2009-VIL-339-ITAT-MUM

Equivalent Citation: [2009] 30 SOT 1 (MUM.)

Income Tax Appellate Tribunal MUMBAI

IT APPEAL NO. 5651 (MUM.) OF 2007

Date: 19.03.2009

MORGAN STANLEY ADVANTAGE SERVICES (P.) LTD.

Vs

INCOME-TAX OFFICER, 15(3) (2), MUMBAI

BENCH

M.A. BAKSHI AND R.K. PANDA, JJ.

JUDGMENT

M.A. Bakshi, Vice President. - The appeal of the assessee, for the assessment year 2004-05, is directed against the order dated 11-6-2007, of Commissioner of Income-tax (Appeals) - XV, Mumbai.

2. The only ground raised by the assessee in this appeal is against the action of the revenue authorities in excluding the amount of Rs. 2,20,36,235 from the export turnover in computing the deduction under section 10A of the Income-tax Act, 1961.

3. We have heard the parties and perused the record. The relevant facts briefly stated are that the assessee is engaged in the business of development of software and providing information technology enabled services. The assessee is undisputedly entitled to exemption under section 10A of the Act. The deduction had been claimed by the assessee at Rs. 4,33,40,527. On perusal of the claim of the assessee, it was found by the Assessing Officer that a sum of Rs. 2,20,36,235 had not been received by the assessee in convertible foreign exchange within six months from the end of the previous year. The Assessing Officer was of the view that the assessee has failed to fulfil the condition under section 10A(3) of the Act, to qualify for exemption in respect of the said turnover. The CIT(A) has affirmed the view of the Assessing Officer.

4. The learned counsel for the assessee contended before us that the assessee had made exports in the previous year and the invoice for the same had been raised on 27-9-2004. The proceeds had been received by 31-12-2004, i.e., within the period of six months from the date of raising the invoice. Admittedly, the export proceeds had not been realized within six months from the end of the previous year. It was contended that since the foreign exchange had been remitted within six months from the date of raising of the invoice, the condition under section 10A(3) is satisfied. In this connection, our attention was invited to regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, wherein it is specifically provided that the full export value of software exported are required to be realized and repatriated to India within six months from the date of export. It is also provided therein that the date of export in relation to the export of software shall be deemed to be the date of invoice covering such export. It was further contended that there was no requirement of permission of the competent authority before the expiry of six months. The requirement of the section is grant of extension by the competent authority and according to the learned counsel the competent authority in this case was the Standard Chartered Bank, through which the export proceeds have been realized. It was further contended that in any case the assessee had sought formal permission from the Reserve Bank of India and also given reminder for the same as per the evidence placed on record. Reliance has been placed on the decision of the Bombay High Court in the case of Lachman Chaturbhuj Java v. R.G. Nitsure [1981] 132 ITR 631 (Bom.) to support the contention, that once the assessee has sought permission, the same is presumed to have been granted if no communication is received. Reliance was also placed on the Bangalore Bench decision of the Tribunal in the case of Nous Infosystems (P.) Ltd. v. ACIT in [ITA Nos. 589, 606, 607 and 666 (Bang.) of 2008, dated 7-11-2008], to support the contention that the Legislature has given the power to the Assessing Officer to allow the benefit of section 10A under section 155(11A) even after completion of the assessment in case the permission is received subsequently. The learned counsel for the assessee further contended that the Reserve Bank of India had granted blanket permission to the bankers for collection of foreign remittance in respect of exports. Moreover, the assessee, had made a request to the Reserve Bank of India for extension of the time. The assessee had been asked to complete certain formalities, which were duly completed. Our attention was also invited to the letter of the Reserve Bank of India dated 25-4-2007, wherein the realization of the foreign exchange on exports has been confirmed after completion of all the formalities by the assessee.

5. The learned Departmental Representative, on the other hand, contended that the requirement under section 10A(3) is to realise the export proceeds within six months from the end of the previous year or within the extended time by the competent authority. In this case, according to the learned DR, no extension was granted by the competent authority for remittance of the foreign exchange and therefore the Assessing Officer was justified in excluding the turnover from computation of exemption under section 10A of the Act.

6. We have given our careful consideration to the rival contentions. Under section 10A of the Act, the exemption is permissible subject to fulfillment of certain conditions. One of the conditions required to be satisfied for exemption under section 10A is provided under sub-section (3), which is reproduced as under:—

"10A(1) & (2) ******

(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

Explanation 1 - For the purposes of this sub-section, the expression ‘competent authority’ means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange.

Explanation 2 - The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India."

