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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
आयकर अपीऱीय अधिकरण “G” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.3724/Mum/2017 (नििाारण वर्ा / Assessment Year : 2010-11) बिाम/ DCIT(IT) 4(3)(2) M/s. Weatherford Room No. 1728 Drilling International 17th Floor, (BVI) Ltd., v. Air India Building Unit 71 & 74, 7 th Floor, Nariman Point Kalpataru Square, Mumbai 400021 Kondivita Lane, Andheri (E), Mumbai 400059 स्थायी ऱेखा सं./ PAN : AAACW7377F (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. Revenue by: Shri. C.S Sharma, DR Assessee by : Shri. Kishan Kumar Mundhra सुनवाई की तारीख /Date of Hearing : 18.09.2018 घोषणा की तारीख /Date of Pronouncement : 18.09.2018 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member: This appeal, filed by Revenue, being ITA No. 3724/Mum/2017, is directed against appellate order dated 23.02.2017 passed by learned Commissioner of Income Tax (Appeals)-58, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 15.05.2013 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 144C(3) r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for assessment year 2010-11.
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The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- 1. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in holding that Service Tax was not part of receipt u/s. 44BB without appreciating that section 44BB being complete code for presumptive taxation, all receipts irrespective whether they are in nature of income or not were to be considered following the ratio of decision in Halliburton Offshore 300 ITR 265(UT) & Chowranghee Sales Bureau 87 ITR 542(SC).?" 2 "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in following the decision of Delhi High Court in Mitchell Drilling and ignoring the decision of Mumbai ITAT in case China Shipping Container Lines(Hongkong) Co. Ltd in ITA 8516 / M/ 2010?" 3. "The Appellate prays that the order of the CIT(A) be sent aside on the above ground(s) and of the Assessing Officer be restored." 4. "The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. The brief facts of the case are that the assessee is a non- resident company incorporated under the laws of British Virgin Islands. The assessee is stated to have executed contract with Cairn Energy India PTY Limited and Canoro Resources Limited. Under the terms of the contract, the assessee provided land rigs for excavation of oil and gas. A copy of the contract is stated to have been submitted by the assessee before the AO. The assessee has claimed to be engaged in the business of providing services facilities in connection with the prospecting for, extraction or production of mineral oils. The assessee offered its income for taxation in terms of provision of Section 44BB(1) of the 1961 Act. The solitary question for adjudication before us is whether service tax amount collected by the assessee from its clients which stood deposited by assessee to the credit of Central Government shall form part of gross receipt for the purpose of computing of income chargeable to income-tax within provisions of Section 44BB of the Act.
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The AO after considering the submissions of the assessee held against the assessee while the Ld. CIT(A) has adjudicated the issue in favour of the assessee by holding as under:
“5. The second ground relates to inclusion of service tax received from the clients in the turnover for computation of income u/s 44BB of the Act. 5.1 The AO has relied on the decision in the case of Siem Offshore Inc (No. 875 of 2010)(AAR), and Technip Offshore Contracting BV (ITA 4613/Del/2007) and also China Shipping Container Lines Hong Kong Ltd (20l3-TII-162-ITAT-Mum-INTL) wherein it was held that service tax collected from shippers would be part of gross receipts for purpose of computing presumptive tax under section 44B of the Act. 5.2 The appellant has claimed that the issue is squarely covered by the decision of Delhi High Court in the case of Mitchell Drilling International P. Ltd (ITA 403/2013) and consequent decision of Mumbai ITAT in cases of Oceaneering International GmbH (ITA 1023/Mum/2014), Jet Drilling (S) Pte Ltd (ITA 6439/Mum/2014) and Helix Energy Solutions Group Inc (ITA 1236/Mum/2013). 5.3 It is seen that there are conflicting decisions on this issue at ITAT level. However, the decision of Hon'ble Delhi High Court is clearly in favour of the appellant on this issue. Respectfully following the decision of Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd (supra), it is held that service tax collected by the appellant from its clients will not form part of its turnover for computing profit u/s 44BB of the Act. The second ground is decided in favour of the appellant and is allowed.” 5. The revenue is aggrieved by the appellate decision of Ld. CIT(A) which was decided against it and that is how it has come in appeal before the tribunal. The Ld. DR opened the arguments and relied upon assessment order passed by the AO while the on the other hand Ld. Counsel for the assessee submitted that the tribunal in assessee’s own case in ITA no. 514/M/2017 for immediately preceding year i.e. AY 2009-10 vide orders dated 20.06.2018 in Revenue’s appeal has decided the issue in favour of the assessee by holding as under:-
“6. We shall now take up the appeal filed by Revenue. The solitary issue urged therein is whether the service tax collected by the assessee shall form part of gross receipts for computing income under Section 44BB of the Act. 7. The learned A.R. submitted that the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. 380 ITR 130 (Del) has decided the issue in favour of the assessee by holding that service tax collected by the assessee was not to be included in the gross receipts in terms of section 44BB of the Act. He submitted that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case referred above.
