JCIT (INTERNATIONAL TAXATION), DEHRADUN vs. M/S. R & B FALCON (A) PTY LTD., MUMBAI

In the Income-Tax Appellate Tribunal, Delhi Bench ‘F’, New Delhi

Before : Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member

ITA No. 708/Del/2016 Assessment Year: 2011-12

JCIT (International Taxation), vs. R & B Falcon (A) Pty. Ltd., 1st Floor, Dehradun. Spectra, High Street Hiranandani Business Park, Powai, Mumbai. PAN- AACCR5345Q (Appellant) (Respondent)

ITA No. 710/Del/2016 Assessment Year: 2011-12

DCIT (International Taxation), vs. Transocean Discocerer 534, LLC, Dehradun. C/o Nangia & Co. Dehradun. PAN- AABCT9505F (Appellant) (Respondent)

ITA No. 711/Del/2016 Assessment Year: 2008-09

DCIT (International Taxation), vs. Transocean Offshore International Dehradun. Ventures Ltd., Lake Boulevard Road, Discocerer 534, LLC, C/o Nangia & Co., Hiranandani Business Park, Mumbai. PAN- AABCT7316B (Appellant) (Respondent)

ITA No. 713/Del/2016 Assessment Year: 2011-12 JCIT (International Taxation), vs. Shelf Drilling International Inc. Dehradun. Transocean House, Lake Boulevard Road, Hiranandani Business Park, Mumbai. PAN- AACCS9208D (Appellant) (Respondent)

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Appellant by Sh. G.K. Dhall, CIT/DR Respondent by Sh. Amit Arora, C.A.

Date of hearing : 08.05.2019

ITA No. 714/Del/2016 Assessment Year: 2012-13

JCIT (International Taxation), vs. Vantage International Management Dehradun. Co., C/o SRBC & Associates, 4th & 5th Floor, Plot No. 2B, Tower-2, Sector- 126, Noida. PAN- AADCV3089Q (Appellant) (Respondent)

Appellant by Sh. J.K. Mishra, CIT/DR Respondent by Sh. Sandeep Karhail, Advocate

Date of Hearing 09.05.2019 Date of Pronouncement 10.05.2019 ORDER Per L.P. Sahu, A.M.: All these appeals filed by the Revenue in the cases of different assessees are directed against separate orders of first appellate authorities relating to assessment orders passed u/s. 143(3) read with section 144C of the IT Act, 1961 for the captioned assessment years. The grounds raised in all these appeals are common and since the issue and facts involved therein are identical, the appeals were heard together and are being disposed of by this consolidated order. Both the parties agreed that the decision in one appeal shall equally be applicable to other appeals. For the sake of convenience, we first take up the appeal of Revenue in the case of R & B Falcon (A) Pty. Ltd. The grounds raised in this appeal read as under :

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(i) Whether on the facts and in the circumstances of the case and in law, the DRP has erred in holding that receipts on account of service tax are not includible in gross revenue of the assessee for the purpose of computation of profits under the provisions of section 44BB of the IT Act, 1961. (ii) Whether the DRP has erred in not appreciating the fact that section 44BB of the Act is a self- contained code providing for computation of profit at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from the gross receipts are deemed to have been allowed to the assessee. (iii) Whether the DRP has erred in not appreciating the fact that once the receipts are offered to tax u/s 44BB of the Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any part of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a presumptive scheme of taxation u/s 44BB of the Act and obviating the need for maintaining accounts for individual receipts, payments etc. (iv) Whether the DRP has erred in ignoring the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd. (82 ITR 542, SC) wherein the Hon’ble Apex Court has held that the Sales Tax collected by an assessee in the ordinary course of its business forms part of its business receipts. Owing to the inherent similarity in the nature of sales tax and service tax, the ratio of the judgment in the said case is directly applicable to the instant case.

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ld. AR at the outset has been that the core issue as culled out in grounds of appeal stands settled in favour of the assessee and against the Revenue by Co-ordinate Bench of Tribunal in the case of assessee itself for preceding assessment year 2010-11 vide order dated 29.04.2016 (ITA No. 1048/Del/2014) in the identical facts and circumstances of the case. The ld. DR though relied on the order of the Assessing Officer, but could not controvert the above contention of the assessee regarding the issue having been covered by the decision of coordinate Bench of Tribunal. We have gone through the above referred order of Tribunal and find that the core issue involved in this case is covered in favour of the assessee in the similar facts and circumstances. The decisionof Co-ordinate Bench in the identical the facts narrated therein read as under :

