ORIENT OVERSEAS CONTAINER LINE LIMITED ,MUMBAI vs. DCIT (INT) TAX CIRCLE 3(2)(2), MUMBAI

The first issue that arises for our consideration pertains to the including the Goods and Services Tax (“GST”) receipts for computation of deemed income under section 44B of the Act.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a company incorporated under the laws of Hong Kong. The assessee is engaged in the business of operating ships in international traffic, and its revenue comprises freight income and ancillary charges such as terminal handling charges, demurrage charges, etc. The (A.Y. 2023-24) 4 assessee has offered to tax its entire income, including freight income and ancillary charges, under the presumptive scheme of taxation under section 44B of the Act. Accordingly, for the year under consideration, the assessee filed its return of income on 27.11.2023, declaring a total income of Rs.1,32,79,99,310/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee has collected GST in respect of ancillary charges. However, the same has not been included while computing the presumptive income under section 44B of the Act. Accordingly, following the approach adopted by the Revenue in preceding years, the assessee was asked to show cause as to why the GST should not be treated as part of the turnover for the purpose of section 44B of the Act. In response, the assessee submitted that the amount of GST collected by it cannot be added to the presumptive income computed under section 44B of the Act, as section 44B(2) of the Act covers amounts in connection with the carriage of goods, passengers, etc. Therefore, the assessee submitted that what is sought to be included are the “charges” recovered from the consignor of the cargo as a consideration for the transportation. Thus, the assessee submitted that the GST, being a mandatory statutory levy, cannot be said to be in the nature of “charges” by the shipping company towards carriage. The assessee also placed reliance upon the decision of the Tribunal rendered in its own case for the preceding years, wherein the same addition was deleted. The assessee also placed reliance upon the recent decision of the Tribunal in its own case for the assessment year 2020-21, wherein it was held that GST collected

The Assessing Officer (“AO”) vide draft assessment order dated 18.03.2025 passed under section 144C(1) of the Act, disagreed with the submissions of the assessee and after noting that decisions of the Tribunal rendered in assessee’s own case in preceding years have not been accepted by the Revenue and further appeal has been filed before the Hon’ble Bombay High Court, held that the sum received by the assessee on account of GST, paid by the customer in relation to shipping business, is includable in the aggregate sums as per section 44B(1) of the Act. Accordingly, by holding that the gross GST collected by the assessee is to be treated as an amount specified in section 44B(2) of the Act, the AO proposed an addition of Rs.8,34,49,094/- to the total income of the assessee and computed the total income of the assessee at Rs.1,41,14,48,400/- as follows: - Particulars Amount (in Rs.) Total income as per return 1,32,79,99,310 Add GST of Rs.2,22,53,09,173 * 7.5% 8,34,49,094 presumptive business income *50% as per Article-8 of India-Hong Kong DTAA Assessed Total Income 1,41,14,48,404 Rounded off to 1,41,14,48,400

Being aggrieved, the assessee filed detailed objections before the learned DRP. Vide directions dated 02.07.2025 issued under section 144C of the Act, the learned DRP, following its directions rendered in assessee’s own case for the assessment year 2020-21, after noting that the issue is recurring in nature rejected the objections filed by the assessee and upheld the taxability of GST receipt under section 44B of the Act. In compliance with the (A.Y. 2023-24) 6 directions of the learned DRP, the AO passed the impugned final assessment order on this issue. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that this issue has been consistently held in favour of the assessee by the Coordinate Bench of the Tribunal in preceding years.

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

We have considered the submissions of both sides and perused the material available on record. We find that the Coordinate Mumbai Bench of Tribunal in assessee’s own case in Orient Overseas Container Line Limited vs. DCIT, in for the assessment year 2020-21, vide order dated 24.10.2024, held that GST cannot be included while computing the deemed income under section 44B of the Act. Accordingly, the Coordinate Bench of the Tribunal decided a similar issue in favour of the assessee. The relevant findings of the Coordinate Bench of the Tribunal, vide aforesaid decision, are reproduced as follows: - “14. In case of presumptive taxation, deduction of expenses is not allowed i.e., purchase and inventory elements ignored for computing deemed income under Section because the section starts with no-obstante clause overriding computation under sections 28 to 43. The deemed income has to be computed on specified amounts only and nothing more can be added which is not within the scope of Section 44B of the Act because Section 44B provides that non-resident is engaged in the business of operation of ships, then sum equal to 7.5% of the amounts referred to Sub-Section (2) has to be computed for the purpose of deemed profits. These amounts are firstly, the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at any port of India; and secondly, 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 shipped at any port outside India. what is relevant for computing the deemed income u/s.44B is the amount paid or payable or amount received or deemed to be received on account of carriage of passengers,

