Bombay High Court

Pr. Commissioner Of Income-Tax-15 vs Lionbridge Technologies Pvt. Ltd on 31 January, 2024

Author: Neela Gokhale

Bench: K. R. Shriram, Neela Gokhale

2024:BHC-OS:1830-DB
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                              IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                                 ORDINARY ORIGINAL CIVIL JURISDICTION

                                 INCOME TAX APPEAL (IT) NO.944 OF 2018

                  Principal Commissioner of Income Tax-15,
                  Mumbai                                                      ...Appellant
                        Versus
                  Lionbridge Technologies Pvt. Ltd.                           ...Respondent


                  Mr. Suresh Kumar for Appellant.
                  Mr. Paras S. Savla a/w Mr. Harsh R. Shah for Respondent.


                                          CORAM:         K. R. SHRIRAM &
                                                         DR. NEELA GOKHALE, JJ.

                                          DATED:         31st January 2024
                  PC:-

1. The following five substantial questions of law are proposed,

which read as under:

A) Whether on the facts and circumstances of the case and in law, the ITAT was justified in directing to exclude M/s TCS E Serve Ltd from the list of comparables holding the same to be functionally different without appreciating that the assessee as well as comparable are providing similar nature of services in the category of Information Technology enabled services (ITES)?"

B) Whether on the facts and circumstances of the case and in law, the ITAT was justified in directing to exclude M/s TCS E Serve Ltd from the list of comparables holding the same to be functionally different when the assessee itself in its transfer pricing study report has selected it as functionally comparable but has excluded it only on the basis of turnover and not on the basis of functions performed?

C) Whether on the facts and circumstances of the case and in law, the ITAT was correct in upholding the direction of the DRP to exclude expenses incurred in foreign currency to be excluded from "Total Turnover" and to consider foreign currency gain for the purpose of deduction u/s 10A of the Income Tax Act 1961; by relying on the decision in the case of Gem Plus Jewellery India Ltd ignoring that the department has not Gaikwad RD 2/5 16-ositxa-944-2018.doc

accepted the principles laid down by the said decision and SLP(c)11030/2011 has been filed against the said decision which is pending before the Hon'ble Supreme Court?

D) Whether on the facts and circumstances of the case and in law, the ITAT was correct in law in upholding the direction of the DRP holding that expenses of Rs 13,59,86,441/- incurred in foreign currency shall also be reduced from the "Total turnover"

while working out the amount eligible for exemption u/s 10A, even though no provision for reducing such expenses from the "Total Turnover" is provided u/s 10A of the Income Tax Act 1961?

E) Whether on the facts and circumstances of the case and in law, the ITAT was correct in law in upholding the direction of the DRP holding that the foreign currency gain of Rs 24,51,796/- as part of the profit eligible for computation of the deduction u/s 10A of the Income Tax Act 1961, ignoring that the foreign currency gain was not derived from the export activity but it is a mere recognition of the income in compliance to the requirement of accounting standard?"

2. Questions (C)(D) and (E), Mr. Suresh Kumar states are covered

by a decision of this Court in Commissioner of Income Tax v. Gem

Plus Jewellery India Ltd.1 and which was considered by the Apex

Court in Commissioner of Income Tax, Central-III v HCL Technology

Ltd.2 The Apex Court has held the issues in favour of Assessee and,

therefore, these three substantial questions of law do not arise. The

Apex Court has, while considering the formula of computation of the

deduction under Section 10A of the Income Tax Act, 1961, held that

when the object of the formula is to arrive at the profit from export

business, expenses excluded from export turnover have to be

excluded from total turnover also. Otherwise, any other

interpretation makes the formula unworkable and absurd. The Apex

Court held that the deduction shall be allowed from the total

1 2010 (194) Taxman 192 (Bombay).

2 2018 (93) taxmann.com 33 (SC).

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turnover in the same proportion.

3. As regards question (E) foreign currency gain derived from

export activity was a subject of consideration in Gem Plus (supra)

where the Court was considering whether the Tribunal was justified

in directing the Assessing Officer to grant exemption under Section

10A of the Act on foreign exchange gain earned on realization of

export receipts in the year of export and to exclude the gains on sales

of earlier year from the profits of the year under consideration and

allow in those years. The Court answered the question as under:

"14. The Tribunal has followed a decision of its Special Bench in coming to the conclusion that foreign exchange earned on the realization of export receipts in a year other than the year in which the goods were exported would have to be considered in the year of export for the purpose of exemption under Section 80HHC. The Tribunal has, however, directed the Assessing Officer, while granting a deduction to the assessee under Section 10A in the year of export to exclude the amount from the profits of the year under consideration simultaneously. This is to ensure that the assessee does not obtain a deduction twice over.

15. For the purposes of the appeal it has not been disputed on behalf of the Revenue that the foreign exchange was realized by the assessee within the period stipulated in law. The assessee realized a larger amount because of a foreign exchange fluctuation. The fact that this forms part of the sale proceeds would have to be accepted in view of the judgment of the Division Bench of this Court in Commissioner of Income Tax v. Amber Export (India) (ITA 1249 of 2007 decided on 18 February 2009). The judgment of this Court in turn followed the decision of the Gujarat High Court in Commissioner of Income Tax v. Amba Impex. (2006) 282 ITR 144 (Guj). The sole ground which has been urged on behalf of the Revenue in support of the appeal on this issue is based on the judgment of a Division Bench of this Court in Commissioner of Income Tax v. Shah Originals, (2010 ) 191 Taxman 81. The decision in Shah Originals case (supra) is, however, distinguishable for the reason that the foreign fluctuation in that case arose after the export transaction had been completed and after the export profits were deposited by the assessee in an EEFC Account.


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This is evident from the following observations:

"The assessee admittedly in the present case received the entire proceeds of the export transaction. The Reserve Bank of India, has granted a facility to certain categories of exporters to maintain a certain proportion of the export proceeds in an EEFC Account. The proceeds of the account are to be utilized for bonafide payments by the account holder subject to the limits and the conditions prescribed. An assessee who is an exporter is not under an obligation of law to maintain the export proceeds in the EEFC Account but, this is a facility which is made available by the Reserve Bank. The transaction of export is complete in all respects upon the repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC Account. The exchange fluctuation that arises, it must be emphasized, is after the export transaction is complete and payment has been received by the exporter. Upon the completion of the export transaction, what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation in the EEFC Account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression "derived" by the assessee in sub section (1) of Section 80HHC." (emphasis supplied)

In the present case, the assessee has realized a larger amount in terms of Indian rupees as a result of a foreign exchange fluctuation that took place in the course of the export transaction.