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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SMT DIVA SINGH & SH.O.P.KANT
Date of Hearing 06.01.2016 Date of Pronouncement 08.02.2016 ORDER PER DIVA SINGH, JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 14.11.2013 of CIT(A)-XXIX, New Delhi pertaining to 2008-09 assessment year on the following grounds:-
1. “On the facts and in the circumstances of the case Ld. CIT(A) has erred in holding that the service tax was not the part of the gross receipts to be taxed u/s 44D r.w.s 115A of the Income Tax Act, 1961.
2. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.”
2. No one was present on behalf of the assessee at the time of hearing and notice sent to the address has come back unserved. Accordingly it was considered appropriate to proceed with the present appeal ex-parte qua the assessee respondent on merit.
I.T.A .No.-422/Del/2014
A perusal of the record shows that the assessee company incorporated in France and is in the business of providing consulting, advisory and supervision services in the field of road infrastructure projects. During the year, the assessee as per record was working on 29 projects all over India. In the year under consideration the assessee returned an income of Rs.5,69,72,993/- which was subsequently revised by filing a revised return declaring a total income of Rs.7,95,38,692/-. The case was selected for scrutiny after issuance of notice 143(2). In the scrutiny assessment the assessee was required to furnish the details in respect of the service tax collected in relation to projects where the income was being offered to tax on gross basis u/s 44D r.w.s. 115A of the income Tax Act, 1961. The assessee was show caused to explain why it should not be added to the gross receipts offered for taxation. The assessee in reply submitted that the amount of service tax does not have element of income.
The following details were furnished:-
Name of the Project Amount of Service Tax • JPKG Rs. 3,61,943/- • NH 2 Rs.17,18,784/- • KSHIP Rs. 2,14,778/- Total Rs.22,95,505/-
4. The assessee’s contention was not accepted by the AO and the said amount was added to the taxable income of the assessee. The assessee carried out the issue in appeal before the CIT(A) who addressed the background of the issued in the following manner:-
3.0 Background: 3.1. “The appellant is a non-resident company incorporated under laws of France and is engaged in the business of providing consultancy, advisory and supervision in field of road infrastructure projects to government companies like National Highway Authority of India and other related government departments.
I.T.A .No.-422/Del/2014
3.2 For the subject AY, the appellant filed its return of income on 30.09.2008 declaring a total income of Rs. 5,69,72,993/-. The return was revised on 04.11.2008 wherein a total income of Rs. 7,95,38,692/- was declared. During the course of assessment proceedings u/s 143(3), the AO found that the appellant has collected service tax to the tune of Rs. 22,95,505/- from the parties from whom FTS have been received. The AO subjected this service tax to tax on gross basis considering it a part of gross receipt in the nature of FTS. The AO took the position that when an item of income is to be taxed on gross basis, it is the gross receipt that had to be taxed. There is no scope for reducing the amount of service tax from gross value of services. The AO relied upon Siem Offshore Inc. (AAR no. 875 of 2010) and ITAT Delhi's Ruling in case of Technip Offshore Contracting BV (ITA no. 4613/Del/07). The appellant has challenged this action of the AO in present appeal.”
4.1. The assessee’s submission made before him were summed up vide para 4.1 & 4.2 in the following manner:-
4.0 Appellant's Case: 4.1. “During the course of appellate proceedings, the appellant submitted that similar issue has been decided by then CIT(A) for A.Y. 2007-08 vide-order 4ated 29.07.2011 in assessee's own case and Hon'ble ITAT, Delhi vide its order dated 18.12.2012,has confirmed the relief granted by then CIT(A). The appellant has submitted that facts of the case under consideration are identical to the facts in the preceding A.Y. 2007-08.
4.2. The appellant has submitted that as per service tax law, the service tax is payable by the recipient of the service. But responsibility of its collection and deposit is imposed on renderer of the service for the convenience of its collection. Therefore, under statutory requirement, the appellant collected service tax from its clients and deposited the same to the respective authorities. There is no element of income comprised in the service tax collected and, therefore. it cannot be aggregated with FTS for taxation on gross basis. In no case, service tax can be the amount owned by the appellant even though it is the separately mentioned in the invoices raised by the appellant. The amount is payable to the government under statute and the appellant has no lien on this amount. The appellant has relied upon following rulings: (i) Islamic Republic of Iran Shipping Lines vs. DCIT (ii) ACIT vs. Louis Berger International Inc. 40 SOT 370 (Hyd.)
