The Supreme Court recently analysed Section 80 HHC of the Income Tax Act, significantly affecting deductions claimed by businesses engaged in exporting goods. The ruling clarified that profits stemming from fluctuations in exchange rates cannot be considered as part of earnings from exports, according to a LiveLaw report.

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Section 80 HHC of the Income Tax Act enables businesses to claim deductions based on profits derived explicitly from exporting goods or merchandise. However, the court emphasised that this provision strictly limits deductions solely to profits directly associated with exporting goods and excludes other sources, such as gains from currency value fluctuations.

"The intent behind these deductions is to boost and incentivise international trade. Section 80 HHC restricts deductions to profits directly linked with exporting goods," the Supreme Court was quoted as saying in the report.

The case presented to the bench, comprising Justices B.V. Nagarathna and S.V.N. Bhatti, revolved around whether gains from foreign exchange fluctuations in the Exchange Earners Foreign Currency (EEFC) account could be classified as profits from the export business and thereby be eligible for deduction under Section 80 HHC.

After an in-depth examination of precedents and legal interpretations, the court ruled that gains resulting from fluctuations in foreign exchange values in the EEFC account do not qualify as profits "derived from" the export business of the assessee. This decision significantly narrows the scope of what can be considered as eligible profits under this tax provision, as per LiveLaw.

The judgment has critical implications for businesses involved in international trade, as it delineates the precise nature of profits eligible for tax deductions.

(Edited by : Shoma Bhattacharjee)