Set-off” of export receivable​s against import payables-L​iberalizat​ion of Procedure

RBI/2011-12/264



A.P. (DIR Series) Circular No. 47


November 17, 2011


To


All Category – I Authorized Dealer Banks


Madam/Sir,


“Set-off” of export receivables against import payables-Liberalization of Procedure

Attention of Authorized Dealer Category – I (AD Category – I) banks is invited to the fact that the requests received from the exporters through their AD branches for set-off of export receivables against import payables are considered by the Reserve Bank of India. As a measure of further liberalization, it has been decided to delegate power to AD Category – I banks to deal with the cases of “set-off” of export receivables against import payables, subject to following terms and conditions:

a.The import is as per the Foreign Trade Policy in force.

b.Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

c.Payment for the import is still outstanding in the books of the importer.

d.Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.

e.The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.

f.The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.

g.The export / import transactions with ACU countries should be kept outside the arrangement.

h.All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

2. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

3. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.






Yours faithfully,






(Dr. Sujatha Elizabeth Prasad)


Chief General Manager

Expenditure on ‘Application Software’ is revenue in nature

CIT vs. Asahi India Safety Glass Ltd (Delhi High Court)

The assessee, engaged in manufacturing safety glass, entered into an agreement with Arthur Anderson for installation of the “Oracle” software application for financial accounting, inventory and purchase. A Master Software Licence and Services Agreement was also entered into with Oracle. The assessee incurred expenditure of Rs. 1.36 crores & Rs. 1.70 crores in AY 1997-98 & 1998-99. While in the books the expenditure for AY 1997-98 was capitalized, the expenditure for AY 1998-99 was treated as “deferred revenue expenditure”. The AO rejected the claim for deduction of the entire expenditure on the ground that it had resulted in “enduring benefit” and was “capital” in nature though the CIT (A) & Tribunal allowed the claim on the ground that the expenditure had not resulted in creation of new asset or a new source of income. On appeal by the department to the High Court, HELD dismissing the appeal:

(i) The test of enduring benefit is not a certain or a conclusive test which the courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. Expenditure incurred which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably; leaving the fixed assets untouched is of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage collapses in such like cases especially in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee (Alembic Chemical Works 177 ITR 377 followed);

(ii) On facts, the expenditure was for overhauling the accountancy and to efficiently train the accounting staff. It was incurred under various sub-heads such as licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. None of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. The software was “application software” which enabled it to execute tasks in the field of accounting, purchases and inventory maintenance more efficiently;

(iii) The fact that the expenditure was not written off in the books/ treated as ‘deferred revenue’ is irrelevant (Kedar Nath Jute vs CIT 82 ITR 363 (SC) followed)