4.3. I have duly considered the submissions made by the appellant. It has been noted that on the similar issue, then CIT(A) has adjudicated that service tax is not includible in gross receipt of FTS and hence not subject to tax on gross basis. The relief granted by CIT(A) has been confirmed by Hon'ble Delhi ITAT vide order dated 18.12.2012. Since facts of the case in present appeal are identical to those in preceding assessment year, respectfully following the decision rendered by Page 3 of 10
I.T.A .No.-422/Del/2014
Hon'ble Delhi ITAT in assessee's own case, I hold that the appellant deserves to succeed. Accordingly, the AO is directed to compute tax liability of the appellant by excluding the amount of service tax received by it from its clients after verifying that sum has been paid to the government a/c.”
4.2. Considering which the CIT(A) following the past precedent allowed the appeal of the assessee.
5. Aggrieved by this the Revenue is in appeal before the tribunal.
6. Ld. Sr. DR perusing the copy of the order dated 18.12.2012 in passed by the ITAT in the immediately preceding assessment year relied upon the assessment order.
We have heard the rival submissions and perused the material available on record. We find that the facts and circumstances in the year under consideration are identical to the facts as considered in the immediately preceding assessment year. These facts have been taken into consideration by the CIT(A) in the order under challenge:-
4. Appellant’s case 4.1. “During the course of appellant proceedings, the appellant submitted that similar issue has been decided by then CIT(A) for A.Y. 2007-08 vide order dated 29.07.2011 in assessee’s own case and Hon’ble ITAT, Delhi vide its order dated 18.12.2012 has confirmed the relief granted by then CIT(A). The appellant has submitted that facts of the case under consideration are identical to the facts in the preceding A.y.2007-08.
4.2. The appellant has submitted that as per service tax law, the service tax is payable by the recipient of the service. But responsibility of its collection and deposit is imposed on renderer of the service for the convenience of its collection. Therefore, under statutory requirement, the appellant collected service tax from its clients and deposited the same to the respective authorities. There is no element of income comprised in the service tax collected and, therefore. it cannot be aggregated with FTS for taxation on gross basis. In no case, service tax can be the amount owned by the appellant even though it is the separately mentioned in the invoices raised by the appellant. The amount is payable to the government under statute and the appellant has no lien on this amount. The appellant has relied upon following rulings: (i) Islamic Republic of Iran Shipping Lines vs. DCIT Page 4 of 10
I.T.A .No.-422/Del/2014
(ii) ACIT vs. Louis Berger International Inc. 40 SOT 370 (Hyd.)
8. On going through the order dated 18.12.2012, we find that the similarity facts and position of law is established as in the preceding assessment year also as the AO herein also has relied upon the decision of the Delhi Bench of the ITAT in the case of Technip Offshore Contracting BV [2009] 29 SOT 33 (Del.) as would be evident from the following extract in para 2.2 of the order of the Co- ordinate Bench. For ready-reference, we extracted herein the facts as under:-
“Facts of the case indicate that the assessee is a company having a permanent establishment in India. During the year under appeal, the assessee was involved in providing technical consultancy services in the infrastructure sector. The clients of the assessee were mainly government organizations, such as National Highway Authority of India and State Governments etc. The income derived by the assessee is taxable u/s 44D (projects entered into or before March 31, 2003) and u/s 44D (in respect of contracts entered into after 31.3.2003) read with section 115A of the Act, i.e., at the rate of 20% of gross receipts. During the year, the assessee received an amount of Rs.13,73,58,441/- from its various clients as fee for technical services including an amount of Rs.60,95,094/- which was collected by it from its clients towards the service tax. While computing its tax liability, the assessee excluded the amount of service tax collected by it from its clients and paid taxes at the rate of 20% on the net amounts.
2.1 Similarly, the assessee did not include an amount of Rs.70,013/- being amount of service tax collected by it on account of fee for technical services (other than the business income taxable in the hands of PE) received which were offered to tax @ 10% under article 13 of Indo French DTAA.