Section 145A of the Act takes into consideration "valuation of sale of purchase of goods/services and of inventory", whereas Section 44B(2) considers specified amount i.e. "amount paid or payable on account of the carriage of goods shipping at any port in India" and "amount received or deemed to be received on account of the carriage of goods shipped at any port outside India". The terms amount paid or payable and amount received or deemed to be received mentioned under Section 44B cannot be replaced with the term 'valuation' in the absence of any specific enabling provisions under Section 44B or Section 145A Section of the Act or any other provisions of the Act. For instance, is a deeming provision which enables replacement of consideration with 'fair market value' where the amount of consideration is less than the fair market value determined in a prescribed manner.

Thus, in our view adding GST component to the deemed income which has to computed directly on specified amounts i.e. amount paid or payable on account of carriage of goods shipped which is revenue element only. For the earlier regime of service tax prior to GST, there were various judicial precedents upheld exclusion of service computing the provision u/s 44B or other similar provisions. For instance, following judgments have been brought to our notice before us wherein the Hon'ble Courts has approved the exclusion of service tax. i. CIT v. Deepwater Pacific 1 Inc (SLP (Civil) Dairy No(S). 47374 of 2023, dated 13-12-2023) ii. Vantage International Management Co. [2023] 156taxmann.com 23/296 Taxman 160 (SC) iii. CIT v. Transocean Offshore International Ventures Ltd. (2023] 157 taxmann.com 203/296 Taxman 570/459 ITR 609 (SC) iv. CIT (International Taxation) v. Schlumberger Asia Services Ltd. [2024] 158 taxmann.com 267/297 Taxman 1 (SC) Further, Hon'ble Bombay High Court in the case of Boskalis International Dredging International CV (supra) (followed the decision of Delhi High Court and Mitchell Drilling International Pty Ltd. (supra) and held as under: XX XX 17. Full Bench of Hon'ble High Court of Uttarakhand in case of Schlumberger Asia Services Ltd. (supra) held that service tax paid earlier by the assessee to Government of India is not on account of provision of services in connection with exploration and production of mineral oil, hence would not form part of aggregate taxable amount referred to in clauses (a) and (b) of sub-section(2) of section 44BB Relevant extract of the ruling is as under 18. Apart from that in the case of the assessee itself the Tribunal have consistently has been holding that service tax being in the nature of statutory payment does not involve any element of profit therefore, cannot be included in the gross receipts.

The case of the department before us is that the judgments rendered in the context of service tax could not be applicable under the new GST. We find that though GST has replaced by erstwhile service tax law to provide a single tax of supply of goods and services right from manufacture to consumer. For the sake of ready reference Section 68 of erstwhile Service Tax law and Section 49 of CGST Act, the comparison is given herein below. XX XX

On perusal of the comparison of the relevant provision of service tax law and GST law it can be seen that both are indirect taxes and is recovered by the service provider on behalf of assessee and as an agent of the Government as such rates are specified and thus, the provision under the service tax law are similar to provision of GST law and therefore, in our opinion the judicial precedents delivered in respect of erstwhile tax law would apply mutatis mutandis to the GST laws also.

