LI Network
Published on: November 22, 2023 at 17:20 IST
The Supreme Court has clarified that profits arising from foreign exchange fluctuations cannot be claimed as a deduction under Section 80 HHC of the Income Tax Act. This section provides for the deduction of profits related to the export of goods/merchandise by the assessee.
While interpreting the language of Section 80 HHC, the Court emphasized that the deduction is applicable only to the profits derived from the export of goods and merchandise and nothing else.
The court underlined that the legislative intent behind this deduction is to encourage and incentivize export trade, limiting the deduction to profits from the export of goods/merchandise.
The case involved a dispute over the gain of Rs. 26,62,927/- from foreign exchange fluctuations in the EEFC (Exchange Earners Foreign Currency) account of the assessee, who is a 100% Export Oriented Unit (EOU) of garments.
The assessee argued that the gain should be treated as a profit of the business, eligible for deduction under Section 80 HHC. However, the court rejected this interpretation, stating that the gain from foreign exchange fluctuations in the EEFC account does not fall under the category of profits derived from the export of garments.
The court highlighted that the opening and maintaining of an EEFC account are not mandatory for export business or earning profits from export. It further noted that interpreting the section to include any other income would be counterproductive to the scope and purpose of Section 80 HHC of the Income Tax Act.
This decision reaffirms the strict interpretation of tax provisions, emphasizing that the deduction under Section 80 HHC is limited to profits directly linked to the export of goods and merchandise.
The ruling has significant implications for businesses seeking tax deductions related to foreign exchange gains in the context of export-oriented activities.
Case Title: Shah Originals v. Commissioner of Income Tax-24