Bombay H.C : The assessee was entitled to the deduction under section 10A of the Income-tax Act, 1961 in respect of the sum of Rs. 2.20 crores being export proceeds which were realized beyond the period of six months from the end of relevant assessment year and there was no specific extension of time granted by the Competent Authority under section 10A(3)

High Court of Bombay

CIT – 9, Mumbai vs. Morgan Stanley Advantage Services (P.) Ltd.

Assessment Year : 2004-05

Section : 10A

J.P. Devadhar And K.K. Tated, JJ.

IT Appeal No. 4027 Of 2010

August  30, 2011

JUDGMENT

J.P. Devadhar, J. – Although several questions are raised by the Revenue in this appeal, the basic question raised in the appeal is :—

“Whether the Income-tax Appellate Tribunal was justified in holding that the assessee was entitled to the deduction under section 10A of the Income-tax Act, 1961 in respect of the sum of Rs. 2.20 crores being export proceeds which were realized beyond the period of six months from the end of relevant assessment year and there was no specific extension of time granted by the Competent Authority under section 10A(3) of the Income-tax Act, 1961.”

The appeal is admitted on the above question and by consent taken up for final hearing.

  1. The assessment year involved herein is assessment year 2004-05.

3. In the present case, admittedly the export proceeds amounting to Rs. 2.20 crores has not been received within six months from the end of the relevant assessment year. As the exports were effected prior to 31st March 2004, the export proceeds ought to have been realized by 30th September 2004 for availing deduction under section 10A of the Act unless extension was obtained from the Competent Authority namely the Reserve Bank of India. In the present case, it is not in dispute that the entire outstanding export proceeds have been realized by the assessee by the first week of December 2004 that is, beyond the period of six months from the end of the relevant assessment year. The question is, in the absence of specific extension granted by the Competent Authority namely the Reserve Bank of India for realization of the export proceeds as contemplated under section 10A(3) of the Act whether the assessee could be allowed benefit under section 10A of the Act.

4. It is not in dispute that the assessee had in fact made an application to the Reserve Bank of India on 7-10-2004 seeking extension of time for realization of the export proceeds. After realization of the export proceeds in December 2004, reminder letters were again sent by the assessee to the Reserve Bank of India on 24-1-2007 and 30-3-2007 seeking extension of time for realizing the export proceeds which were already realized in December 2004. However, by a letter dated 25-4-2007, the Reserve Bank of India informed as follows :

“RESERVE BANK OF INDIA www.rbi.org.in

FED.MRO.CAD(EXP)/13023/2813.000/2006-07, April 25, 2007

Standard Chartered Bank

(Trade Services)

90 M G Road

Fort, Mumbai 400 001

Dear Sir,

Realixation of Export Proceeds –

M/s. Morgan Stanley Advantage

Services P. Limited (MSAS)

Please refer to your letter dated 11th April 2007 on the above subject. In this connection, we confirm the realization of USD 504031 through the following invoices raised by the above company :

Invoice Number Date Amount (USD) Date of Realization Amount (USD)
GKC/2003-04/3 27-09-2004 130,453 29-09-2004 01-12-2004 11,657.00 118,796.00
GKC/2003-04/5 27-09-2004 385,235 01-12-2004 385,235.00

Yours faithfully,

(P.P. Vetkar) Manager

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”.

5. It is not in dispute that the above approval granted by the Reserve Bank of India relates to realization of the export proceeds which are subject matter of the present appeal. However, the said approval is issued in the context of the provisions of FEMA and there is no formal approval granted by the Reserve Bank of India under section 10A of the Income-tax Act, 1961, even though an application has been made by the assessee in that behalf.

6. The Income-tax Appellate Tribunal has held that once the assessee has applied for extension and has completed all the formalities and in response the Reserve Bank of India has taken the remittances on record, then, non-issuance of a formal letter of approval by the Reserve Bank of India cannot be held against the assessee for none of its fault. The Income-tax Appellate Tribunal has further held that in the facts of the present case, it must be held that the extension has been granted in substance and, therefore, the benefit of section 10A has to be allowed to the assessee on the ground that the extension is deemed to have been granted.

7. In our opinion, no fault can be found with the decision of the Income-tax Appellate Tribunal. In the present case, the note appended to the Reserve Bank of India’s letter dated 25-4-2007 no doubt records that the approval granted by the Reserve Bank of India is under FEMA and the said approval should not be construed as approval by any other Authority or Government under any other laws/regulations. The question is, whether the extension of time for realisation of the export proceeds by the Competent Authority under FEMA can be said to be the approval granted by the Competent Authority under section 10A(3) of the Income-tax Act, 1961.

8. Explanation 1 to section 10A(3) clearly provides that the expression ‘Competent Authority’ in section 10A 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. Admittedly, Reserve Bank of India is the competent authority under FEMA which regulates the payments and dealings in foreign exchange. Thus, what section 10A(3) of the Act provides is that the benefits under section 10A(1) would be available if the export proceeds are realised within the time prescribed by the competent authority under FEMA. In the present case, the competent authority under FEMA namely the RBI, has granted approval in respect of the export proceeds realised by the assessee till December, 2004. Therefore, the approval granted by RBI under FEMA would meet the requirements of section 10A of the Income-tax Act, 1961. In other words, once the competent authority under FEMA which regulates the payments and dealings in foreign exchange has approved realization of the export proceeds by the assessee till December, 2004, then it would meet the requirements of section 10A(3) and consequently the assessee would be entitled to the benefits under section 10A(1) of the Act.

9. Moreover, in the present case, the Reserve Bank of India which is the Competent Authority under FEMA as also under section 10A of the Income-tax Act, 1961 has neither declined nor rejected the application made by the assessee seeking extension of time under section 10A of the Act. Therefore, the decision of the Income-tax Appellate Tribunal in holding that the approval granted under FEMA constitutes a deemed approval granted by the Reserve Bank of India under section 10A(3) of the Act cannot be faulted.

10. In the result, we answer the question raised in the appeal by holding that the RBI being the competent authority under FEMA as also under section 10A(3) of the Act, in the facts of the present case, the ITAT was justified in holding that the assessee was entitled to the deduction under section 10A of the Income-tax Act, 1961 in respect of the export proceeds realised till December, 2004 for which approval has been granted by the competent authority under FEMA, namely the RBI. The appeal is accordingly disposed of with no order as to costs.

[Citation : 339 ITR 291]

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