HELIX ENERGY SOLUTIONS GROUP INC,NEW DELHI vs. ADDL DIT (IT) RG 3, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “L”, MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.1236/Mum/2013 for Assessment Year: 2009-10 And ITA No.3068/Mum/2014 for Assessment Year: 2010-11 Helix Energy Solutions Group INC Addl. DIT (IT) Range-3, C/o Nangia & Company Suite 4A, Scindia House, Ballard Pier, Vs. Plaza M-6, Jasola, New Delhi-110025 Mumbai-400001. PAN: AABCH9122J (Appellant) (Respondent)

Assessee by : Shri Neeraj Agarwala (AR) Revenue by : Shri Jasbir Chauhan (CIT) Date of hearing : 17.06.2016 Date of Pronouncement : 29.06.2016

O R D E R PER PAWAN SINGH, JM: 1. These two appeals filed by the assessee against the order of CIT(A) dated 30.11.2011and 02.01.2014 for Assessment Years (AYs) 2009-10 & 2010-11 respectively, were heard together and are decided by common order as in both the appeals identical grounds are raised. For appreciation of fact first we shall take up the ITA No.1236/M/2013 for AY 2009-10, wherein following grounds are raised. Ground No.1: That based on the facts and circumstances of the case, the Ld. Commissioner of Income-tax, Appeals-1-, Mumbai (CIT) erred in upholding the order of the AO that receipts of Rs. 221,377,861/- on account of service tax were includible in the gross receipts for the purpose of determining income under section 44BB of the Income-Tax Act, 1961. Ground No.2: That based on the facts and circumstances of the case, the Ld. Commissioner of Income-tax, Appeals-1-, Mumbai (CIT) erred in upholding the order of the AO that receipts of Rs. 7,645,919/- on account of VAT were includible

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in the gross receipts for the purpose of determining income under section 44BB of the Income-Tax Act, 1961. 2. The brief facts of the case are that the assessee having its registered office in Bermuda and its project Office in Mumbai. The assessee is engaged in the business of providing services and facilities in connection with exploration, exploitation and production of mineral oil in India, filed its return of income in the relevant AY declaring total income of Rs. 55,54,53,897/-. The return of income was selected for scrutiny. While framing the assessment, the Assessing Officer (AO) make the addition of Service Tax of Rs.22,13,77,861/- and Rs.76,45,919/- on account of VAT as a part of income of assessee vide assessment order dated 09.02.2012 u/s. 44B of the Act. Aggrieved by it, the assessee preferred appeal before the CIT(A) but without any success, thus approached us by way of second appeal. 3. We have heard Ld. Authorised Representative (AR) of the assessee and Shri Jasbir Chauhan Ld. DR for Revenue. AR for assessee argued that both the Grounds raised in the present appeal are covered in favour of the assessee by the decision of Delhi High Court in DIT vs. Mitchell Drilling International Pvt. Ltd. in ITA No. 403/2013 and 384/2015 dated 28.09.2015 and decisions of Co-ordinate bench of this Tribunal in case titled as Oceaneering International GMBH Vs. DCIT (ITA No. 1023/M/2014 dated 06.11.2015), Islamic Republic of Iran Shipping Lines vs. DCIT (ITA No. 4877/M/2014 17.02.2016) and M/s Hanjin Shipping Company Ltd. vs. DDIT (ITA No. 5277/M/2014 dt. 13.05.2016). On the other hand, ld DR for the Revenue has argued that decision of Uttaranchal High Court in case titled as Halliburton Offshore Services Inc. (2008) 300 ITR 265/169 Taxman 138 dated 20.09.2007 is against the assessee and further seeks reliance on the written submission filed by the Revenue on record. Ld. DR for Revenue further relied on the decision of China Shipping Container Lines, HDFC Bank vs. DCIT (ITA No. 3724/M/2012 dated 23.09.2015), the decision of Uttrakhand High Court in SEDCO Forex International INC vs. CIT (299 ITR 238) (Ukd.), and the decision of jurisdictional High Court CIT vs. Thane Electrical Supply Ltd. 4. We have considered the rival contention of the parties and gone through the written submission filed by Ld. DR for Revenue. The Hon’ble Delhi High Court in ITA No. 403/2013 in case titled as DIT vs. Mitchell Drilling International Pvt. Ltd. while considering almost identical issue in respect of the assessee who is also engaged in the similar business as of the assessee held as under: “9. 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

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"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 44BB(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 (l) read with Section 44BB(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 III 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 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

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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 purpose of Section 44 BB of the Act. 17. The court accordingly, holds that for the purpose of computing presumptive income of the assessee for the purpose 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 received in term of section 44BB(2), read with section 44BB(1). The service tax is not an amount paid or payable, received or demand to be received by the assessee for the services rendered by it. The assessee only collecting service tax for passing it on the Government. 18. The Court further notes that the position has been made explicit by the CBDT itself into of its circulars. In circular No 4/2008 dated 28 April 2008 it was clarified that “service tax” paid by the tenant does not pertake the nature of “income” of the landlord. The landlord only acts as a collecting agency for the Government for collection of service tax. Therefore, it has been decided that tax deduction at source under section 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,1/2004, dated 30 January 2014, it has been clarified that service tax is not to be included in the ceased for professional or technical services and no tedious is required to be made on the service tax component under section 190 4J of the Act.”

We may note that Hon’ble Delhi High Court further hold that for the purpose of computing the presumptive income for the purpose of section 44BB of the Act, the Service Tax collected by the assessee on the amount paid to it for rendering services is not to be included in the gross receipt in terms of sub section 44BB(2) and 44BB(1) of the Act and concluded that 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 and the assessee is only collecting the service tax for passing it to be Government, the Hon’ble Delhi High Court also considered the Circular No. 4/2008 dated 28.04.2008 of the CBDT which clarifies that the service tax paid by the tenant does not pertake a nature of the income of the landlord and that landlord only collecting tax for government for collecting income tax. In Oceaneering International GMBH (supra), the Co-ordinate Bench of this Tribunal while considering the issue, whether service tax collected by the assessee-company does

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not have any element of income and cannot be form part of the gross receipt for the purpose of computing the presumptive income of the assessee u/s. 44BB of the Act and after considering the almost identical fact answered the issue in favour of the assessee, the Co-ordinate Bench while considering the element of income has considered that in paragraph no. 17 to 19 of its judgment which is reproduced for better appreciation of the facts are as under: “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 194J 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."

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Order pronounced in the open court on this 29th June, 2016.

Sd/- Sd/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated 29/06/2016 S.K.PS आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. आयकरआयु�त(अपील) / The CIT(A), Mumbai. 4. आयकरआयु�त/ CIT आदेशानुसार/BY ORDER, 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, मुंबई/ DR, ITAT, Mumbai 6. गाड�फाईल / Guard file. उप/सहायकपंजीकार स�या�पत��त //True Copy/ (Asstt.Registrar) आयकरअपील�यअ�धकरण, मुंबई / ITAT, Mumbai