Otherwise also it would be quirk of a fate that tax collected on behalf of the customer is again to be held as part of taxable income of the assessee who is collecting GST. The assessee is taxable person under the GST laws and shows GST separately in the invoice raised on the customers. We have perused the copy of the sample invoice produced before us at our direction wherein, it is seen that service charge is indicated separately and CGST is levied on such service charge is also indicated separately. If the GST services have been indicated in the invoice separately then it cannot be included for purpose of taxation while computing the income. For instance there are various TDS provisions and CBDT has clarified through various circulars that if GST services are indicated separately in the invoice then no tax would be deducted at GST components. By way of illustration following circulars have been referred to before us under various Sections. XX XX 22. If we accept the contention of the revenue, then it would lead to a situation where calculation of tax of reimbursement of taxes would tantamount to collection of tax on taxes. Section 44B(2) of the Act provides for deemed taxation on amount paid or payable/received on account of carriage' of goods, Explanation passengers, etc. Further, the thereto clarifies that the amounts in connection with the carriage would include 'demurrage charges', 'handling charges" and other amounts of a 'similar nature". Thus, what is sought to be included u/s 44B are the charges' recovered from the consignor of the cargo/customer as a consideration for transportation from a port in India to outside India and vice versa. 23. GST being a mandatory 'statutory levy' cannot be said to be in the nature of 'charges' by the shipping Company towards the carriage. The incidence of GST is on account of taxability of services under the relevant parliamentary statute i.e. GST laws and not on account of the business activities as envisaged in Sections 44B(2)(1) and 44B(2)(ii) of the Act. Otherwise, including GST in gross receipts for purpose of section 44B would be akin to charging income tax on GST i.e., tax on tax, which would promote cascading effect which cannot be the intent of legislation. 24. Further, a service provider acts in a fiduciary capacity out of statutory obligation casted upon it, while collecting service tax/GST on the behalf of exchequer and the same is ultimately deposited with the exchequer, hence there cannot be any iota of doubt that the impugned GST is not in the nature of specified income under Section 44B. 25. Thus, reliance placed by the Hon'ble DRP members in the case of Sedco Forex International Inc. (supra) to treat 'GST similar as 'reimbursement of mobilization charges is misplaced and incorrect In the case of Sedco Forex International Inc. (supra) fixed mobilization charges were agreed between the parties, which could be more or less than the actual expenditure. Thus, 'reimbursement of mobilization charges' cannot be equated with pure reimbursement which has no element of income. 26. The core argument of the department before us and by the id. DRP is that amendment in the provisions of Section 145A of the Act brought by Finance Act 2018, since it includes "services" within its code therefore, income has to be computed in accordance with Section 145A and any taxes levied under services is included and for that heavy reliance has been placed on the judgment of Hon'ble High Court of Bombay in the case of Knight Frank (India) Pvt. Ltd. (supra). However the Hon'ble Court held (A.Y. 2023-24) 9 that Section 145A restricts its ambit only to valuation of purchase and sale of goods in inventory and would not apply to service tax billed on rendering of service as service tax billed has no relation to any goods nor does it have anything to do with bringing goods to a particular location. Section 145A which is for the method of accounting which starts with' for the purpose of determining the income chargeable under the head 'Profits and gains of business or profession, being a general provision, would not apply to the special provisions of Section 44B of the Act. Further, the words "For the purpose of determining the income chargeable under the head "Profits and gains of business for profession...." in section 145A signifies that the essence of section is to compute income under the head profits and gains of business or profession which is computed as per provisions of Section 29 of the Act. On the contrary, provisions of Section 44B (1) starts with a non obstante clause "Notwithstanding anything to the contrary contained in sections 28 to 43A....' Since Section 44B overrides the provisions of Section 29 of the Act, therefore in our opinion Section 145A is not applicable for computing deemed income under Section 44B.

Thus, the decision of the Hon'ble Bombay High Court will not be applicable in this case same was not rendered in the context of Section 44B and in any case in so far as the observation of the Hon'ble High Court that any tax or levy cannot be part of turnover receipts unless it is not paid, is not applicable in the case of the assessee it has been brought to record that assessee discharged its GST liability of Rs.96,51,49,085 through payment of tax to the Government Treasury and input tax credit and this has been demonstrated from the copies of form GSTR 9 and annual GST re-conciliation statement.

Further, Ld. DRP members also relied on CBDT Circular No. 10/2017 dated March 23, 2017 which discusses on the applicability of ICDS on determination of turnover by non corporate taxpayers covered under presumptive taxation like Sections 44AD, 44AE, 44ADA, 448, 44BB, 448BA, etc. and stated that the service receipts and sales in the instant case are to be valued inclusive of taxes, as per ICDS guidelines Relevant extract of Circular is hereunder- "Question 3: Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account and/or those who are covered by presumptive scheme of taxationlikesections44AD, 44AE, 44ADA 44B, 44BB, 44BBA, etc. of the Act? Answer: ICDS is applicable to specified persons having income chargeable under the head Profits and gains of business or profession' or 'Income from other sources. Therefore, the relevant provisions of ICDS shall also apply to the persons computing income under the relevant presumptive taxation scheme. For example, for computing presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining he receipts or turnover, as the case may be. "

Thus, reliance placed by the DRP on the aforesaid Circular isnot valid since Delhi High Court in the case of Chamber of Tax Consultants v. Union of India [2017] 87 taxmann.com 92/252 Taxman 77/400 ITR 178 (Delhi) held that the aforesaid Circular was ultra vires the provisions of the Act and liable to be struck down. Also, the amendment was introduced vide Finance Act 2018 to bring certainty on the issue of applicability of ICDS and not to validate the circular. Even otherwise, in the aforesaid Circular, CBDT has also clarified that where there is a conflict between ICDS which is a general provision and specific provisions, specific provision shall prevail.

