Circular No. 563

What it does

Treats consideration received in non-convertible rupees from bilateral account countries as convertible foreign exchange for section 80HHB. That section allows a deduction from the profits of the business of executing a foreign project, or work forming part of a foreign project undertaken by another person, on conditions of which one is that the consideration be payable in convertible foreign exchange. Doubts arose about payment received in non-convertible rupees from bilateral account countries, such as roubles. The Board clarifies that for section 80HHB such a receipt is to be treated on a par with consideration received in any other convertible foreign exchange.

Why it was issued

Doubts had been raised on whether receipts under bilateral account arrangements met the convertible foreign exchange condition.

Who it reaches

Indian contractors executing projects in bilateral account countries
Sub-contractors doing work forming part of such a foreign project
Assessing Officers testing the receipt condition in section 80HHB

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80HHB	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 80HHB l DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM PROJECTS OUTSIDE INDIA
544. Whether the consideration for execution of foreign projects received in non-convertible rupees from bilateral account countries would be covered by the expression ‘convertible foreign exchange’
1. Section 80HHB of the Income-tax Act provides for a deduction in the computation of taxable income of certain assessees from the profits and gains derived from the business of execution of a foreign project or execution of any work forming part of any foreign project undertaken by any other person subject to certain conditions. One of the conditions is that the consideration for the execution of such project or, as the case may be, of such work is payable in convertible foreign exchange.
2. Doubts have been raised as to whether the consideration for execution of foreign projects received in non-convertible rupees from bilateral account countries (e.g., Russian roubles) would be covered by the expression ‘convertible foreign exchange’. It is clarified that for the purposes of section 80HHB, the receipt of such consideration will be treated at par with consideration received in any other convertible foreign exchange.
Circular : No. 563, dated 23-5-1990.

What to watch

The relaxation goes to the currency of receipt only; the other conditions of section 80HHB, including the reserve and the manner of bringing money into India, must still be met.
It is confined to receipts from bilateral account countries under those arrangements, not to any rupee receipt on a foreign contract.
Section 80HHB and the bilateral account arrangements it addresses belong to that era, so this bears on claims for the years the section applied.

Where you meet it

In an assessment or appeal on a section 80HHB claim where the project consideration came through a bilateral rupee account.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 10949 — A notification under section 80HHB of the Income-tax Act, 1961 2 June 1999
S.O. 410(E) — A notification under section 80HHB of the Income-tax Act, 1961 2 June 1999
Notification No. 10948 — A notification under section 80HHB of the Income-tax Act, 1961 1 June 1999
S.O. 404(E) — A notification under section 80HHB of the Income-tax Act, 1961 1 June 1999
Circular No. 711 — 546. Whether, where payments received in the shape of bonds in lieu of foreign exchange realisation from project-exports 24 July 1995
Circular No. 575 — 545. Whether ‘convertible foreign exchange’ does not include remittances from Nepal and Bhutan 31 August 1990

← Circular No. 562 · Circular No. 561 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

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