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ADIT, International Taxation Versus M/s Sedco Forex International Drilling Inc.

2016 (3) TMI 146 - ITAT DELHI

Presumptive Income u/s 44BB - whether service tax being statutory levy should not form part of gross receipts as per provision of section 44 BB? - Held that:- The relevant operative part of this order read as under service tax is not an amount paid or payable or receipt or deemed to be received by the assessee for the services rendered by it. Rather, the assessee is only collecting the service tax for passing on the Government therefore the service tax collected by the assessee on the amount pai .....

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T(A) and thus we uphold the same - Decided in favour of assessee - ITA No. 1049/DEL/2014 - Dated:- 29-2-2016 - Sh. G. D. Agrawal V. P. And Sh. C.M. Garg, J. M For the Appellant: Sh. Anuj Arora, CIT-DR For the Respondent : Sh. Amit Arora, Sh. Suraj Nangia, Advocates ORDER Per C.M. Garg, JM 1. This appeal by the revenue has been directed against the order of the Commissioner of the Income Tax (Appeals) -II Dehradun dated 19.12.2013 passed in First Appeal No. 59/CIT(A)-II/2012-13 for AY 2010-11. 2. .....

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ained 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. 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 .....

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ms 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. 3. We have heard arguments of both the sides and perused the relevant materials placed before us. The Ld. Counsel of the assessee submitted that this issue is cover4ed in favour of the assessee by the orders of the tribunal passed in assesses on appeals i.e. ITA No. 504/Delhi/2013 for .....

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BB of the Income Tax Act, 1961 (for short the Act). 4. Replying to the above the Ld. CIT-DR vehemently contended that the issue is not accepted as covered by the said judgments as relied by the appellant because section 44BB is complete court in itself and it provides by a legal fiction to be profits and gains of the non resident assessee engaged in the business of Oil Exploration. The Ld CIT-DR also pointed out that the service tax receipts squarely false within the principle enunciated in M/s .....

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ided in favour of the assesses own appeal by the ITAT for AY 2009-10 (Order dated 02.08.2013) wherein the issue was decided by following ITAT order dated 29.06.2012 for AY 2008-09 (Supra) as under. 6. At the time of hearing before us, the learned counsel fairly agreed that this issue is covered against the assessee by the decision of Hon'ble Jurisdictional High Court in the case of CIT and Another Vs. Halliburton Offshore Services Inc. - [2008] 300 ITR 265 (Uttarakhand). The facts in the sai .....

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hat it was not in dispute that the amount had been received by the assessee. Therefore, the Assessing Officer added the said amount which was 4 ITA-504/Del/2013 received by the non-resident company rendering services under the provisions of section 44BB to the ONGC and imposed the income tax thereon. He was justified in doing so." 7. The ratio of the above decision of Hon'ble Jurisdictional High Court would be squarely applicable to the case of the assessee. Respectfully following the s .....

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tation of assessee s Presumptive Income u/s 44BB of the Act. The relevant operative part of this order read as under. 5. While admitting this appeal on 28th May, 2014, the Court framed the following question of law: "Whether the amount of service tax collected by the Assessee from its various clients should have been included in gross receipt while computing its income under the provisions of section 44BB of the Act?" 6. It is submitted by Mr Kamal Sawhney, learned Senior Standing Coun .....

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e Supreme Court in Chowringhee Sales Bureau Pvt. Ltd. v. Commissioner of Income-tax [1973] 87 ITR 542 and George Oakes (P.) Ltd. v. State of Madras [1962] 2 SCR 570. According to him, the decision of the Uttarakhand High Court in DIT v. Schlumberger Asia Services Ltd. (2009)317 ITR 156 was distinguishable on facts since it related to payment of customs duty. 7. Mr Piyush Kaushik, learned counsel for the Assessee, on the other hand, submitted that CBDT Circular No. 4/2008, dated 28th April 2008 a .....

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les tax and excise duty. He also referred to the decision of the Supreme Court in CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) where again the same question was considered and this time, the Supreme Court also took note of the earlier decision in Chowringhee Sales Bureau (supra). Mr. Kaushik also referred to the decisions in DIT v. Schlumberger Asia Services Ltd (supra), Sedco Forex International Inc. v. CIT 299 ITR 238 (Uttarakhand) and the decision of this Court in CIT Tax-XI v. M/s DL .....

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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 amo .....

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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 outside India." 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 44 BB. It introduces the concept of presumptive income and states that 10% credit of the amounts paid or payable or deemed to be rece .....

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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 (1) read with Sect .....

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n 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 ₹ 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 .....

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dity 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 d .....

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' 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 Co .....

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f '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 .....

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sessee. 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 se .....

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r 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 agen .....

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