THE ACCOUNT ARE TO BE UTILIZED FOR BONA FIDE PAYMENTS BY THE ACCOUN T HOLDER SUBJECT TO THE LIMITS AND THE CONDITIONS PRESCRIBED . AN ASSESSEE WHO IS AN EXPORTER IS NOT UNDER AN OBLIGAT ION OF LAW TO MAINTAIN THE EXPORT PROCEEDS IN THE EEFC ACCOUNT BUT, THIS IS A FACILITY WHICH IS MADE AVAILABLE BY THE RESERVE B ANK. THE TRANSACTION OF EXPORT IS COMPLETE IN ALL RESPECTS U PON THE REPATRIATION OF THE PROCEEDS. IT LIES WITHIN THE D ISCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD B E RECEIVED IN A RUPEE EQUIVALENT IN ENTIRETY OR WHETHER A PORT ION SHOULD BE MAINTAINED IN CONVERTIBLE FOREIGN EXCHANGE IN THE E EFC ACCOUNT. THE EXCHANGE FLUCTUATION THAT ARISES, IT MUST BE EMPHASIZED, IS AFTER THE EXPORT TRANSACTION IS COMP LETE AND PAYMENT HAS BEEN RECEIVED BY THE EXPORTER. UPON TH E COMPLETION OF THE EXPORT TRANSACTION, WHAT THE SELL ER DOES WITH THE PROCEEDS, UPON REPATRIATION, IS A MATTER OF HIS OPTION. THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFT ER THE COMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AN DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS T O FALL WITHIN THE EXPRESSION DERIVED BY THE ASSESSEE IN SUB-SEC TION(1) OF SECTION 80HHC. BOTH THE ASSESSING OFFICER AND THE CIT(A) HAVE MADE A DISTINCTION, WHICH MERITS EMPHASIS. THE EXC HANGE FLUCTUATION, AS BOTH THOSE AUTHORITIES NOTED, AROSE SUBSEQUENT TO THE TRANSACTION OF EXPORT. IN OTHER WORDS, THE EXCHANGE FLUCTUATION WAS NOT ON ACCOUNT OF A DELAYED REALIZA TION OF EXPORT PROCEEDS. THE DEPOSIT OF THE RECEIPTS IN TH E EEFC ACCOUNT AND THE EXCHANGE FLUCTUATION WHICH HAS ARIS EN THEREFROM CANNOT BE REGARDED AS BEING PART OF THE P ROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OF MERCHANDISE. 12. THE INTEREST WHICH HAS ARISEN AS A RESULT OF TH E DEPOSITS MAINTAINED IN THE EEFC ACCOUNT CAN SIMILAR LY NOT BE REGARDED AS REPRESENTING THE BUSINESS INCOME OF THE ASSESSEE. THE BUSINESS OF THE ASSESSEE CONSISTS OF THE MANUFA CTURE AND EXPORT OF GARMENTS. THE INTEREST INCOME WHICH WAS GENERATED FROM THE DEPOSITS HELD IN THE EEFC ACCOUNT WOULD OT FALL FOR CLASSIFICATION AS INCOME UNDER THE HEAD OF BUSINESS AND PROFESSION BUT WOULD FALL FOR CLASSIFICATION AS INC OME FROM OTHER SOURCES. UNDOUBTEDLY AS COUNSEL APPEARING ON BEHAL F OF THE ASSESSEE SUBMITS, IN DETERMINING UNDER WHICH HEAD I NCOME WOULD FALL, THE COURT MUST BE GUIDED BY THE PRINCIP LE LAID DOWN BY THE SUPREME COURT IN NALINIKANT AMBALAL MODY VS. S.A.L. ITA NO.1952/MUM/2010 A.Y. : 2005-2006 4 NARAYAN ROW, CIT [1966] 61 ITR 428. THE SUPREME CO URT HELD THAT WHETHER AN INCOME FALLS UNDER ONE HEAD OR ANO THER HAS TO BE DECIDED ACCORDING TO THE COMMON NOTIONS OF PRACT ICAL MEN, FOR THE ACT DOES NOT PROVIDE ANY GUIDANCE IN THE MA TTER. THE INTEREST WHICH ACCRUED TO THE ASSESSEE ON THE DEPOS ITS HELD IN THE EEFC ACCOUNT CANNOT BE TREATED AS BUSINESS INCO ME. 6. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE H IGH COURT (SUPRA), WE DECIDE THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF AUGUST, 2011. SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) MUMBAI, DATED 24.08.2011. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI