Commissioner of Income Tax vs Morgan Stanley Advantage Services P. Ltd.

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 u/s 10A of the income tax Act, 1961, in respect of the sum of Rs. 2.20 crores being export proceeds which were realised beyond the period of six months from the end of the relevant assessment year and there was no specific extension of time granted by the competent authority u/s 10A(3) of the income tax Act, 1961 ?

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

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

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 March 31, 2004, the export proceeds ought to have been realized by September 30, 2004, for availing of deduction u/s 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 realisation of the export proceeds as contemplated u/s 10A(3) of the Act whether the assessee could be allowed benefit u/s 10A of the Act.

It is not in dispute that the assessee had in fact made an application to the Reserve Bank of India on October 7, 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 January 24, 2007, and March 30, 2007, seeking extension of time for realizing the export proceeds which were already realised in December, 2004. However, by a letter dated April 25, 2007, the Reserve Bank of India informed as follows :

Reserve Bank of India

www.rbi.org.in

FED.MRO.CAD(EXP)/13023/28 13.000/200607

April 25, 2007

Standard Chartered Bank

(Trade Services)

90 M G Road

Fort, Mumbai 400001

Dear Sir,

Realisation 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 realisation of USD 504031/ through the following invoices raised by the above company :

Invoice Number

Date

Amount (USD)

Date of realization

Amount (USD)

GKC/200304/3 GKC/200304/5

27-9-2004 27-9-2004

130,453 385,235

29-9-2004 1-12-2004 1-12-2004

11,657.00 118,796.00 385,235.00

Yours faithfully, (P. P. Vetkar) Manager.

Note : This communication is issued from the foreign exchange angle under the provisions of the Foreign Exchange Management Act 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 the 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.

It is not in dispute that the above approval granted by the Reserve Bank of India relates to realisation of the export proceeds which are the subject-matter of the present appeal. However, the said approval is issued in the context of the provisions of the Foreign Exchange Management Act and there is no formal approval granted by the Reserve Bank of India u/s 10A of the income tax Act, 1961, even though an application has been made by the assessee in that behalf.

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.

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 April 25, 2007, no doubt records that the approval granted by the Reserve Bank of India is under the Foreign Exchange Management Act and the said approval should not be construed as approval by any other authority or the 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 the Foreign Exchange Management Act can be said to be the approval granted by the competent authority u/s 10A(3) of the income tax Act, 1961.

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 authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Admittedly, the Reserve Bank of India is the competent authority under the Foreign Exchange Management Act which regulates the payments and dealings in foreign exchange. Thus, what section 10A(3) of the Act provides is that the benefits u/s 10A(1) would be available if the export proceeds are realised within the time prescribed by the competent authority under the Foreign Exchange Management Act. In the present case, the competent authority under the Foreign Exchange Management Act, namely, the Reserve Bank of India, has granted approval in respect of the export proceeds realised by the assessee till December, 2004. Therefore, the approval granted by the Reserve Bank of India under the Foreign Exchange Management Act would meet the requirements of section 10A of the income tax Act, 1961. In other words, once the competent authority under the Foreign Exchange Management Act which regulates the payments and dealings in foreign exchange has approved realisation 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 u/s 10A(1) of the Act.

Moreover, in the present case, the Reserve Bank of India which is the competent authority under the Foreign Exchange Management Act as also u/s 10A of the income tax Act, 1961, has neither declined nor rejected the application made by the assessee seeking extension of time u/s 10A of the Act. Therefore, the decision of the income tax Appellate Tribunal in holding that the approval granted under the Foreign Exchange Management Act constitutes a deemed approval granted by the Reserve Bank of India u/s 10A(3) of the Act cannot be faulted.

In the result, we answer the question raised in the appeal by holding that the Reserve Bank of India being the competent authority under the Foreign Exchange Management Act as also under 10A(3) of the Act, in the facts of the present case, the income tax Appellate Tribunal was justified in holding that the assessee was entitled to the deduction u/s 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 the Foreign Exchange Management Act, namely, the Reserve Bank of India. The appeal is accordingly disposed of with no order as to costs.