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On the contrary, the learned D.R. submitted that the Mumbai Bench of the Tribunal has held in the case of China Shipping Container Lines (Hong Kong) (2013) TIL-1621-ITAT, Mum-Intl) has held that the service tax collected from distributors shall be included in gross receipts. 9. In the rejoinder the learned A.R. submitted that the Mumbai benches of Tribunal has followed the decision rendered by the Hon'ble Delhi High Court (referred supra) in the cases of Oceaneering International GmbH (ITA No. 1023/Mum/2014 dated 06.11.2015 and Jet Drilling (S) Pte Ltd. in ITA No. 6439/Mum/2014 dated 07.07.2016. 10. We have heard the rival submissions on this issue and perused the record. We noticed that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. (supra) in holding that service tax collected by the assessee cannot form part of gross receipts. 11. On the contrary, Revenue has placed reliance on the decision rendered by the Coordinate Bench of the Tribunal in the case of China shipping Container lines (supra). The learned A.R. has, on the contrary, pointed out that the Coordinate Benches of the Tribunal have followed the decision rendered by the Hon'ble Delhi High Court in other cases (referred above) and have held that the service tax shall not form part of Gross receipts. Since the High Court is superior to the Tribunal, the inferior Court should bow to the wisdom of Superior Court. Accordingly, the decision rendered by the High Court should be preferred over the decision rendered by the Tribunal. Accordingly we do not find any infirmity in the action of the AO in following the decision rendered by the Hon'ble Delhi High Court. Therefore we affirm the order passed by the learned CIT(A) on this issue. 12. In the result, the appeals filed by the assessee as well as Revenue are dismissed.” The learned counsel for the assessee also relied upon the judgment of Hon’ble Delhi High Court in the case of Director of Income-tax-I v. Mitcheel Drilling International P. Ltd. reported in (2015) 62 taxmann.com 24(Delhi) wherein Hon’’ble Delhi High Court has decided the issue in favour of the assessee.
We have heard rival contentions and perused the material on record including case laws cited before us. The assessee is a non-resident company incorporated under the laws of British Virgin Islands. The assessee is stated to have executed contract with Cairn Energy India PTY Limited and Canoro Resources Limited. Under the terms of the contract, the assessee provided land rigs for excavation of oil and gas. A copy of the contract was submitted by the assessee before the AO. The assessee has claimed to be engaged in the business of providing services facilities in connection with the prospecting for, extraction or production of mineral oils. The assessee has offered its income for
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taxation in terms of provision of Section 44BB(1) of the 1961 Act. The solitary question for adjudication before us is whether service tax amount collected by the assessee from its clients which stood deposited by the assessee to the credit of Central Government shall form part of gross receipt for the purpose of computing of income chargeable to income-tax within provisions of Section 44BB of the Act. The tribunal in the assessee own case has decided the issue in favour of the assessee for immediately preceding year AY 2009-10 in ITA no. 514/Mum/2017 vide orders dated 20.06.2018 in Revenue’s appeal, by holding as under:-
The learned A.R. submitted that the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. 380 ITR 130 (Del) has decided the issue in favour of the assessee by holding that service tax collected by the assessee was not to be included in the gross receipts in terms of section 44BB of the Act. He submitted that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case referred above. 8. On the contrary, the learned D.R. submitted that the Mumbai Bench of the Tribunal has held in the case of China Shipping Container Lines (Hong Kong) (2013) TIL-1621-ITAT, Mum-Intl) has held that the service tax collected from distributors shall be included in gross receipts. 9. In the rejoinder the learned A.R. submitted that the Mumbai benches of Tribunal has followed the decision rendered by the Hon'ble Delhi High Court (referred supra) in the cases of Oceaneering International GmbH (ITA No. 1023/Mum/2014 dated 06.11.2015 and Jet Drilling (S) Pte Ltd. in ITA No. 6439/Mum/2014 dated 07.07.2016. 10. We have heard the rival submissions on this issue and perused the record. We noticed that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. (supra) in holding that service tax collected by the assessee cannot form part of gross receipts. 11. On the contrary, Revenue has placed reliance on the decision rendered by the Coordinate Bench of the Tribunal in the case of China shipping Container lines (supra). The learned A.R. has, on the contrary, pointed out that the Coordinate Benches of the Tribunal have followed the decision rendered by the Hon'ble Delhi High Court in other cases (referred above) and have held that the service tax shall not form part of Gross receipts. Since the High Court is superior to the Tribunal, the inferior Court should bow to the wisdom of Superior Court. Accordingly, the decision rendered by the High Court should be preferred over the decision rendered by the Tribunal. Accordingly we do not find any infirmity in the action of the AO in following the decision rendered by the Hon'ble Delhi High Court. Therefore we affirm the order passed by the learned CIT(A) on this issue. 12. In the result, the appeals filed by the assessee as well as Revenue are dismissed. “6. We shall now take up the appeal filed by Revenue. The solitary issue urged
