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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal has been preferred by the Department
against the impugned order dated 19.12.2013 passed by the Ld.
CIT(A)-II, Dehradun for assessment year 2010-11.
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
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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
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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.
In the first appeal, the assessee challenged the additions as
well as levy of interest u/s levy of interest u/s 234B and 234C of
the Act. The Ld. CIT (A) in the impugned order allowed the
assessee’s grounds relating to service tax and levy of interest u/s
234B and 234C but dismissed its ground relating to
reimbursement receipts. Now the Department is in appeal and
has raised the following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(Appeals) has erred holding that receipts on account of services tax are not includible in gross revenue of the assessee for the propose of computation of profits under the presumptive provisions u/s 44BB of the income Tax Act, 1961 (“The Act”). 1.1 Whether the Ld.CIT (A) has erred in not appreciating the fact that the provisions of section 44BB of the Act are a self- contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee.
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1.2 Whether the Ld.CIT (A) 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 element of the 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 u/s 44BB of the Act and obviating the need for accounting for individual receipts and payments etc. 1.3 Whether the Ld.CIT (A) has erred in ignoring the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Limited (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 if the sales tax and service tax, the ratio of the judgment in the said case is directly applicable in the facts of the instant case. 2. Whether on the facts and in the circumstances of the case and in law, the L( CIT(A) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in tl case of M/s Maersk [334 ITR 79, Uttarakhand].
2.1 The Ld. CIT(A) has erred in not appreciating the facts that the case of Maersk was distinguishable on facts wherein the employer filed to deduct tax at source despite the specific mandatory provisions of the Act stipulating the employer being liable to deduct tax on the salary paid to the employee, thereby holding that an employee is not liable to pay advance tax on salary. The ITAT has erred in relying upon this decision as the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases particularly in cases where the Nonresident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer / deductor.
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
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Mitsubishi [330 ITR 578, Del] that the role of the assessee/payee/deductee in short-deduction or non- deduction 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).”
The Ld. DR submitted that Section 44BB makes a special
provision for computing profits and gains of the non-resident
assessee engaged in the business of exploration, etc., of mineral
oils. Sub-section (1) provides that in respect of such an assessee,
notwithstanding anything contained in sections 28 to 41 and
sections 43 to 43A, an assessee shall be deemed to have earned
ten per cent profit on the amount mentioned in sub-section (2)
received by him. It was submitted by the Ld. DR that Section
44BB is a complete code in itself. It provides by a legal fiction to
be the profits and gains of the non-resident assessee engaged in
the business of oil exploration at the rate of 10 per cent of the
aggregate amount specified in sub-section (2). He submitted that
the Hon'ble Uttrakhand HC has consistently held in the following
cases that the aggregate amount received be included in total
income for taxation under section 44BB:
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[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) Reimbursement fuel expenses RBF Rig Corporation
(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
The Ld. DR submitted that service tax receipts need to be
included in aggregate amount brought to tax under section
44BB because:
Section 44BB is a self contained code providing (i) for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions, exemptions and exclusions from income are deemed to have been allowed; It is open to those who want to claim (ii) deductions, exemptions and exclusions in assessment to opt to proceed under section 44BB (3). Once the receipts are offered to tax u / s 44BB (iii) (1) & (2), which provides for computation of profits on gross basis, there is no scope for computing or re- computing 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.
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The Ld. DR further submitted that the amount mentioned in
sub-section (2) of section 44BB clearly shows that the amount
paid to the assessee on account of provision of services and
facilities in connection with the extraction or production of
mineral oil, whether paid in or outside India, are to be included. It
was submitted by the Ld. DR that the service tax receipt squarely
falls within the principle enunciated in Chowringhee Sales
Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) wherein it was laid
down that sales tax charged forms part of the trading receipts
and is as such liable to be assessed to income tax. The Ld. DR
submitted that since then the courts have consistently held
similarly for all kinds of taxes or government receipts (that were
received by the assessee during the relevant PY) that these are
taxable receipts and he relied on the following judicial
pronouncements:
CITATION CITATION CITATION CITATION TAX / RECEIPT TAX / RECEIPT TAX / RECEIPT TAX / RECEIPT
Excise Duty [1997] 228 ITR 112 (All) Jagdish Prasad Nigam
[2006] 154 TAXMAN 266 (ALL) Mohan Shramic Central Sales Tax and Udyog Ltd Local Sales Tax
[2012] 28 TAXMANN.COM 94 (CAL) Poddar Surcharge is part of Rent Projects
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[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
The Ld. DR submitted that in view of the above mentioned
case laws, the receipt of service tax from ONGC is definitely
connected with the business of exploration and / or extraction
of oil and needs to be included in the aggregate amount to be
brought to tax under section 44BB. He further submitted that
it is not precise to categorize service tax receipt merely as a
statutory liability. It is also to be categorised as contractual
liability whereby the 'service receiver' agrees to bear this
expense and accordingly pays the 'service provider' (assessee).
It was submitted that it is the practice in the oil and gas
industry to contractually bind the 'service receiver' to bear this
expense. Thus, it is a matter of contract (implicit or explicit)
between the parties because it is improbable / impossible that
'service receiver' will agree to reimburse a liability which is
specifically that of the service provider (assessee).
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On the levy of interest u/s 234B/C, it was the submission of
the Ld. DR that the issue was consequential and the quantum of
interest has to be essentially worked out by the Assessing Officer.
The Ld. AR, in response, submitted that the issue of service
tax is covered by the decision of the Hon'ble Delhi High Court in
the case of DIT vs Mitchell Drilling 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.
We have heard the rival submissions and have also perused
the records. It is seen that the issue of includibility of service tax
in the gross receipts is squarely covered by the judgment of the
Hon'ble Delhi High Court in the case of Mitchell Drilling
International Pty Limited (supra) wherein the Hon'ble Delhi High
Court has held that service tax being statutory levy should not
form part of gross receipts as per provisions of section 44BB of
the Act. The relevant observations of the Hon'ble High Court are 9
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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 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.”
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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 44 BB. 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. 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).
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 11
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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.
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.
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 12
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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. 16. The Court concurs with the decision of the High Court of Uttarakhand in DIT v. Schlumberger Asia
I.T.A. No. 1048/Del/2014 Assessment Year 2010-11 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 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.
The question framed, is therefore, answered in the negative i.e. favour of the Assessee and against the Revenue.”
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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.
On the issue of levy of interest u/s 234B/234 C of the Act,
we restore the issue to the file of the Assessing Officer to examine
the liability of the assessee in light of the fact that all receipts are
to be assessed u/s 44BB of the Act after giving effect to relief
confirmed for the assessee in this appeal. Accordingly, ground
nos. 2, 2.1 and 2.2 are allowed for statistical purposes.
In the result, the appeal of the Department is partly allowed
for statistical purposes.
Order pronounced in the Open Court on 29th of April, 2016.
Sd/- Sd/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: the 29th of April, 2016 ‘GS’
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