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2017 (8) TMI 378 - HC - Income TaxRoyalty - exchange gain - Income attributable to royalty and interest remitted from Malaysia after retaining in Malaysia for sometime - Taxability in India - Indo-Malaysian DTAA - system of accounting followed - Conversion of Malaysian currency into Indian currency - Held that:- Revenue has correctly placed reliance upon the Accounting Standard AS11 issued by the Institute of Chartered Accountants of India which indicates that any benefit derived on account of currency fluctuation after the year of accrual is to be considered as income/expense in the period in which they arise. The Apex Court in Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT) placed reliance upon AS11 to hold that gain or loss made on account of rate difference in foreign exchange post the date of balance sheet has to be taken in the year in which the gain or loss has arisen on account of exchange rate fluctuation subsequent to close of the Accounting Year which records the accrual of income at the rate prevailing on the last date of the accounting year. The income has been earned in Malaysia on account of royalty and interest but the same is retained there and not brought repatriated to India immediately on the same accruing to the Appellant/assessee. This leads to a gain/loss in foreign exchange valuation. This gain/loss on account of foreign exchange variation would not bear the character of income on account of royalty and interest earned in Malaysia. This is so as the gain/loss on account of foreign exchange variation is not a part of royalty and interest nor is it any accretion to it. In this case, it is the generation of further income which is taxable in the subject assessment year when the variation in foreign exchange has resulted in further income in India to the Appellant/assessee. Although the Revenue would in cash system of accounting record the income only on receipt of the same, yet for the purposes of taxation it would split the amount received from Malaysia on account of royalty and interest in the year in which it arose/accrued at the rate prevailing then as one head of income and the income gained on account of exchange rate variation due to passage of time at the time of conversion as the other head of income. The Revenue would bring to tax the later gain arising on account of exchange rate variation to tax as income arising from a different source. The amount attributable to royalty and interest received from Malaysia on the basis of foreign exchange rate existing on the last date of the Accounting year in which this income would be receivable by the Applicant/Assessee as a different head of receipt excluded from tax by ADTT. Thus, we do not accept the above submission made on behalf of the appellant as the source of receipt is different and two fold. Decided in favour of revenue
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