“2. The assessee is a non-resident company incorporated under the laws of Australia. During the year under consideration, it had offered revenues to taxation on account of ongoing contract dated 12.12.2006 entered with ONGC Ltd. for charter hire of a jack up rig. The operations of the assessee consisted of performing the drilling operations through provision of rig and integrated services. The assessee, in its return of income, had claimed that the taxable revenues were to be computed in terms of section 44BB of the Income Tax Act, 1961 (hereinafter called ‘the Act’). During the course of scrutiny assessment proceedings, the Assessing Officer came to know that an amount of Rs.114,351,759/- received on account of service tax had not been added to the gross revenue chargeable to tax u/s 44BB of the Act. It was the assessee’s contention that statutory charges cannot form part of the amount for the purpose of deemed profit u/s 44BB of the Act. As per the assessee, service tax was in the nature of reimbursement and hence not includible in gross receipts for the purpose of taxation. The assessee contended that it had acted only as a collection agency for the Government for collection of service tax and as such, the collections on account of service tax could not be considered as income generating receipts in the hands of the assessee. It was further contended before the Assessing Officer that any receipt unconnected with the business of exploration, exploitation of oil etc. could not form part of the taxable receipts u/s 44BB of the Act. However, the Assessing Officer was of the opinion that for the purpose of presumptive determination of the assessee’s profit, the quantum of amount received from the customers against its service tax obligation had to be essentially considered as part of the receipt and, accordingly, a sum of Rs. 114,351,759/- was added back for the purpose of calculating the gross receipts on which the presumptive tax rate had to be applied. Apart from this, the Assessing Officer also added back Rs. 225,347,824/- to the gross receipts on account of reimbursement received.

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2.2 The Ld. CIT(A) has erred in failing to take note of the observations of the Hon’ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of the assessee/payee/deductee in short-deduction or nondeduction of tax needs to be ascertained before claim regarding non-liability to interest u/s 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgment of Delhi High Court dated 07.11.2013 in Income Tax Act, 1961 No. 327 & Ors of 2012).”

[2008] 169 TAXMAN 138 (UTTARAKHAND) Reimbursement of freight and Halliburton Offshore Services Inc transportation charges

[2009] 181 TAXMAN 46 (UTTARAKHAND) Reimbursement of catering Ensco Maritime Ltd. Charges

[2009] 181 TAXMAN 144 (UTTARAKHAND) RBF Rig Corporation Reimbursement fuel expenses

(2008) 170 Taxman 459(UTTARAKHAND) Mobilization charges Sedco Forex International Inc.

[2008] 170 TAXMAN 286 (UTTARAKHAND) Reimbursement of cost of spare parts B.J. Services Co. Middle East

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recomputing the profits by excluding any element of receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simpler mode of computation of profits and obviating the need for accounting for individual receipts or payments.

CITATION TAX / RECEIPT [1997] 228 ITR 112 (All) Jagdish Prasad Nigam Excise Duty [2006] 154 TAXMAN 266 (ALL) Mohan Shramic Central Sales Tax and Local Sales Udyog Ltd Tax [2012] 28 TAXMANN.COM 94 (CAL) Poddar Projects Surcharge is part of Rent [2013] 35 taxmann.com 565 (Allahabad) UP Hotels Luxury Tax [1982] 9 Taxman 173 (Punj_Har) Kunjpura Kiln Royalty (payable to government) [2006] 154 Taxman 274 (Allahabad) Rampur Distillery Export Duty [2015] 58 taxmann.com 206 (Bombay) Ovira Logistics Service Tax

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International Pty. Limited in I.T.A. No. 403/2013 wherein the Hon'ble Delhi High Court in its decision dated 28.09.2015 has dealt the issue at length. He submitted that in view of the recent judgment of the Hon’ble Delhi High Court in Mitchell Drilling (Supra), the issue is covered in the favour of the assessee.

