Thomas Cook not entitled to 80HHC deduction

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MUMBAI. Dismissing the Appeal of Thomas Cook(India) Limited; Mumbai Bench of ITAT has ruled that it is not entitled to deuction under Section 80HHC of Income Tax Act as foreign exchange can not be considered as “goods” for the purpose of Section 80HHC of the Act.  

T H E   F A C T S :

The assessee was engaged in the business of tour operator as well as dealing in foreign currency.  It buys / sells foreign currency from and to foreign currency.  It buys / sells foreign currency from and to foreign currency was accumulated, it dispatched the same physically to credit Swiss (Bank) Switzerland through Airlines.  The said Bank, after physical checking of such currency, was required to pay the assessee into their NOSTRO account with some other Bank in USA  or UK as the case may be.  Such transfer was in the currency of that country.  Assessee could use such money for meeting its requirement in these countries.  Whenever, it had needed the fund, it had remitted the same to India from such NOSTRO account.  On these facts, assessee claimed deduction U/s 80HHC qua the convertible foreign exchange brought to India out of NOSTRO account. 

The Assessing Officer rejected the claim of assessee on the following ground:

(a)        The transfer of funds to the foreign accounts is only one of the method for obtaining credit.  Therefore, it is merely a procedure adopted by the assessee and does not amount to export. 

(b)        What the assessee transfers is foreign exchange and what is credited to its accounts abroad is also foreign exchange.  Therefore, the nature of the receipt does not change. 

(c)        The provisions of Section 80HHC(4) had not been complied with by the assessee.  The assessee had asked for time to furnish report u/s 80HCC, but could not file the same till the date of completion of assessment.  “            

The CIT (A) also upheld the order of the Assessing Officer

T H E  R U L I N G:

• We find that it is necessary arrive at a finding as to whether foreign currency could be considered to be either goods or merchandise.  Sine the foreign currency has not been defined in the IT Act, we have to be to the general dictionary meaning and other considerations to find out its real meaning with reference to eligibility of deduction under s.  80HHC.According to Chamber Dictionary “merchandise” means “commodities or goods that are bought and sold in business” and the “goods bought and sold for gain.  According to Webster Dictionary, commodities means “something useful and valuable” and an “economic good and article of commerce”.  According to English Readers Dictionary by Homby Parnwell (Oxford) “commodity means “trade goods”.  Having understood the meaning of the word “commodity”, if we apply the decision quoted by learned counsel in the case of imperial Tobacco Co., we find the reply to be positive.  The question for our consideration is whether assessee is eligible for deduction U/s 80HHC of the Act.  There is no dispute that in order to avail such deduction, the assessee is required to prove two conditions namely (i) that assessee has exported goods or merchandise to a country outside India and (ii) the sale proceeds have been bought into India in convertible foreign exchange.  The stand of the assessee is that the word “goods” should be understood in the widest possible sense and, therefore, the foreign currency exported by him through the custom clearance should be considered as “goods” within the scope of Section 80HHC, while the stand of the Department is that foreign exchange is a mode of payment and cannot be considered as goods for claiming deduction U/s 80HHC.  The word “goods” has not been defined in the Act but it has been legally defined in the Sale of Goods Act, 1930.  The question, therefore, is whether the meaning of the word “goods” should be understood in the widest possible sense or in the sense it is understood in the legal sense.  Therefore, the question for our consideration relates to the scope of the word “goods” for the purpose of Section 80HHC. 

