bgp bgp bgp IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION INCOME INCOME INCOME TAX APPEAL NO.240 OF 2006 TAX APPEAL NO.240 OF 2006 TAX APPEAL NO.240 OF 2006 Meena S.Banerji ..Appellant Vs. Income Tax Officer ..Respondent Mr.A.K.Jasani for the Appellant. Mr.A.S.Shivsaran for the Respondent. CORAM CORAM CORAM :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & V.C.DAGA, V.C.DAGA, V.C.DAGA, JJ. JJ. JJ. DATE DATE DATE : 19TH NOVEMBER, 2008 : 19TH NOVEMBER, 2008 : 19TH NOVEMBER, 2008 P.C. P.C. P.C. . Heard the learned Counsel for the parties. By the above Appeal, the Appellant is seeking to raise the following substantial question of law: Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the Appellant was not entitled to deduction under the provisions of section 80HHC/80HHC of the Income Tax Act,1961 on an amount of Rs.1,28,51,014/- being the value of 3,01,667 shares of Pinkmoney.com Inc allotted to the Appellant in consideration of the exports of software in terms of the export contract? 2. We have perused the judgment dated 16th January, 2006 passed by the Income Tax Appellate Tribunal, wherein in paragraph Nos.24 to 27 the Tribunal has categorically observed that; 24. The assessee had relied on the circular No.731 dated 20th December,1995 and circular No.711 dated 24th July, 1995, the copies of the same are placed on record at page 65 and 66 of APB, for the proposition that if foreign exchange is not brought in India the same can be retained outside India with the permission of RBI. There is no dispute with this proposition. The problem is that the assessee :2: has not received foreign exchange for the sale proceeds of its product. What is has received is shares in barter. Even RBI has objected to this sort of transaction vide its letter dated 28th March, 2002, which reads as under: RESERVE BANK OF INDIA, EXCHANGE CONTROL DEPARTMENT, CENTRAL OFFICER, MUMBAI-400001 Ref.No.EC.CO.OID/635/19.33.01/2001-02, dated 28th march,2002. M.S.Meena Exports, P.O.Box No.16919, Santacruz (West), Mumbai - 400 054. Dear Sirs, Acquisition Acquisition Acquisition of shares in foreign company of shares in foreign company of shares in foreign company Please refer to the correspondence resting with your letter dated 24th March, 2002 on the captioned subject. We note that you have acquired 300,000 shares (face value of US$ 1.00 per share) for a total amount of US$3,00,000.00 from M/s.Pinkmoney Com.Inc, USA, against your export receivables from them. Please note that it was irregular on your part to have acquired the shares without prior approval of the RBI. You are, therefore, advised to disinvest the shares immediately and repatriate the sale proceeds through normal banking channels and approach us with necessary documentary evidence in support of the repatriation for further action of your end. Yours faithfully, (V.Venugopalan) Manager. 25. From this, it is clear that the export, where sale proceeds are received in shares in barter, it is not approved by RBI. Therefore, it could not be said that this transaction is within scope of the circulars referred above. The arguments of the learned Counsel for assessee was that it will not serve any useful purpose if foreign exchange is brought into India and thereafter it is remitted back to USA for investment in shares. We are not convinced with this argument. Receiving shares in the customer company in lieu of export to the customer is not equivalent to receiving foreign exchange and its application in accordance with the directions of RBI. 26. The circular No.711, dated 24th July, 1995 was issued under the special circumstances of war in Iraq, wherein bonds in lieu of foreign exchange realisation from the project completed in Iraq were given by RBI in the hope that the foreign exchange will eventually be repatriated into India by EXIM bank after the :3: lifting of the UN sanction. The RBI/ECGC bonds so issued by way of settlement of claims of projects in IRAQ will be treated as convertible foreign exchange brought into India for the purposes of section HHB. Thus, bonds were to be issued by RBI, ECGC and they will be treated as convertible foreign exchange brought into India for the purposes of section 80HHB. Certainly the facts of the present case are different. There is no permission from RBI to acquire shares in lieu of convertible foreign exchange. 27. The learned Counsel for assessee had placed reliance on the decision of Hon’ble Supreme Court in the case of JB Boda and Co. Vs. CBDT - 223 ITR 271 (SC). We find that the decision of Hon’ble Supreme Court in the case of JB Boda & Co.’s case does not support the assessee’s case but supports our contentions. In that case, gross premium was payable in foreign exchange. Remittance was made with the permission of RBI in US$. However, the same was retained as commission expressed n US$. It was held that commission retained is income received in convertible foreign exchange. Formal remittance to foreign company and receipt thereafter not necessary. In that case, the commission retained was held as an application of convertible foreign exchange. In the present case, no convertible foreign exchange is received at all against sale proceeds. What it received was only shares, not approved by RBI. In view of this, we are of the view that the conditions laid down in section 80HHC are not satisfied and therefore, the assessee is not entitled for deduction for the sum equivalent to US$3,00,000 received in the form of shares in USA. 3. It is apparent that the transaction adopted by the Appellant defeats the very legislative purpose of Section 80HHC as well as 80HHE of the Income Tax Act. In view thereof, we do not find any substantial question of law involved in the above Appeal. The Appeal is totally devoid of merits. Hence, the same stands dismissed. (V.C.DAGA,J.) (V.C.DAGA,J.) (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.)