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2016 (6) TMI 130 - ITAT DELHI

2016 (6) TMI 130 - ITAT DELHI - TMI - Receipts on account of services tax - whether not includible in gross revenue of the assessee for the propose of computation of profits under the presumptive provisions u/s 44BB? - Held 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 (2015 (10) TMI 259 - DELHI HIGH COURT ) wherein the Hon'ble Delhi High Court h .....

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- 29-4-2016 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Anuj Arora, CIT DR For The Respondent : Shri Amit Arora, CA ORDER 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. 2. The assessee is a non-resident company incorporated under the laws of Australia. During the year unde .....

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ssessment proceedings, the Assessing Officer came to know that an amount of ₹ 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 ass .....

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pinion that for the purpose of presumptive determination of the assessee s profit, the quantum 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 ₹ 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 ₹ 225,347,824/- to the gross receipts on account .....

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ase 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 selfcontained code providing for computation of profits at a fixed percentage of gross receipts of the assess .....

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pler 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 sa .....

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e 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 w .....

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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). 4. 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 .....

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the aggregate amount received be included in total income for taxation under section 44BB: [2008] 169 TAXMAN 138 (UTTARAKHAND) Halliburton Offshore Services Inc Reimbursement of freight and transportation charges [2009] 181 TAXMAN 46 (UTTARAKHAND) Ensco Maritime Ltd. Reimbursement of catering Charges [2009] 181 TAXMAN 144 (UTTARAKHAND) RBF Rig Corporation Reimbursement fuel expenses (2008) 170 Taxman 459(UTTARAKHAND) Sedco Forex International Inc. Mobilization charges [2008] 170 TAXMAN 286 (UTT .....

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tions and exclusions in assessment to opt to proceed under section 44BB (3). (iii) Once the receipts are offered to tax u / s 44BB (1) & (2), which provides for computation of profits on gross basis, there is no scope for computing or recomputing 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 .....

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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 TAX / RECEIPT [1997] 228 ITR 112 (All) Jagdish Prasad Nigam Excise Duty .....

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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' (assesse .....

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and the quantum of interest has to be essentially worked out by the Assessing Officer. 9. 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 Mi .....

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per provisions of section 44BB of the Act. The relevant observations of the Hon'ble High Court are 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 extra .....

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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 Ind .....

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mounts 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 .....

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ction 44 BB (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 in the sum of ₹ 32,986 was collected and kept by the Assessee in a separate .....

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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 C .....

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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 .....

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. 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 .....

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ndustries 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 .....

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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 positio .....

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