Substantial Question of Laws – Whether gains on forward currency contract is not to be excluded from the profits eligible for deduction u/s. 80HHC, is a substantial question of law.

In the appeal filed to the High Court the Revenue inter alia had raised following two questions.

1. Whether, on the facts of the case and in law, the Appellate Tribunal was justified in granting relief u/s. 80HHC of the Act to the assessee on the issue of gain on forward currency contract without appreciating the fact that the gain on exchange difference is nothing but speculation profit and not related to the business of the assessee?

2. Whether, on the facts of the case and in law, the Appellate Tribunal was justified in directing the Assessing Officer not to exclude this income from the profits eligible for deduction u/s. 80HHC without appreciating the fact that when the assessee enters into a forward contract, as in this case, the assessee stands to benefit by the fluctuations in foreign exchange irrespective of the fact whether the trade agreement exist or not?

The High Court held that no question of law arose in view of finding given by the Tribunal that the foreign exchange contract was entered into by the assessee only with a view to realise the amount due on sale of goods and was related to the business of the assessee.

On an appeal, the Supreme Court was of the opinion that the above question required consideration and decision by the High Court. The Supreme Court therefore without expressing any opinion on the merits of the aforesaid questions, remanded the matter to the High Court for examination.