In the case of one Shah Originals v. Commissioner of Income Tax on November 21, the Supreme Court clarified the interpretation of Section 80 HHC of the Income Tax Act, emphasizing that profit from exchange fluctuation is distinct from export earnings. Section 80 HHC allows deductions for profits derived from exporting goods. The Court highlighted that the deduction is limited to profits from the export of goods and merchandise, excluding other sources.
The case involved a 100% EOU of garments that credited a portion of foreign exchange from exports to an EEFC account. A gain of Rs. 26,62,927/- resulted from an upward revision in the exchange rate, which the assesse sought to deduct under Section 80 HHC. The Assessing Officer disallowed the claim, asserting that EEFC gains weren’t linked to export earnings.
The Court rejected the assessee’s argument that the EEFC account is integral to their business, stating that maintaining such an account is optional, not mandatory for export. Referring to Section 80 HHC, the Court held that the deduction is confined to profits directly linked to the export of goods. Any broader interpretation, including gains from foreign exchange fluctuations, would go against the section’s purpose.
Ultimately, the Supreme Court affirmed the High Court’s decision, stating that the gain from foreign exchange fluctuations in the EEFC account does not qualify as “derived from” the export of garments.
