CHINA SHIPPING CONTAINER LINES ( HONG KONG) CO. LTD,MUMBAI vs. DDIT (IT) RG 1(2), MUMBAI

This appeal by the assessee is directed against the order assessment for A.Y. 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act'), dated 20.10.2014 pursuant of the directions of the Dispute Resolution Panel-III, (DRP), Mumbai issued under section 144C(5) of the Act vide order dated 22.09.2014. 2.1 In this appeal, the assessee has raised the following grounds: - “1. GROUND I : Inclusion of service tax for the purpose of presumptive income under Section 44B of the Income Tax Act, 1961 ('the Act') 1.1 On the facts and in the circumstances of the case and in law, the learned DDIT erred in including the amount of service tax collected of Rs 4,598,540, as part of gross receipts for determining the taxable income of the appellant. 1.2 The learned DDIT failed to appreciate the fact that service tax collected by the Appellant is not includible in computing the total income under Section 44B of the Act since service tax is a M/s. China Shipping Container Lines statutory levy and the appellant only acts as agent on behalf of Government for collection and deposit of service tax into the treasury and therefore, the amount so collected should not form part of gross freight for computing the taxable income; 1.3 The learned DDIT failed to appreciate the fact that service tax is neither a collection on account of carriage of goods 'nor in nature of 'demurrage charges or handling charges or any other amount of similar nature 'to fall within the purview of section 44B of the IT Act; 1.4 The learned DDIT erred in not following the decision of the Hon'ble jurisdictional Income Tax Appellate Tribunal in the case of Islamic Republic of Iran Shipping Lines v DDIT (46 SOT 101); 1.5 The learned DD1T failed to appreciate that the amount of service tax collected by the Appellant and subsequently deposited with the government treasury does not entail any profit element, as such it should not form part of total income under Section 44B of the Act. The Appellant humbly prays that the learned DDIT be directed not to include service tax collected and paid for the purpose of computing presumptive income under 44B of the Act. 2 GROUND 2: Initiation of penalty proceeding for the levy of penalty under Section 271(1)(c) 2.1 The learned DDIT erred in initiating penalty proceeding under section 271(1)(c) of the Act. The Appellant humbly prays that the DDIT be directed to drop the penalty proceedings.” 2.2 Hearings were fixed on a number of occasions, but neither did anyone appear on behalf of the assessee nor was any adjournment sought on its behalf. Even notices issued by RPAD did not elicit any response from the assessee. The learned D.R. for Revenue was, however, present and ready to argue the case. Even today when the case was called for hearing none was present for the assessee. In these circumstances, we are of the view that the assessee is not interested on pursuing this appeal and therefore proceed to dispose off the same with the assistance of the learned D.R. and the material on record.

(supra). We find that, as contended by the learned D.R. for Revenue, the issue of inclusion of service tax in gross receipts for the purpose of determining presumptive income under section 44B of the Act has been affirmed in favour of Revenue and against the assessee by the decision of the Coordinate Bench in the assessee’s own case for A.Y. 2007-08 in ITA No. 8516/Mum/2010 dated 23.08.2013; considering the issue and holding as under at paras 8 to 12 thereof: -

8. We have considered the rival submissions and carefully gone through the relevant material on record as well as the various decisions relied upon by either of the parties. With a view to simplify and rationalise the assessment and computation of profit and gain of shipping business in the case of non-resident the Finance Act 1975 has made special provision in section 44B of the Income Tax Act. Under this provision, profits and gain of non-resident from the business of operation of ships will not be calculated in accordance with the provisions of section 28 to 43A of the Income Tax Act but the same will be taken as 7.5% of the aggregate of the amounts paid or payable to the assessee or to any persons on his behalf on account of carriage of passengers, livestock, mail or goods, shipped at any port in India as well the amount received or deemed to be received in India on account of carriage of passengers, livestock etc. at any port outside India. Thus, for the purpose ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd.) of determination of the income u/s 44B it is the gross amount which is aggregate of the amount paid or payable within or outside India on account of carriage or shipped at any port in India plus any amount received or deemed to received in India on account of carriage or shipped at any port outside India.

M/s. China Shipping Container Lines There are two components of the amounts one which is paid or payable to the assessee in respect of the carriage or shipped at port in India and another the amount received or deemed to receive in India in respect of carriage or shipped at any port outside India. It is pertinent to note that section 44B over rides the provisions of section 28 to 43A, however, the other provisions of the Act are applicable apart from the provision of section 44B for computation of income of non-resident engaged in the business of shipping. It is pertinent to note that the salestax receipt by any assessee is treated as trading or business receipt though the sales tax is collected by the assessee on behalf of the Government as held by Hon’ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra) in para 9 as under: “9. The fact that the appellant credited the amount received as sales-tax under the head “sales-tax collection account” would not, in our opinion, make any material difference. It is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt. We may in this context refer to the case of Punjab Distilling Industries Ltd. vs. CIT (1959) 35 ITR 519 (SC). In that case certain amounts received by the assessee were described as security deposits. This Court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessee’s trading receipt. In dealing with the China Shipping Container Lines (Hong Kong Co. Ltd. contention that those amounts were entered in a separate ledger termed “empty bottles return security deposit account”, this Court observed.”

M/s. China Shipping Container Lines 10. As we have already mentioned that the provisions of section 44B has been brought into statute to simplify the determination of taxable income of the non-resident who are in the business of shipping. The presumptive profits and gain of such business chargeable to tax under the provisions of section 44B are determined as a sum equal to 7.5% of the aggregate amounts paid or payable to the assessee on account of carriage of passengers etc. or goods shipped at any port in India as well as amount received or deemed to be received in India on account of carriage of passengers or goods shipped at any port outside India. There is no dispute that the service tax received/collected by the assessee is in respect of the services provided on account of carriage of passengers or goods shipped either any port in India or any port outside India. Therefore, the said amount of service tax is a part of the invoices/bills raised in respect of shipping business. The exclusion of the said amount only on the ground that it has no element of profit in our view is not consistent with the intention of the legislature when the amount received or deemed to be received by way of demurrage charges or handling charges or any other amount of similar nature has to be included to the aggregate amount as per sub-section 2 of section 44B. The legislature China Shipping Container Lines (Hong Kong Co. Ltd. has made it clear by inserting the explanation that the demurrage charges or handling charges or any other similar amount would be part of the aggregate amount for the purpose of determining the presumptive profits @ 7.5% of such amount. It is pertinent to note that if the element of profit is the only criteria for inclusion or exclusion of any amount then the demurrage charges or handling charges should not have been included in the aggregate amount for the purpose of determining the presumptive income because the demurrage charges and handling charges also not having any element of profit. Since the service tax Act has been came into force subsequent to the insertion of the explanation therefore, there was no reason/occasion for including the service tax along with the demurrage charges and handling charges in the explanation however when any other amount of similar nature is required to be included then the service tax as far as on the aspect of having no element of profit is similar in nature to that of demurrege charges or handling charges.