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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: SHRI SONJOY SARMA & SHRI GIRISH AGRAWAL
Date of Hearing : 21.06.2022 Date of Pronouncement : 06.09.2022 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the revenue is directed against the order of Ld. CIT(A)-22, Kolkata vide Appeal No.117/CIT(A)-22/15-16/17-18/Kol dated 25.09.2018 for A.Y. 2015-16 arising out of order passed u/s. 143(3) r.w.s. 144C(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by ACIT (International Taxation), Circle-1(1), Kolkata dated 08.02.2018.
Shri J. P. Khaitan, Sr. Advocate & Shri Pratyush Jhunjhunwala, Advocate appeared on behalf of the assessee. Shri Amal Kamat, CIT, DR appeared on behalf of the revenue.
The only issue raised by the revenue in the present appeal for which as many as seven grounds have been taken relates to, whether
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 service tax amounting to Rs.89,12,89,825/- forms part of the gross receipts of the assessee for the purpose of computing its total income on presumptive basis in terms of section 44BBA of the Act.
Brief facts of the case as culled out from records are that assessee is a non-resident company engaged in the business of airlines service for passengers and cargo. Assessee filed its original return of income on 28.09.2015 reporting total income of Rs.93,83,62,810/- computed on presumptive basis u/s. 44BBA of the Act. In the course of assessment proceedings, a revised computation was furnished showing the gross receipts at Rs.2042,43,00,466/- as against originally reported for an amount of Rs.1876,72,56,148/-. In the course of assessment proceedings, Ld. AO sought explanation in respect of gross receipts as disclosed in the revised computation and the gross receipts disclosed in the service tax return for which necessary details and explanation were furnished by the assessee. On this aspect, in para 7 of the assessment order, Ld. AO noted that “after considering the reply of the assessee it is observed that assessee has been able to substantiate that there is difference between tax base for service tax and that of ITR and thus no adverse inference is being taken on the score of Service Tax Return data.”
4.1. However, in respect of exclusion of service tax from the gross receipts, Ld. AO did not accept the claim of the assessee and held in para 8 that “amount of service tax paid as service provider to the tune of Rs.89,12,89,825/- is treated as part of Turnover.” Accordingly, the income of the assessee was assessed and computed at Rs.106,57,79,520/- being 5% of gross receipts (including the service tax component referred herein).
Aggrieved, assessee went in appeal before the Ld. CIT(A). Before him, detailed and exhaustive submissions were made by the assessee wherein it was contended that service tax collection is not includible in M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 the gross receipts for computing the ‘deemed taxable income’ since there is no profit element embedded in the service tax collection as the same is collected in a fiduciary capacity (i.e. intrust for the Central Government).
5.1 It was submitted that assessee is engaged in airlines operation in India and pays tax in India on presumptive basis as per section 44BBA of the Act, according to which, 5% of the gross receipts earned by the non-resident airlines operator is deemed as the profits of its business which are taxed in India. At the time of computation of such presumptive income, assessee has considered the receipts from the sale of tickets, excluding the amount of service tax collected from the customers and paid to the Government. It was further submitted that service tax is a statutory levy which is collected by the assessee from its customers for and on behalf of the Central Government on the tickets booked by it. It was submitted that the service tax so collected does not form part of the receipts of the assessee on which income accrues or arises to the assessee as assessee merely acts as a collection agent for and on behalf of the Central Government and after collection, deposits the service tax so collected into the treasury of the Central Government.
