TMI Blog2008 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the assessee's claim for exemption u/s 10B. The Revenue's appeal thus fails. Order of AM - Assessee has derived the income in question because of his making an investment in EEFC account. To make a deposit in EEFC account is not an activity of actual conduct of the business of the EOU. It is a step removed from the actual conduct of the business of the EOU. Hence, the said income cannot be held to be a profit actually derived from EOU. My above view finds support from the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT[ 2003 (4) TMI 3 - SUPREME COURT] . Therefore, the income is not deductible u/s 10B. I therefore, set aside the order of Ld. CIT(A) and restore back the order of AO on this issue. THIRD MEMBER ORDER - The receipt of the sale consideration is in US Dollar. It was credited/deposited in EEFC Account of the assessee to be retained in US$ as per guidelines for operating this account. In this account, the receipts may be kept in foreign currency instated of converting it to Indian rupee. The gain accounted for by the assessee is the excess rupee value of US$ on the date of realization of sales proceeds credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n foreign exchange on conversion of export receipts in export sales. In appeal, in the impugned order, the learned CTI(A), by following (sic) decisions in the case of K. Utamlal Exports Ltd. v. DCIT 133 Taxman 248 (Mumbai) and Mohindra Impex v. ACIT 121 Taxman 326 (Delhi), allowed the claim of exemption Under Section 10B of the Act. 4. Aggrieved by this order of the learned CTT(A). Revenue is in appeal before us. 5. At the time of hearing, Shri Mukesh M. Patel, learned AR of the assessee appeared and produced a copy of the decision of the IT AT , Mumbai G. Bench in the case of Renaissance Jewellery (P) Ltd. v. ITO 101 ITO 380 and contended that the issue in controversy is squarely covered in favour of the assessee by this decision of the ITAT. Shri R.I. Patelm learned DR, could not controvert the above submission of the learned DR, of the assessee. 6. We have carefully gone through the impugned orders of the authorities below and also the decision relied on by the learned AR of the assessee. In the case of Renaissance Jewellery (P) Ltd. v. ITO 101 ITD 380. the tribunal has held that foreign exchange gain is in, the same nature as the sale proceeds and hence eligible for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder EEFC account. Because of this investment in EEFC, when this investment was exchanged by way of transfer to current account the amount in question accrued to the assessee as an exchange rate fluctuation income. Thus, in my considered opinion, the above income cannot be considered as a part of the sale proceeds which was received by the assessee at an earlier point of time. 4. The amount which is allowable to an assessee as a deduction Under Section 10B is profit and gains derived by the assessee from 100% EOU. Thus, the amount which qualifies for deduction should be profits and gains directly arising from the activity of conducting the business of the EOU. The income which accrues to an assessee from an activity which is not directly from the conduct of business of the EOU may be an income incidental to the business of EOU but the same cannot be held to be an income derived from the EOU. In the instant case, the assessee has derived the income in question because of his making an investment in EEFC account. To make a deposit in EEFC account is not an activity of actual conduct of the business of the EOU. It is a step removed from the actual conduct of the business of the EOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned from the export sales were lying in EEFC account. It was earned from subsequent transactions/dealings by way of transfer of remittance from EEFC account to current account which were separate economics transactions and this cannot be linked with export sales for the purpose claiming the deduction. According to him, the exchange gain is not the outcome of sale; this was outcome of currency characteristics in the international level and, therefore, this income cannot be claimed to have been derived from export business of the assessee. He further observed that this income was in the nature of receipts enumerated in Explanation (baa) of Section 80HHC(4B) of the Act by1 a general Clauses for any other receipt of a similar nature and, therefore, this has to be made subject to this Explanation. He also noted that the assessee has credited other income on account of rebate of Rs. 6,416/- and gain on EEFC account of Rs. 22,960/-which would be the income being receipt of misc. nature not eligible for exemption under Section 10B. 3. The CIT (Appeals), following the decisions of the Tribunal in the case of Smt. Sujata Grover v. DCIT 74 TTJ (Del) 347 , held that Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of Renaissance Jewellery (P) Limited v. ITO 101 ITD 380 (Mum.) and in the case of Shah Originals v. ACIT 112 TTJ (Mum.) 754, and the decision of the Gujarat High Court in the case of CIT v. Amba Impex 282 ITR 144 (Guj.) wherein it is held that foreign exchange gain earned on realization of sales proceed in foreign currency is part of the sale proceed and would, therefore, be income derived export of goods. 8. We have heard the parties and considered the rival submissions. Section 10B as it was stood at the relevant time provided as under: 10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking form the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. 9. Sub-section (4) of Section 10B provides for computation of profit derived from export. It reads as under: 10B (4) F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Although electricity may be required for the purposes of industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. It held that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to be flowing directly from the industrial undertaking itself and was not profit and gains derived by the industrial undertaking. It had also referred to a decision of the Privy Council in the case of CIT v. Raja Bahadur Kamakhya Narayan Singh 16 ITR 325 (PC) when it said that, The word 'derived' is not a term of Article Its use in the definition indeed demands an enquiry in to the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. It was, therefore, held to be not an income derived from agricultural land. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exporter converts that currency into Indian rupees at the exchange rate prevalent al that time and accordingly takes the, cognizance of that amount as its export figure in its books of accounts. However, when the invoice is actually realised from the foreign country and the amounts remitted to India, the exchange rate prevalent on that day may be equal to or more or less than the one recorded in the books of accounts at the time of making the sales. If the exchange rate is more it results into income from the exchange rate, fluctuations and in the reverse case it becomes loss on that account. Under all circumstances, the basic character of the receipt of the foreign currency remains the same, i.e., it remains attributable to the export effected by the assessee. It also held that the expression any other receipt of a similar nature as used in Explanation (baa) of Section 80HHC(4B) is should mean only such items which do not directly add to the export turnover. The foreign exchange fluctuation income is related to the exports effected earlier and there cannot be any doubt that amount representing foreign exchange rate fluctuations income in relation to exports effected cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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