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chargeable to tax. The purpose of this provision is to tax what can be legitimately considered as income of the Assessee earned from its business and profession. 10. The expression ‘amount paid or payable’ in Section 44 BB (2) (a) and the expression ‘amount received or deemed to be received’ in Section 44 BB (2) (b) is qualified by the words ‘on account of the provision of services and facilities in connection with, or supply of plant and machinery.’ Therefore, only such amounts which are paid or payable for the services provided by the Assessee can form part of the gross receipts for the purposes of computation of the gross income under Section 44 BB (1) read with Section 44 BB (2). 11. It is in this context that the question arises whether the service tax collected by the Assessee and passed on to the Government from the person to whom it has provided the services can legitimately be considered to form part of the gross receipts for the purposes of computation of the Assessee’s ‘presumptive income’ under Section 44BB of the Act. 12. In Chowringhee Sales Bureau (supra) sales tax in the sum of Rs. 32,986 was collected and kept by the Assessee in a separate ‘sales tax collection account’. The question considered by the Supreme Court was: ‘Whether on the facts and in the circumstances of the case the sum of Rs. 32,986 had been validly excluded from the assessee's business income for the relevant assessment year?”. However, there the Assessee did not deposit the amount collected by it as sales tax in the State exchequer since it took the stand that the statutory provision creating that liability upon it was not valid. In the circumstances, the Supreme Court held that the sales tax collected, and not deposited with the treasury, would form part of the Assessee’s trading receipt. 13. The decision in George Oakes (P) Ltd. (supra) was concerned with the constitutional validity of the Madras General Sales (Definition of Turnover and Validation of Assessments) Act, 1954 on the ground that the word turnover was defined to include sales tax collected by the dealer on inter-state sales. Upholding the validity of the said statute the Supreme Court held that “the expression ‘turnover’ means the aggregate amount for which goods are bought or sold, whether for cash or for deferred payment or other valuable consideration, and when a sale attracts purchase tax and the tax is passed on to the consumer, what the buyer has to pay for the goods includes the tax as well and the aggregate amount so paid would fall within the definition of turnover.” Since the tax collected by the selling dealer from the purchaser was part of the price for which the goods were sold, the legislature was not incompetent to enact a statute pursuant to Entry 54 in List II make the tax so paid a part of the turnover of the dealer. 14. In the considered view of the Court, both the aforementioned decisions were rendered in the specific contexts in which the questions arose before the Court. In other words the interpretation placed by the Court on the expression “trading

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receipt’ or ‘turnover’ in the said decisions was determined by the context. The later decision of the Supreme Court in CIT v. Lakshmi Machine Works (supra) which sought to interpret the expression ‘turnover’ was also in another specific context. There the question before the Supreme Court was “whether excise duty and sales tax were includible in the ‘total turnover’ which was the denominator in the formula contained in Section 80 HHC (3) as it stood in the material time?” The Supreme Court considered its earlier decision in Chowringhee Sales Bureau (supra) and answered the question in the negative. The Supreme Court noted that for the purposes of computing the ‘total turnover’ for the purpose of Section 80 HHC (3) brokerage, commission, interest etc. did not form part of the business profits because they did not involve any element of export turnover. It was observed: “just as commission received by an assessee is relatable to exports and yet it cannot form part of ‘turnover’, excise duty and sales-tax also cannot form part of the ‘turnover’.” The object of the legislature in enacting Section 80 HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, "turnover" was the requirement. “Commission, rent, interest etc. did not involve any turnover.” It was concluded that ‘sales tax and excise duty’ like the aforementioned tools like interest, rent etc. ‘also do not have any element of ‘turn over’’. 15. In CIT v. Lakshmi Machine Works (supra), the Supreme Court approved the decision of the Bombay High Court in CIT v. Sudarshan Chemicals Industries Ltd. (supra) which in turn considered the decision of the Supreme Court in George Oakes (P) Ltd. (supra). In the considered view of the Court, the decision of the Supreme Court in Lakshmi Machines Works (supra) is sufficient to answer the question framed in the present appeal in favour of the Assessee. The service tax collected by the Assessee does not have any element of income and therefore cannot form part of the gross receipts for the purposes of computing the ‘presumptive income’ of the Assessee under Section 44 BB of the Act. 16. The Court concurs with the decision of the High Court of Uttarakhand in DIT v. Schlumberger Asia Services Ltd (supra) which held that the reimbursement received by the Assessee of the customs duty paid on equipment imported by it for rendering services would not form part of the gross receipts for the purposes of Section 44 BB of the Act. 17. The Court accordingly holds that for the purposes of computing the ‘presumptive income’ of the assessee for the purposes of Section 44 BB of the Act, the service tax collected by the Assessee on the amount paid t it for rendering services is not to be included in the gross receipts in terms of Section 44 BB (2) read with Section 44 BB (1). The 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. 18. The Court further notes that the position has been made explicit by the CBDT itself in two of its circulars. In Circular No. 4/2008 dated 28th April 2008 it was

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clarified that “Service tax paid by the tenant doesn't partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore, it has been decided that tax deduction at source) under sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.’ In Circular No. 1/2014 dated 13th January 2014, it has been 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 under Section 194J of the Act. 19. The question framed, is therefore, answered in the negative i.e. favour of the Assessee and against the Revenue.” 11. Therefore, respectfully following the ratio of the judgment as laid down by the Hon'ble Delhi High Court, we dismiss ground nos. 1, 1.1, 1.2 and 1.3 of the Revenue.”

Dated: 10.05.2019 *aks*