5.2 Reliance was also placed by the assessee on several decisions which are listed below:
(i) DIT Vs. Mitchell Drilling International Pvt. Ltd. (2016) 380 ITR 130 (Del.) ; ii) Islamic Republic of Iran Shipping Lines Vs. DCIT (2011) 46 SOT 101 (Mum. Trib.); iii) DIT Vs. M/s. Schlumberger Asia Service ltd. (2009) 317 ITR 156 (Uttarkhand HC); iv) Sundowner Offshore International (Bermuda) Ltd. Vs. ADIT (2015) 70 SOT 656 (Delhi Trib.); v) Orient Overseas Container Line Ltd. Vs. ADIT (2013) 60 SOT 196 (Mum. Trib.);
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 vi) ACIT Vs. Transocean Offshore Deep Water Drilling Inc. (2009) 176 Taxman 122 (Delhi)(MAG); vii) Hanjin Shipping Company Ltd. Vs. DDIT (ITA No. 5277/Mum/2014 dated 13.05.2016)(Mum. Trib.); viii) Veolia Eau-Compagnie Generale Des Eaux Vs. Addl. DIT (2011-TII-105-ITAT- MAD-INTL), (Chennai Trib.) 6. It was also contended by the assessee that it is liable to pay tax on the income embedded in only those receipts which are at its disposal. In the present case, it is submitted that the service tax collected by it is not at the disposal of the assessee but is a liability which is to be discharged by way of depositing the same with the exchequer of the Government and, therefore, the service tax collection cannot be included in the gross receipts for computing the deemed taxable income u/s. 44BBA of the Act.
6.1. By considering the submissions made by the assessee and placing reliance on the decision of the Hon’ble High Court of Delhi in the case of Mitchell Drilling International Pvt. Ltd. (supra), Ld. CIT(A) accepted with the contention of the assessee and held that service tax so collected by the assessee on behalf of the Central Government in a fiduciary capacity would not fall within the turnover to be considered for deemed income under the presumptive tax u/s. 44BBA of the Act. He accordingly directed for deleting the addition made by the Ld. AO and to re-compute the income u/s. 44BBA by excluding the component of service tax.
6.2 The relevant extracts of the finding and decision given by the Ld. CIT(A) is reproduced as under:
“1. I have carefully considered the action of the Ld. A.O In making the impugned addition, and also equally carefully considered the submissions filed by the appellant, both before the Ld. A.O as well as in appeal. The matter under adjudication is whether the service tax component would be includible in the Gross receipts for computing the deemed taxable income u/s 44BBA of the income Tax Act, 1961.
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 2. After carefully examining the matter, I am persuaded by argument placed by the appellant-company that that service tax is a statutory levy. It would be factually correct that such Service Tax is collected by the appellant from its customers for and on behalf of the Central Government, and therefore it does not form part of the receipts of the appellant on which income accrues or arises to the appellant. I am agreeable with the contention that the appellant merely acts as a collection agent for and on behalf of the Central Government and after collection, deposits the service tax so collected into the treasury of the Central Government. It is to be stated that the Service Tax is a statutory levy, and is transferred to the Central Govt. Account, and therefore no element of profit can be attributed to such service tax Collection. The Service Tax is collected by the appellant acting on behalf of the Statutory Authority in a fiduciary capacity, and therefore would not fall within the turnover to be considered for deemed income and as a corollary presumptive taxation. …… 4. I am to observe that the legal matter addressed in this appeal is fairly well settled, and various Hon’ble Courts have decided as the Service Tax Component collected on behalf of the Government does not have any component of profit embedded in it, it has to be excluded from the turnovers while invoking presumptive tax provisions. In the emergent situation, I find the action of the Ld. AO to be unsustainable, and direct that the same be deleted, and the computation of the appellant be restored. This ground of appeal therefore stands allowed.”
7. Aggrieved, revenue is in appeal before the Tribunal. Before us, Ld. CIT, DR referred to the statement of facts placed on record. He contended that section 44BBA of the Act opens with a non-obstante clause and thereby overrides the general computation mechanism denying the deduction for expenses otherwise available to the assessee. Thus, in the section, receipts means receipts before allowing any expenditure incidental to earning such income. Ld. CIT, DR referred to the findings given by the Ld. AO that section 44BBA(2) refers to the words “amounts paid and payable on account of carriage of passenger etc.” and “amount received and deemed to be received on account of carriage of passenger etc.” He pointed out that the word ‘amount’ is absolute and defies any qualification. He, thus stated that there is no scope for doing any arithmetic calculation of amounts as per section 44BBA(2) of the Act.
