Gain From Foreign Exchange Fluctuations Can’t Be Claimed As Deduction Under S.80 HHC Income Tax Act: Supreme Court
Case: Shah Originals v. Commissioner of Income Tax-24, Mumbai
Coram: Justices B.V. Nagarathna and Justice SVN Bhatti
Case No.: CIVIL APPEAL NO. 2664 OF 2011
Court Observation: The policy behind the deductions of profits from the business of exports is to encourage and incentivise export trade. Through Section 80HHC, the Parliament restricted the deduction of profit from the assessee’s export of goods/merchandise.
“whether the gain on foreign exchange fluctuation in the EEFC (Exchange Earners Foreign Currency) account of the assessee partakes the character of profits of the business of the assessee from exports and can the gain be included in the computation of deduction under profits of the business of the assessee under Section 80 HHC of the Act?”
S.80HHC. Deduction in respect of profits retained for export business.- Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise.
the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assesse
“the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits.”
“With wisdom and experience, the Parliament used the words “derived from” in Section 80 HHC to indicate the extent to which the deduction is permitted.,”
From the requirements of sub-sections (2) and (3) of Section 80 HHC, it can be held that the deduction is intended and restricted only to profits of the business of export of goods and merchandise outside India by the assessee. Therefore, including other income as an eligible deduction would be counter-productive to the scope, purpose, and object of Section 80 HHC of the Act
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