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2016 (3) TMI 39 - ITAT MUMBAI

2016 (3) TMI 39 - ITAT MUMBAI - TMI - Computation of profit earned by non-resident from Shipping business u/s 44B - Inclusion of service tax in the gross receipts of the assessee for determination of the assessee’s taxable income as per the provisions of section 44B - Held that:- Following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for assessment year 2007-08 [2013 (10) TMI 743 - ITAT MUMBAI ] we hold that service tax collected by the assessee would form pa .....

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P. BOAZ, A.M: This appeal by the assessee is directed against the final order of assessment for assessment year 2010-11 dated 22/11/2013 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( in short the Act ) in pursuance of the directions of the Dispute Resolution Panel ( DRP )-1, Mumbai issued on 18/10/2013 u/s. 144C (5) of the Act. Since none appeared for the assessee, this appeal was disposed off with the help of the Ld. Departmental Representative for the Revenue and th .....

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f an addition on account of inclusion of service tax collected in the assessee s gross receipts for the purpose of determining the taxable income @ 7.5% u/s. 44B of the Act. Aggrieved, the assessee file its objections thereto before the DRP. The DRP issued its directions on 18/10/2013, upholding the Assessing Officer s action in including the service tax collected as a part of the gross receipts for determining the taxable income of the assessee u/s. 44B of the Act, by following the decision of .....

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e 1.1 On the facts and in the circumstances of the case and in law, the learned Assistant Director of Income Tax (International Taxation) -1(2) ADIT has erred in including the amount of service tax collected ₹ 51,86,212/-, as part of freight collected for determining the taxable income of the appellant. 1.2 The learned ADIT ought to have appreciated that service tax is a statutory levy and your appellant acts as an agent on behalf of Government, for collection and deposit into the treasury .....

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arges or any other amount of similar nature' to fall within the Explanation to Sec. 448(2) of the Act. It is therefore prayed that the learned ADIT be directed not to include service tax collected as part of freight receipts, for computing the taxable income of your appellant. 3.2 We have heard the Ld. Departmental Representative for Revenue at length and perused and carefully considered the material on record, including the judicial pronouncements by a Co-ordinate Bench of ITAT, Mumbai in t .....

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ion of ships in international waters). The assessee had computed its total income @ 7.5% of total collection as per the provisions of Section 44B r.w.s. 172 of the Act. In the course of assessment proceedings, the Assessing Officer found that the assessee has not included the service tax collected by it in the gross receipt for the purpose of computing its income u/s. 44B of the Act. On being queried by the Assessing Officer as to why the service tax of ₹ 51,86,212/- should not be consider .....

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income as per the provisions of section 44B of the Act. This draft order of assessment was upheld by the DRP following the order of the Co-ordinate Bench of this Tribunal in the assessee s own case for assessment year 2007-08 in ITA No.8516/Mum/2010 dated 23/08/2013. 3.4 We find that, as contended by the Ld. Departmental Representative appearing for the Revenue, that the same issue of inclusion of service tax collections in the gross receipts of the assessee for determining its income u/s.44B of .....

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e 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 o .....

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ceived in India on account of carriage or shipped at any port outside India. 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 .....

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llection 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 .....

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received as Sales Tax is treated as trading receipt of the assessee is settled. A similar view has been taken by the Hon ble Supreme Court in case of ACIT Vs T. Naggi Reddy (supra) as well as in case of Mcdowell & CO. Ltd. Vs CTO (supra). The assessee has heavily relied upon the decision of this Tribunal in case of Islamic Republic of Iran Shipping Lines Vs DCIT (supra) wherein this Tribunal has relied upon the decision of Hon ble High Court in case of CIT Vs Sudarshan Chemicals Industries L .....

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ted by the assessee in connection with the services specified u/s 44BB of the Act will be included in the total receipt for the purpose of determining the presumptive profit u/s 44BB. There are other similar decisions of Hon ble Uttarakhand High Court wherein it has been held that the handling charges received by the assessee will be included in the total receipt for the purpose of determination of presumptive profits u/s 44BB. Thus, it is clear that there are decisions of this Tribunal taking d .....

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gy from the definition of turnover provided u/s 80HHC itself wherein as per the clause (b) of explanation of section 80HHC export turnover is define by excluding freight and insurance charges. Therefore, on the similar analogy the Hon ble High Court has held that the Excise Duty and Sales Tax also have no element of profit similar to that of freight and insurance. However no such exclusion from the aggregate of amounts provided under subsection 2 of section 44B has been permitted while computing .....

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(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 . (i) 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 carriage of passengers, livestock, mail or goods shipped at any port in India; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail .....

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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 r .....

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ay 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 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 inclu .....

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n 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 demurrage charges or handling charges. 11. Further the term turnover is not relevant for estimation of profit and gain u/s 44B and therefore, when the demurrege charges and handling charges are specifically included in the aggregate amount as prescribed under sub-section 2 then whatever amount rece .....

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