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 7.1 He referred to the decision of Hon’ble Supreme Court in the case of SEDCO Forex International Inc. Vs. CIT (2017) 87 taxmann.com 29 (SC) wherein the issue of non-obstante clause was involved and the question before the Hon’ble Court was regarding inclusion/exclusion of certain receipts in respect of calculation of income u/s. 44BB. Referring to the facts of this case, ld. CIT, DR submitted that certain payments were given by ONGC to assessee in the nature of reimbursement and such expenses would have been excludible if provisions contained in sections 28 to 53 of the Act were applied. On the question as to whether such sum would be excluded or not from the gross receipts for computing income u/s. 44BB, the Hon’ble Court held that “once we apply this special provision for computation of profits and gains, provisions for computation of such profits as contained in section 28 to 41 and section 43 and 43A of the Act stand excluded.”
7.2 Ld. CIT, DR thus submitted that amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee whereas income has been defined u/s. 2(24) of the Act and section 5 and section 9 deals with income and ‘accrued income’ as well as ‘deemed income’. He thus, contended that section 44BBA deals with only the amounts received and not the income which has to be computed @ 5% of the total receipts. He placed reliance on certain decisions which are listed below: i) CIT Vs. Atwood Oceanics Pacific Ltd. (2011) 196 Taxman 325 (Uttarakhand H.C.); ii) China Shipping Container Lines (Hong Kong) Co. Ltd. Vs. Asst. DIT(International Taxation) (2014) 29 ITR(T) 673 (Mum. Trib.); iii) Dy. DIT (IT) Vs. Technip Offshore Contracting BV (2009) 29 SOT 33 (Del.); iv) Jagdish Prasad Nigam Vs. CIT (1997) 228 ITR 112 (All); v) CIT Vs. Ensco Maritime Ltd. (2009) 317 ITR 14 (Uttaranchal); vi) ACIT (OSD) s. Halliburton Offshore Services (2011) 11 taxmann.com 134 (Del.); vii) CIT Vs. Halliburton Offshore Services Inc. (2008) 300 ITR 265 (Uttaranchal); viii) CIT Vs. R & B Falcon Drilling Co. (2011) 338 ITR 152 (Uttaranchal); ix) Authority for Advance Rulings (Income-tax), New Delhi in Western Geco International Ltd. (2011) 338 ITR 161 (AAR);
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 8. We have heard the rival submissions and perused the material available on record. Admittedly, it is a fact on record that assessee has collected and deposited service tax component of Rs.89,12,89,825/- as a service provider. The moot point before us for adjudication is whether this service tax component is includible in the gross receipts for computing the deemed taxable income u/s. 44BBA of the Act. In the present case before us, notably, assessee is a non-resident engaged in the business of operation of airlines and is subjected to income tax under the Act on presumptive basis in terms of section 44BBA of the Act.
8.1 Provisions of section 44BBA are reproduced as under: “Section-44BBA: Computing profits and gains of business of operation of aircraft in the case of non-residents. 44BBA. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession“. (2) The amounts referred to in sub-section (1) shall be the following, namely :— (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India.”
From perusal of the above provisions, we note that where an assessee who is a non-resident and is engaged in the business of operation of aircraft, a sum equal to 5% of the aggregate of amount paid or payable to the assessee on account of carriage of passengers, live stock material or goods from any place in India and the amount received or deemed to be received in India by or on behalf of the assessee on account of carriage of passengers, live stock material or goods from any place outside India, shall be deemed to be the profit and gains of such business chargeable to tax. We also note that the expression “amount paid or payable” in section 44BBA(2)(a) and the expression “amount received or deemed to be received” in section M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 44BBA(2)(b) is qualified by the words “on account of the carriage of passengers, live stock material or goods from any place in India/outside India”. Therefore, in our considered understanding, only such amounts which are paid or payable for the service provided by the assessee can form part of the gross receipts for the purpose of computation of gross total income u/s. 44BBA(1) of the Act.
9.1 We also note and agree with the submission made by the Ld. Counsel for the assessee that service tax collected by the assessee does not have any element of income, it is collected by the assessee from its customers for and on behalf of the Central Government on account of a statutory levy and, therefore, it does not form part of the receipts of the assessee on which income accrues or arises to it. We are in agreement with the contention of the Ld. Counsel for the assessee that assessee merely acts as a collection agent for and on behalf of the Central Government and after collection, deposits the service tax so collected into the treasury of the Central Government.
9.2 On perusal of the decision of Hon’ble High Court of Delhi in the case of DCIT Vs. Mitchell Drilling International Pvt. Ltd. (supra) on which Ld. CIT(A) has based his finding and decision, we note that the substantial question framed on the issue was as under: “Whether the amount of service tax collected by the assessee from its various clients should have been included in gross receipt while computing its income under the provisions of section 44BB of the Act?” 9.3 While answering the above substantial question of law, Hon’ble High Court considered various decisions including the decision of Hon’ble Supreme Court in the case of Chowringhee Sales Bureau Pvt. Ltd. Vs. CIT (1973) 87 ITR 592 (SC), CIT Vs. Lakshmi Machine Works (2007) 290 ITR 667 (SC), DIT Vs. Schlumberger Asia Services Ltd. (2009) 317 ITR 156 (Uttarakhand) and Sedco Forex International Inc. Vs. CIT (2008) 299 ITR 238 (Uttarakhand). The Hon’ble High Court also referred to the Circular issued by CBDT vide Circular No. 4/2008 dated
M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 28.04.2008 and Circular No. 1/2014 dated 13.01.2014 wherein CBDT clarified that service tax paid by the tenant does not partake the nature of ‘income’ of the landlord. The landlords only acts as a collecting agency for the Government for collection of service tax and, therefore, CBDT decided that tax deduction at source u/s. 194 of the Act will be required to be done without including the service tax. Similar stand was taken by the CBDT in Circular No. 1/2014 where it was clarified that service tax is not to be included in the fees for professional services or technical services and no TDS is required to be made on the service tax component. Accordingly, in the conclusion, Hon’ble High Court held that for the purpose of computing the presumptive income of the assessee u/s. 44BB, service tax collected by the assessee on the amount paid to it for rendering the services is not to be included in the gross receipts in terms of section 44BB(2) read with section 44BB(1) of the Act. Hon’ble High Court also held that service tax is not an amount paid or payable, or received or deemed to be received by the assessee for the services rendered by it, the assessee is only collecting the service tax for passing it on to the Government account. Thus, the question framed was answered in favour of the assessee and against the revenue. We also not that the provisions of section 44BB of the Act dealt with by the Hon’ble High Court of Delhi (supra) are pari materia to the provisions of section 44BBA of the Act which is before us for consideration.
Ld. CIT, DR had referred to the decision of Hon’ble Supreme Court in the case of Sedco Forex International Inc. (supra). On perusal of the said decision, we note that Sedco Forex International Inc. (supra) was paid mobilization fees from ONGC which was included by the Ld. AO as part of gross receipts for the purpose of section 44BB. Hon’ble Supreme Court has observed that mobilization fees is a fixed amount that might be less or more than the actual expenses incurred and contract in M/s. Cathay Pacific Airways Ltd., A.Y: 2015-16 question being indivisible one, held that amount received by the assessee as mobilization fee was to be included in gross receipts for computing the deemed profits u/s. 44BB of the Act. Thus, the facts of this case are distinguishable from the facts in the present case before us since Hon’ble Supreme Court dealt with the issue of inclusion of mobilization fees arising out of the commercial terms, in the gross receipts whereas in the present case before us, the issue relates to inclusion of service tax component in the gross receipt which is a statutory levy collected for and on behalf of the Central government by the assessee. Further, Ld. CIT, DR has contended that deduction of expenses is not available from the receipts u/s. 44BBA which in our considered understanding is not tenable since assessee has not claimed service tax component as an expenses deduction.
Considering the facts on record, provisions of section 44BBA of the Act, the decision of Hon’ble High Court of Delhi in Mitchell Drilling International Pvt. Ltd. (supra) as well as the position clarified by CBDT in its two circulars cited (supra), we do not find any reason to interfere with the finding and decision given by the Ld. CIT(A) and accordingly, dismiss the ground taken by the revenue on the issue under consideration. Accordingly, the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.