• It is the settled legal position that the law uses familiar legal expression in their familiar legal sense.  Thus, where the legislature uses a legal term which has a known significance, it must be assumed that the term has been used in the sense and in no other sense, unless contrary intention appears.  The logic behind this principle is that the legislature is presumed to know the meaning of the word or an expression which is already defined in the existing enactment or by the Courts.  This principle has been approved by the Courts in India including the Apex Court.  In the case of M/s.  Gannon Dunkerley &Co.  (Madras) Ltd.  (supra) the Constitutional Bench of the Hon’ble Supreme Court had to consider this scope of the expression “sale of goods” in the Entry 48, List-II, Schedule-VII to Government of India Act, 1935.  The contention of the appellant was that the provisions of a constitution which confer legislative powers should receive a liberal construction, and that, accordingly, the expression “sale of goods” in Entry 48 should be interpreted not in the narrow and technical sense in which it is used in the Indian Sale of Goods Act, 1930, but in a broad sense.  However, their Lordships did not accept this contention and rather endorsed the view of the earlier decision of the Constitution Bench of the Apex Court in the case of Sales Tax Officer Vs Budh Prakash Jai Prakash, AIR 1954 SC 459 and then held at page-566 “we must accordingly hold that the expression “sale of goods” in Entry 48 cannot be construed in its popular sense, and it must be interpreted in its legal sense.  What its connotation in that sense is, must now be ascertained”.  Further, at Page-569, their Lordships observed “We think that true legislative intent is that the expression “sale of goods” in Entry 48 should bear the precise and definite meaning it has in law, and that, that meaning should be left to fluctuate with the definition of “sale” in laws relating to sale of goods which might be in force for the time being”.  Proceeding further, at page-570, they observed “We are of the opinion that the provisions in the Government of India Act, 1935, relied on for the appellant are too inconclusive to support the inference that “sale” in Entry 48 was intended to be used in a sense different from that in the Sale of Goods Act”.

• Where a word or an expression has been defined in a particular enactment, then it is presumed that legislature was aware of such legal meaning of that word or expression while enacting a subsequent legislation and, therefore, if such word or an expression is not defined in the subsequent legislation, then the meaning of such word or expression has to be understood in that legal sense in which it was used in the earlier enactment.

·         In the present case, we are required to ascertain the meaning of the words “goods” as appearing in Section 80HHC of the Act.  The word “goods” is not defined in the income Tax Act but the meaning of such word has already been defined in the sale of Goods Act, 1930.  We have already noticed that the Hon’ble Supreme Court applied the meaning of the expression “sale of goods”  as provided in the Sale of Goods Act, 1930, while interpreting Entry 48, List-II, Schedule-VII of the Government of India Act, 1935.  For the similar reasons, we are of the view that the meaning of the word “goods” as given in the Sale of Goods Act, 1930, would be applicable for the purpose of section 80HHC.   

• The word “goods” has been defined in Clause (7) of Section 2 of the Sale of Goods Act, 1930 as under: 

“Goods means every kind of movable property other than actionable claims but not money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before or under the contract of sale.” 

            A perusal of the above definition clearly shows that money has been excluded from the meaning of the word “goods”. 

• The word “money” has not been defined either in the Sale of Goods Act, 1930 or in the income Tax Act, 1961.  No other enactment has been brought to our notice defining the word “money”.  Therefore, general meaning of such word has to be taken into consideration.  As per various dictionaries, the word “money” has been defined as medium of exchange for making payment. 

            (1)        Concise Oxford English Dictionary

Money – a medium of exchange in the form of coins and banknotes.  (money or monies) formal sums of money, wealth, payment or financial gain.

            (2)        Words And Phrases Legally Defined Second Edition

                        Money – general meaning 

The primary function of money is to serve as a medium of exchange, and as such it is accepted without question in final discharge of debts or payment for goods or services.  Money also serves as a common standard of value by reference to which the comparative values of different commodities are ascertained, as a unit of account in which debts and liabilities are expressed, and as a store of value or purchasing power. 

In a concrete sense the term money generally includes bank-notes as well as coins, though it may be limited to such of each as are legal tender at the time and place in question.  The terms is sometimes used to include not only actual cash but also a right to receive cash, as, for example, sums standing to the credit of a bank account or invested in securities; and the term may in some cases be used in a popular sense to include all personal, or even, exceptionally, all real and personal property.  The precise meaning of the term depends upon the context in which it is used so that, for example, it is usually given a wide meaning when used in a will and when that meaning gives effect to the intention of the testator, an intermediate meaning in connection with actions for money paid or for money had and received, and a narrow meaning in the criminal law and in relation to execution (27 Halsbury’s Laws (3^rd Edn.).  

“Money” includes a cheque, banknote, postal order or money order (Betting, Gaming and Lotteries Act, 1963, s. 55).

            (3)        Black’s Law dictionary Special Deluxe Fifth Edition     

Money – In usual and ordinary acceptation it means coins and paper currency used as circulating medium of exchange, and does not embrace notes, bonds, evidences of debt, or other personal or real estate.  Lane v. Railey, 280 Ky. 319, 133 S.W. 2d 74, 79, 81.