It is evident from the language of sub-section (3) of section 10A that ordinarily the foreign exchange remittance in respect of the export of computer software should be realized within the period of six months from the end of the previous year. As per regulation 9 of Export of Goods & Services Regulations, 2000, the amount representing the full export value of the goods or software exported are required to be realized within six months from the date of export. Explanation to the said regulation provides that the "date of export" in relation to the export of software in other than physical form, should be deemed to be the date of invoice covering such export. The assessee has claimed that the invoice was raised in September 2004. In our considered view, regulation 9 is of no help to the assessee insofar as the requirement under section 10A(3) is that the export proceeds are received in or brought into India within a period of six months from the end of the previous year and not from the date of export. The condition required under sub-section (3) to section 10A would be satisfied if the remittances had been received by 30-9-2004. The assessee has admittedly received the export proceeds in December 2004. We therefore hold that the assessee has not realized the export proceeds within the period of six months from the end of the previous year, i.e., from end of March 2004.

7. Therefore, the only question that requires consideration is as to whether the sale proceeds have been realized within the time extended by the competent authority. Explanation 1 to sub-section (3) of section 10A provides that the competent authority would mean the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. In our considered view, the Reserve Bank of India is the competent authority for grant of extension in respect of the export proceeds. The mere fact that the bankers are allowed to deal with foreign exchange does not make it to be an authority authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. We therefore hold that for purposes of section 10A(3), the permission of the Reserve Bank of India or any other designated authority is required for extension of time.

8. We, therefore, proceed to consider if the said permission has been obtained in this case or can be deemed to have been granted. There is a letter of the assessee, addressed to the General Manager, Reserve Bank of India, Mumbai Regional Office, Exchange Control Department, Amar Building, Mumbai, dated 7-10-2004 on record, wherein the assessee has requested the Reserve Bank of India to extend the period stipulated in the Income-tax Act for realization of export proceeds. The assessee had also reminded the Reserve Bank of India vide letter dated 24-1-2007 in this regard, which is also on record. There is another letter of the assessee, dated 30-3-2007, addressed to Standard Chartered Bank, Mumbai, on record, informing the bankers that the Reserve Bank of India has informed them that they would need a letter in the attached format from the authorized dealer confirming that the export proceeds were received in December 2004. The bankers have issued the certificate and on receipt of the said certificate the Reserve Bank of India has issued a letter dated 25-4-2007, the relevant portion of which is reproduced hereunder:—

"RESERVE BANK OF INDIA

www.rbi.org.in

FED. MRO.CAD(EXP)/13023/28 13.000/2006-07 April 25, 2007

Standard Chartered Bank

(Trade Services)

90, M. G. Road

Fort, Mumbai 400 001

Dear Sir,

Realisation of Export Proceeds -

M/s. Morgan Stanley Advantage

Services (P.) Ltd. (MSAS)

Please refer to your letter dated 11-4-2007 on the above subject. In this connection we confirm the realization of USD 5,04,031 through the following invoices raised by the above company :

Yours faithfully,

(P.P. Vetkar)

Manager."

This letter, however, contains a NOTE, which also is relevant and is accordingly reproduced hereunder: -

"Note : This communication is issued from the foreign exchange angle under the provisions of FEMA and should not be construed to convey the approval by any other statutory authority or Government under any other laws/regulations. If further approval or permission is required from any other regulatory authority or Government under the relevant laws/regulations, the applicant should take the approval of the concerned agency before effecting the transaction. Further, it should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of any other laws/regulations".

9. From the above letter, it is evident that the Reserve Bank of India has extended the time for remittance of foreign exchange under FEMA. So however, there is no formal approval for the purposes of section 10A in the light of the aforementioned Note. In our considered view, the Reserve Bank of India, in response to the request of the assessee to extend the time, having taken the remittances on record, implies that the issuing of a letter extending the time is only a formality. The assessee having applied for extension and having completed all the formalities; and in response the Reserve Bank of India having taken the remittances on record, the non-issue of a formal letter for approval, in our view, cannot be held against the assessee for none of its faults. The assessee having applied for extension and the same having been impliedly granted in substance, the benefit of section 10A has got to be allowed to the assessee on the ground that the extension is deemed to have been granted. Once the assessee has completed all the formalities and the request of the assessee for extension of time not having been rejected, it can be presumed after a reasonable time that the extension has been granted. This view is supported by the decision of the jurisdictional High Court in the case of Lachman Chaturbhuj Java (supra). In the light of the facts of this case, we are of the view that the assessee is entitled to deduction under section 10A even in respect of the remittances of Rs. 2,20,36,235. The Assessing Officer is directed to recompute the exemption under section 10A accordingly.

10. In the result, the appeal of the assessee is allowed.

 

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