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therein is whether the service tax collected by the assessee shall form part of gross receipts for computing income under Section 44BB of the Act. 7. The learned A.R. submitted that the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. 380 ITR 130 (Del) has decided the issue in favour of the assessee by holding that service tax collected by the assessee was not to be included in the gross receipts in terms of section 44BB of the Act. He submitted that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case referred above. 8. On the contrary, the learned D.R. submitted that the Mumbai Bench of the Tribunal has held in the case of China Shipping Container Lines (Hong Kong) (2013) TIL-1621-ITAT, Mum-Intl) has held that the service tax collected from distributors shall be included in gross receipts. 9. In the rejoinder the learned A.R. submitted that the Mumbai benches of Tribunal has followed the decision rendered by the Hon'ble Delhi High Court (referred supra) in the cases of Oceaneering International GmbH (ITA No. 1023/Mum/2014 dated 06.11.2015 and Jet Drilling (S) Pte Ltd. in ITA No. 6439/Mum/2014 dated 07.07.2016. 10. We have heard the rival submissions on this issue and perused the record. We noticed that the learned CIT(A) has followed the decision rendered by the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. (supra) in holding that service tax collected by the assessee cannot form part of gross receipts. 11. On the contrary, Revenue has placed reliance on the decision rendered by the Coordinate Bench of the Tribunal in the case of China shipping Container lines (supra). The learned A.R. has, on the contrary, pointed out that the Coordinate Benches of the Tribunal have followed the decision rendered by the Hon'ble Delhi High Court in other cases (referred above) and have held that the service tax shall not form part of Gross receipts. Since the High Court is superior to the Tribunal, the inferior Court should bow to the wisdom of Superior Court. Accordingly, the decision rendered by the High Court should be preferred over the decision rendered by the Tribunal. Accordingly we do not find any infirmity in the action of the AO in following the decision rendered by the Hon'ble Delhi High Court. Therefore we affirm the order passed by the learned CIT(A) on this issue. 12. In the result, the appeals filed by the assessee as well as Revenue are dismissed.” The tribunal while passing aforesaid order has relied upon the decision of the Hon’ble Delhi High Court in the case of Mitchell Drilling International P. Ltd.(supra) wherein Hon’ble Delhi High Court has decided the issue in favour of the tax-payer by holding as under: “8. Section 44BB (1) and (2) of the Act read as under:
“44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of
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such business chargeable to tax under the head "Profits and gains of business or profession" : Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(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 provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils 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 provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.”
Section 44BB begins with a non obstante clause that excludes the application of Sections 28 to 41 and Sections 43 and 43A to assessments under Section 44BB. It introduces the concept of presumptive income and states that 10% credit of the amounts paid or payable or deemed to be received by the Assessee on account of “the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India” shall be deemed to be the profits and gains of the 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.
The expression ‘amount paid or payable’ in Section 44 BB(2)(a) and the expression ‘amount received or deemed to be received’ in Section 44BB(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).
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?
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
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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 interstate 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.
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 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’’.
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.
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
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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 44BB of the Act, the service tax collected by the Assessee on the amount paid by 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 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. 20. The appeals are dismissed.
Respectfully following the aforesaid decision of tribunal in assessee own case for immediately preceding year i.e AY 2009-10 , we decide the issue under consideration before us in favour of the assessee and dismiss the appeal of the revenue. The Revenue fails in this appeal. We order accordingly.
Order pronounced in the open court on 18.09.2018. आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 18.09.2018 को की गई Sd/- Sd/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated: 18.09.2018 Nishant Verma Sr. Private Secretary
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copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI