Once the assessee has completed all the formalities and the request of the assessee for extension of time not having been rejected, it can be presumed after a reasonable time that the extension has been granted and the assessee is entitled to deduction under section 10A even in respect of the remittances not realized within the period of six months from the end of the previous year
ITAT, MUMBAI BENCHES ‘B’, MUMBAI
Morgan Stanley Advantage Services Pvt. Ltd.
v.
ITO
ITA NO. 5651/MUM/2007
MARCH 19, 2009
RELEVANT EXTRACTS :
6. We have given our careful consideration to the rival contentions. Under section 10A of the Act, the exemption is permissible subject to fulfillment of certain conditions. One of the conditions required to be satisfied for exemption under section 10A is provided under sub-section (3), which is reproduced as under: -
“10A.(1)
(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
Explanation 1 – For the purposes of this sub-section, the expression “competent authority” 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.
Explanation 2 – The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
It is evident from the language of sub-section (3) of section 10A that ordinarily the foreign exchange remittance in respect of the export of computer software should be realized within the period of six months from the end of the previous year. As per Regulation 9 of Export of Goods & Services Regulations, 2000, the amount representing the full export value of the goods or software exported are required to be realized within six months from the date of export. Explanation to the said Regulation provides that the “date of export” in relation to the export of software in other than physical form, should be deemed to be the date of invoice covering such export. The assessee has claimed that the invoice was raised in September 2004. In our considered view, Regulation 9 is of no help to the assessee in so far as the requirement under section 10A(3) is that the export proceeds are received in or brought into India within a period of six months from the end of the previous year and not from the date of export. The condition required under sub-section (3) to section 10A would be satisfied if the remittances had been received by 30th of September 2004. The assessee has admittedly received the export proceeds in December 2004. We therefore hold that the assessee has not realized the export proceeds within the period of six months from the end of the previous year, i.e. from end of March 2004.
Therefore, the only question that requires consideration is as to whether the sale proceeds have been realized within the time extended by the competent authority. Explanation 1 to sub-section (3) of section 10A provides that the competent authority would mean 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. In our considered view, the Reserve Bank of India is the competent authority for grant of extension in respect of the export proceeds. The mere fact that the bankers are allowed to deal with foreign exchange does not make it to be an authority authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. We therefore hold that for purposes of section 10A(3), the permission of the Reserve Bank of India or any other designated authority is required for extension of time.
We, therefore, proceed to consider if the said permission has been obtained in this case or can be deemed to have been granted. There is a letter of the assessee, addressed to the General Manager, Reserve Bank of India, Mumbai Regional Office, Exchange Control Department, Amar Building, Mumbai, dated 7th of October 2004 on record, wherein the assessee has requested the Reserve Bank of India to extend the period stipulated in the Income Tax Act for realization of export proceeds. The assessee had also reminded the Reserve Bank of India vide letter dated 24th of January 2007 in this regard, which is also on record. There is another letter of the assessee, dated 30th of March 2007, addressed to Standard Chartered Bank, Mumbai, on record, informing the bankers that the Reserve Bank of India has informed them that they would need a letter in the attached format from the authorized dealer confirming that the export proceeds were received in December 2004. The bankers have issued the certificate and on receipt of the said certificate the Reserve Bank of India has issued a letter dated 25th of April 2007, the relevant portion of which is reproduced hereunder: -
“RESERVE BANK OF INDIA
www.rbi.org.in
FED. MRO.CAD(EXP)/ 13023 /28 13.000/2006-07 April 25, 2007
Standard Chartered Bank
(Trade Services)
90, M G Road
Fort, Mumbai 400 001
Dear Sir,
Realisation of Export Proceeds –
M/s Morgan Stanley Advantage
Services P. Ltd. (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:
Yours faithfully,
(P P Vetkar)
Manager”
This letter, however, contains a NOTE, which also is relevant and is accordingly reproduced hereunder: -
“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”.
From the above letter, it is evident that the Reserve Bank of India has extended the time for remittance of foreign exchange under FEMA. So however, there is no formal approval for the purposes of section 10A in the light of the aforementioned Note. In our considered view, the Reserve Bank of India, in response to the request of the assessee to extend the time, having taken the remittances on record, implies that the issuing of a letter extending the time is only a formality. The assessee having applied for extension and having completed all the formalities; and in response the Reserve Bank of India having taken the remittances on record, the non-issue of a formal letter for approval, in our view, cannot be held against the assessee for none of its faults. The assessee having applied for extension and the same having been impliedly granted in substance, the benefit of section 10A has got to be allowed to the assessee on the ground that the extension is deemed to have been granted. Once the assessee has completed all the formalities and the request of the assessee for extension of time not having been rejected, it can be presumed after a reasonable time that the extension has been granted. This view is supported by the decision of the jurisdictional High Court in the case of Lachman Chaturbhuj Java (supra). In the light of the facts of this case, we are of the view that the assessee is entitled to deduction under section 10A even in respect of the remittances of Rs.2,20,36,235/-. The Assessing Officer is directed to recompute the exemption under section 10A accordingly.
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