Profits or gains from foreign currency fluctuations cannot be treated as export income for deduction under Section 80HHHC of IT Act, 1960.

The assessee – export-oriented unit – filed returns for the year 2001-2001 for export turnover of Rs.8,27,15,688/- including the turnover of gain of Rs.26,62,927/- from foreign currency fluctuations as income from export business profits outside India.

This was disallowed by the Order dated 10.2.2016 of the Assessing Officer.  This was confirmed vide appellate order dated 21.11.2006.  The Appellate Tribunal had set-aside the said orders but in appeal of the Revenue again the disallowance of deduction was restored by the High  Court.  Hence, the assessee approached the Supreme Court.

The case at hand is of a credit of a certain percentage of foreign exchange earnings in an EEFC account and the credited amount has appreciated in Rupee convertibility at the end of the financial year.

The main point of discussion is on the gain in foreign exchange vis-à-vis the export business of the assessee.

The test is whether the income / profit is derived from the export of such goods / merchandise.

Policy for deductions of profits from export business is to encourage and incentivise export trade.

Civil Appeal Nos.2664 and 2665 of 2011 of Shah Originals Vs. Commissioner of Income Tax-24, Mumbai.