2.2 The Assessing Officer rejected the contention of the assessee that the service tax did not have any element of income, i.e., it was not in the nature of fee for technical services and, therefore, did not partake the character of income. The Assessing Officer referred to the provisions clause (b) of section 44D of the Act, i.e., no deduction in respect of any expenditure or allowance is allowable in computing the income by way of royalty or fees for technical services, and held that income include the amount of service tax collected by it from the clients and tax was payable on the gross receipts. The Assessing Officer relied upon the judgment of Hon’ble ITAT in the case of Technip Offshore Contracting BV (2009) 29 SOT 33 (Del.).” (emphasis provided)
I.T.A .No.-422/Del/2014 8.1. It is further seen in para 4 that reliance was placed upon DDIT vs M/s Mitchell Drilling international Pte. Ltd. [2012] 24 Taxmann.com 390 [Del.] as would be evident from the following extract from the order of the Co-ordinate Bench:-
“At the very outset, Ld. Counsel for the assessee submitted that issue raised in this appeal is squarely covered in favour of the assessee by ‘G’ Bench of the ITAT, Delhi as reported in (2012) 24 Taxmann.com 390 (Delhi) dated 29.06.2010 which has further been followed by ‘E’ bench, ITAT, Delhi in the case of DDIT vs. M/s Mitchell Drilling International Pty. Ltd., I.T.A. No.698/Del./2012 dated 31.08.2012 in which one of the Member is a party. Therefore, it was pleaded that since issue is squarely covered in favour of the assessee and CIT(A)’s order is in conformity with the decisions of the Tribunal, therefore, relying upon these decisions, it was pleaded for confirmation of the impugned order.
Ld.DR could not controvert this factual aspect and rather submitted that issue is squarely covered in favour of the assessee by various decisions of the tribunal and appeal may be disposed of accordingly.”
8.2. A careful reading of the order of the Co-ordinate Bench further shows that the view taken by the CIT(A) in 2007-08 assessment year was upheld relying upon the view taken in the case of Mitchell Drilling international Pte. Ltd. (cited supra). As would be available from the following extract from the said order:-
“We have heard both the sides, considered the material on record and find that issue is squarely covered in favour of the assessee by various decisions of the benches including ‘E’ bench, ITAT, Delhi, in the case of DDIT vs. M/s Mitchell Drilling International Pty. Ltd. (supra) in which similar issue has been dealt with and concluded from para.5 onwards, which is reproduced as under:
“5. Ld.CIT(A) while considering and accepting the plea of the assessee has concluded to allow the appeal of the assessee giving elaborately the basis and reasoning as per paras.5 to 5.9 of his order.
6. Aggrieved by this order of CIT(A), department has come up in appeal and while relying upon decision of Authority for Advance Ruling in the case of Siem Offshore Inc., In re, (2011) 337 ITR 207 (AR) dated 25.7.2011, has pleaded for reversal of the order passed by the CIT(A) and restoring that of the Assessing Officer. Since service tax is part of receipt, therefore, for presumptive income, same has rightly been added by the Assessing Officer and reliance was also placed in the case of Technip Offshore Contracting BV (2009) 29 SOT 33 (Del.) and Page 6 of 10
I.T.A .No.-422/Del/2014 so far as Uttrakhand High Court judgment is concerned, which has been relied upon by the CIT(A), it was submitted that the same is not with regard to service tax, but relating to custom duty, therefore, distinguishable on facts. As such order of CIT(A) needs reversal which may be reversed.
7. Ld. Counsel for the assessee while relying upon ITAT, ‘G’ Bench decision, which is directly on the point that service tax is to be excluded for computing presumptive income u/s 44BB of the Act, and in that decision various earlier decisions have been considered including that of Hon’ble Uttrakhand High Court decision. Therefore, it was pleaded for confirmation of the impugned order.
We have heard both the sides, considered the material on record and find that similar issue arose before ‘G’ Bench of the tribunal in the case of Sedco Forex International Drilling Inc. vs. Addl. DIT (International Taxation) in ITA No.5284/Del./2011, has decided the issue in favour of the assessee and relevant portion of the decision, which has been dealt with by the tribunal in its order as under: 4. …………..Regarding reimbursement of service tax, the ld. AR pointed out that though the ITAT Delhi Bench in their decision in the case of DIT (International Taxation) Vs. Technip Offshore Contracting BV,29 SOT 33(Delhi) concluded that service tax collected by the assessee being directly in connection with services or facilities or supply specified u/s 44BB of the Act provided by the assessee to ONGC, have to be included in the total receipts for the purpose of determination of presumptive profit u/s 44BB, subsequently, Hon’ble Uttarakhand High Court decision dated 24th July, 2009 in the case of DIT & Anr. Vs. chlumberger Asia Services Ltd. ,317 ITR 156(Uttarakhand) concluded that reimbursement of custom duty paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement. Following the view in this decision, Mumbai Bench in their decision dated 20.4.2011 in in the case of Islamic Republic of Iran Shipping Lines Vs. DCIT,2011-TOII-77-MUMINTL, held that service tax being a statutory liability, would not involve any element of profit and a service provider having collected the amount on behalf of the Government, accordingly, the same could not be included in the total receipts for determining the presumptive income, the ld. AR added. On the other hand, the ld. DR supported the findings of the AO. 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by the ld. AR. We find that Hon’ble jurisdictional High Court in their aforesaid decision Halliburton Offshore Services Inc. (supra) while adjudicating an identical issue relating to reimbursement of freight & transport charges in respect of equipment, concluded as under:- Page 7 of 10
I.T.A .No.-422/Del/2014
“5. Sec. 44BB provides that the deemed profits and gains under sub-s. (1) shall be @ 10 per cent of the aggregate amount specified in sub-s. (2). We proceed to analyze sub-s. (2). Clause (a) of sub-s. (2) refers to the amounts, (A) paid to the assessee (whether in or out of India) 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) payable to the assessee (whether in or out of India) 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. Clause (b) of sub-s. (2) refers to the amounts, (A) received by assessee in India 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, and (B) deemed to be received by the assessee in India 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.
