Case Law (SC) -- The gain from foreign exchange fluctuations from the EEFC account does not fall within the meaning of “derived from” the export of garments by the assessee for deduction u/s 80HHC of the Act.

Shah Originals v. CIT [2023 INSC 1014] dated 21.11.2023

“The policy behind the deductions of profits from the business of exports is to encourage and incentivise export trade. Through Section 80HHC, the Parliament restricted the deduction of profit from the assessee's export of goods/merchandise. The interpretation now suggested by the assessee would add one more source to the sources stated in Section 80 HHC of the Act. Such a course is impermissible. The strict interpretation is in line with a few relative words, namely, manufacturer, exporter, purchaser of goods, etc. adverted to in Section 80 HHC of the Act. From the requirements of sub-sections (2) and (3) of Section 80 HHC, it can be held that the deduction is intended and restricted only to profits of the business of export of goods and merchandise outside India by the assessee. Therefore, including other income as an eligible deduction would be counter-productive to the scope, purpose, and object of Section 80 HHC of the Act.

13. In Topman Exports (supra), a converse case is available, where a receipt, pursuant to or in terms of a statutory provision, is treated as income derived from the export business. The instant case is not proved or stated as falling within a statutory requirement/benefit. At foremost, by applying the meaning of the words “derived from”, as held in the catena of cases, we are of the view that profits earned by the assessee due to price fluctuation, in the facts and circumstances of this case, cannot be included or treated as derived from the business of export income of the assessee. The assessee can be correct that the computation shall be as per Sections 28 to 44 of the Act if the receipt or income is from an export business. As 25 the controversy between the assessee and the Revenue is whether the profit earned on the foreign exchange falls under business income or income from other sources, the interpretation of Clause (baa) in Section 80 HHC is not attracted to the case on hand. Hence, for the above reasons, we hold that the gain from foreign exchange fluctuations from the EEFC account does not fall within the meaning of “derived from” the export of garments by the assessee. The profit from exchange fluctuation is independent of export earnings, and the impugned judgment correctly answers the point.

14. We agree with the reasoning and the view recorded in the Judgment under Appeal. Consequently, Civil Appeal No. 2664 of 2011 fails and is dismissed.”