Before us, the plea was taken that if GST is to be added to the amounts paid on account of taxes then deduction of such GST is also required to be given u/s 43B Though the provision of Section 44B overrides Section 28-43A of the Act, but other sections including Section 43B are not specifically over ridden by Section 44B This issue has been decided by the Hon'ble Uttarakhand High Court in the case of (A.Y. 2023-24) 10

We find that similar findings were rendered by the Coordinate Mumbai Bench of the Tribunal in assessee’s own case in Orient Overseas Container Line Limited vs. DCIT, in for the assessment year 2022-23, vide order dated 25.06.2025. As is evident from the record, this issue is recurring in nature and has been decided in favour of the assessee by the Coordinate Bench of the Tribunal in preceding years. The learned DR could not show us any reason to deviate from the aforesaid decisions, and no change in facts and law was alleged in the relevant assessment years. Thus, respectfully following the decisions of the Coordinate Bench of the Tribunal rendered in assessee’s own case cited supra, we uphold the plea of the assessee and delete the impugned addition by including the GST receipts for computation of deemed income under section 44B of the Act. Accordingly, Grounds No.3-5 raised in assessee’s appeal are allowed.

The next issue that arises for our consideration pertains to the applicability of the provisions contained in section 115-JB of the Act.

Having considered the submissions of both sides and perused the material available on record, we find that in the instant case, it is an admitted position that assessee has offered its income from operation of ships to tax under the deeming provisions contained in section 44B read with section 90(2) of the Act and Article 8 of the India Hong Kong Tax Treaty. It is the plea of the assessee that in view of the Explanation 4A to section 115-JB(1) of the Act, the provisions of section 115-JB of the Act are not applicable to its case. However, as is evident from the computation sheet annexed to the final assessment order, the AO computed the income of Rs.1,41,14,48,399/- under section 115-JB of the Act. Accordingly, the assessee is in appeal before us on this issue.

We find that an identical issue came upon for consideration before the Coordinate Bench of the Tribunal in the assessee’s own case for the assessment year 2020-21 cited supra. While deciding the issue in favour of the assessee, the Coordinate Bench of the Tribunal held that in view of the Explanation 4A to section 115JB(1) of the Act, the provisions of section 115JB of the Act are not applicable to the assessee. The relevant findings of the Coordinate Bench of the Tribunal, in decisions cited supra, are reproduced as follows: “32. Ground No. 4 relates to computing of book profit u/s 115JB. Since assessee has offered income of operation of ships to tax under the deemed provisions of Section 44B r.ws 90(2) and Article 8 of India-Hong Kong Tax Treaty. Thus, in view of the Explanation 4A to Section 115JB(1), the provisions of Section 115JB are not applicable

We find that while deciding an identical issue in the assessee’s own case for the assessment year 2022-23, the Coordinate Bench of the Tribunal vide order dated 25.06.2025 cited supra, rendered similar findings. In the absence of any change in the facts and law in the present case, respectfully following the decision of the Coordinate Bench of the Tribunal cited supra, we held that in view of Explanation 4A to section 115-JB(1) of the Act, the provisions of section 115-JB of the Act are not applicable to the assessee’s case. Accordingly, Ground No.6 raised in assessee’s appeal is allowed.

Since the issues raised by the assessee in Grounds No.7, 8 and 10 are already pending consideration before the AO, we direct the AO to grant credit of TDS and advance tax, as well as compute the interest under section 244A of the Act, as per law, after necessary verification of the facts involved. With the above directions, Grounds No.7, 8 and 10 are allowed for statistical purposes.

The issue arising in Ground No.9, raised in the assessee’s appeal, pertains to the erroneous levy of interest, which is consequential in nature. Therefore, this ground needs no separate adjudication. Similarly, Ground No.11 raised in assessee’s appeal challenging the outstanding demand is also a consequential issue and therefore, needs no separate adjudication.