6. Thus, it is clear from the perusal of s. 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee @ 10 per cent. Therefore, in our view, the Tribunal fell into error in not appreciating the difference between the amount and the income. Amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined under s. 2(24) of the IT Act and s. 5 and s. 9 deal with the income and accrued income and deemed income. Sec. 4 is the charging section of the IT Act and definition as well as the incomes referred in ss. 5 and 9 are for the purpose of imposing the income-tax under s. 143 (3). Sec. 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 @ 10 per cent of the aggregate amount specified in sub-s. (2). It is not in dispute that the amount has been received by the assessee company. Therefore, the AO added the said amount which was received by the non-resident company rendering services as per provisions of s. 44BB to the ONGC and imposed the income-tax thereon.
5.1. In the light of view taken by the Hon’ble jurisdictional High Court in their aforesaid decision, especially when the ld. AR accepted the position that the issue is squarely covered by the aforesaid decision while no other Page 8 of 10
I.T.A .No.-422/Del/2014 contrary decision was brought to our notice nor the ld. AR placed any material before us, controverting the aforesaid findings of the DRP and the AO, we have no hesitation in upholding the findings of the AO in the light of directions of the DRP in para 3.2 of their order dated 2nd September, 2011 in respect of reimbursement of amount on account of fuel recharge. In view thereof, ground no. 2 in the appeal is dismissed.
6. As regards reimbursement of amount in respect of service tax, as pointed out by the ld. AR, the ITAT Delhi Bench in their decision in Technip Offshore Contracting BV(supra) concluded that service tax collected by the assessee being directly in connection with services or facilities or supply specified u/s 44BB of the Act provided by the assessee to ONGC, have to be included in the total receipts for the purpose of determination of presumptive profit u/s 44BB of the Act. It is well established that section 44BB of the Act is a special provision, treating 10 per cent of the aggregate amount specified in sub-s. (2) of s. 44BB as deemed profits and gains of such non-resident assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils. The amount referred in sub-s. (2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, (b) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, (c) received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India and (d) deemed to be received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. The service tax is a statutory liability like custom duty. Hon’ble Uttarakhand High Court in their decision in Schlumberger Asia Services Ltd.(supra) concluded that reimbursement of custom duty paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement. Following the view in this decision, Mumbai Bench in their decision in Islamic Republic of Iran Shipping Lines(supra)held that service tax being a statutory liability, would not involve any element of profit and accordingly, the same could not be included in the total receipts for determining the presumptive income. In the light Page 9 of 10
I.T.A .No.-422/Del/2014 of view taken by the Mumbai Bench, especially when the ld. DR did not place any material before us, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are of the opinion that service tax paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement………….”
9. Since this issue is covered by earlier decision of ITAT, ‘G’ Bench, Delhi, which is on similar point and no contrary or any higher courts’ precedent has been cited, therefore, while following the said decision, we uphold the order of .CIT(A) and dismiss the present appeal.
10. As a result, the appeal filed by the department is dismissed. “ Therefore, following the said decisions, we uphold the order of the CIT(A) and dismiss the appeal of the Revenue.”
In the afore-mentioned peculiar facts and circumstances, we find that in the face of the order of the ITAT in assessee’s own case on similar facts and circumstances, the departmental appeal in the absence of any decision to the contrary has to be dismissed. Respectfully following the precedent, the appeal of the Revenue is dismissed as pronounced in the open Court.
In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 08 of February, 2016.