            (4)        Webster’s Encyclopedic Unabridged Dictionary

Money – 1.  Gold Silver or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value;

2.         Any circulating medium of exchange including coins, paper money and demand deposit 

3.         Any article or substance used as medium of exchange, measure of wealth or means of payment 

4.         An amount or sum of money, etc.” 

• A perusal of  the above definitions clearly reveals that money is considered mainly as medium of exchange for making the payment.  It may also be noted that the above definitions, currency has always been considered as “money”.  Therefore, the currency whether local or foreign exchange would always amounts to money.  Similarly, the word “currency” has always been considered as money in the commercial world as well as in the popular sense.  Therefore, the currency whether local or foreign exchange would always amounts to money.  Similarly, the word “currency” has always been considered as money in the commercial world as well as in the popular sense.  Therefore, we are of the view that foreign currency does amount to money and, therefore, cannot be considered as “goods” in the legal sense as defined in the Sale of Goods Act,  1930.  Consequently, applying principles laid down by the Constitution bench of the Hon’ble Supreme Court in the case of M/s.  Gannon Dunkerley & Co. (Madras) Ltd.  (supra) it is held that the word “goods” in Section 80HHC would not include foreign currency.   
  • The definition of “goods” in the Customs Act, 1962, cannot be applied to interpret Section 80HHC of the Act.  When Customs Act, 1962, was enacted the legislature was aware of the definition of the word “goods” under the Sale of Goods Act, 1930.  Since legislature intended to the effect that foreign currency should not be physically remitted to other countries without custom clearance, it enlarged the meaning of the word “goods” by including the foreign exchange within its ambit.  Had the legislature not expanded its scope, foreign exchange could be taken away from or brought into India without the knowledge of the Govt.  Therefore, the legislature, with a view to have full control over its movement and to avoid Hawala Transactions, enlarged the meaning of the word “goods” under the Customs Act, 1962.  hence, the definition under Customs Act, 1962, has to be understood for the purpose of that Act only and cannot be extended to Section 80HHC of the Act. 

  • It is also well settled rule of interpretation that in case of ambiguity if two interpretations are possible, then the Court should accept the one which serves the purpose of object of the Act then the construction which defeats or frustrates such purpose or object of the Act then the construction which defeats or frustrates such purpose or object.  Section 80HHC is a code by itself and was enacted with the sole purpose to promoter the export of goods produced in India and to augment the foreign exchange reserve in order to improve the Indian economy.  The ultimate purpose was to increase the foreign exchange reserves so that the Govt.  may discharge its foreign debts in foreign currency.  If the contention of assessee that foreign exchange amounts to goods is accepted, then, in our opinion, it would frustrate and defeat the purpose or object of Section 80HHC in as much as it would deplete the foreign exchange reserve by sending the same to out side countries.  The object of Section 80HHC would be achieved only when the word “goods” is held to exclude money including foreign exchange.  Thus, we would prefer the interpretation, which serve the purpose and object of the enactment.  Even on this ground, we hold that “foreign exchange” cannot be considered as “goods” for the purpose of Section 80HHC.

  • Coming to the decision of the Tribunal, the assessee had relied on the decision of Central Excise and Gold Appellate Tribunal, Mumbai, in its own case where the Tribunal held that the currency was within the scope of the word “goods” in terms of Section 2(22) of the Customs Act, 1962.  This decision does not help the case of the assessee since the legislature has provided enlarged definition of the word “goods” under the Customs Act, 1962.  Such definition has specifically included the currency and encashable instrument.  In view of such enlarged meaning of the word “goods”, the Tribunal held that currency was “goods”.  Since it has been held by us that currency forms part of money it has to be excluded from the definition of “goods”.  Accordingly, the aforesaid decision of the Tribunal is quite distinguishable and cannot be applied in the present case. 

  • It is held that foreign exchange can not be considered as “goods” for the purpose of Section 80HHC of the Act.  Since, this condition is not satisfied, the assessee is not entitled to deduction U/s 80HHC.  The order of the Learned CIT (A) for all the years are, therefore, upheld on this issue. 

    ( Click here for full text of ruling AIT-2006-184-ITAT )