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2017 (1) TMI 1137 - ITAT MUMBAI

2017 (1) TMI 1137 - ITAT MUMBAI - TMI - Inclusion of service tax for the purpose of presumptive income under Section 44B - Held that:- Following the decision of the Coordinate Bench in the assessee’s own case for A.Y. 2007-08 [2013 (10) TMI 743 - ITAT MUMBAI] we hold that service tax collected by the assessee would form part and parcel of the aggregate amount as specified under sub section (2) of section 44B of the Act for the purpose of determining the income/profit and gain thereunder. We, the .....

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- Dated:- 20-1-2017 - Shri Jason P. Boaz, Accountant Member and Shri Ram Lal Negi , Judicial Member For The Appellant : None For The Respondent : Shri Subchan Ram ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order assessment for A.Y. 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act'), dated 20.10.2014 pursuant of the directions of the Dispute Resolution Panel-III, (DRP), Mumbai issued under section 144 .....

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The learned DDIT failed to appreciate the fact that service tax collected by the Appellant is not includible in computing the total income under Section 44B of the Act since service tax is a statutory levy and the appellant only acts as agent on behalf of Government for collection and deposit of service tax into the treasury and therefore, the amount so collected should not form part of gross freight for computing the taxable income; 1.3 The learned DDIT failed to appreciate the fact that servic .....

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lected by the Appellant and subsequently deposited with the government treasury does not entail any profit element, as such it should not form part of total income under Section 44B of the Act. The Appellant humbly prays that the learned DDIT be directed not to include service tax collected and paid for the purpose of computing presumptive income under 44B of the Act. 2 GROUND 2: Initiation of penalty proceeding for the levy of penalty under Section 271(1)(c) 2.1 The learned DDIT erred in initia .....

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none was present for the assessee. In these circumstances, we are of the view that the assessee is not interested on pursuing this appeal and therefore proceed to dispose off the same with the assistance of the learned D.R. and the material on record. 3. Ground No. 1 (1.1 to 1.4) - Inclusion of service tax for the purpose of presumptive income under Section 44B of the Act. 3.1 At the outset of the hearing, the learned D.R. for Revenue submitted that the issue raised by the assessee in this grou .....

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ssing the impugned order. It is prayed that in view of the above, the assessee s appeal for this year be dismissed. 3.2.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record; including the judicial pronouncements cited by both the learned D.R. for Revenue (supra) and by the assessee in the grounds of appeal (supra). We find that, as contended by the learned D.R. for Revenue, the issue of inclusion of service tax in gross receipts for the purpose .....

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With a view to simplify and rationalise 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 payab .....

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outside India on account of carriage or shipped at any port in India plus any amount received or deemed to received 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 ride .....

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as under: 9. The fact that the appellant credited the amount received as sales-tax under the head sales-tax collection 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 .....

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separate ledger termed empty bottles return security deposit account , this Court observed. 9. It is clear from the decision of Hon ble Supreme Court that this issue of the amount 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 o .....

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urces Contracting B.V (Supra) wherein the Tribunal has relied upon the decision of Hon ble Uttarakhand High Court in case of Sedko Forex Inc. (supra) and held that service tax collected 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 .....

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ver as well as total turnover and the Hon ble High Court has held that the Excise Duty and sales tax cannot be taken into account into turnover as they do not have any element of profit. This view has been taken by the Hon ble High Court by drawing analogy 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 Co .....

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ing anything to the contrary contained in sections 28 to 43A in the case of an assessee, being a nonresident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in subsection (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 be .....

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he amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature. 10. As we have already mentioned that the provisions of section 44B has been brought into statute to simplify the determination of taxable income of the non-resident 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 su .....

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outside India. Therefore, the said amount of service tax is a part of the invoices/bills raised in respect of shipping business. The exclusion of the said amount only on the ground that it has no element of profit in our view is not consistent with the intention of the legislature when the amount received or deemed to be received by way 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. T .....

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ve been included in the aggregate amount for the purpose of determining the presumptive income because the demurrage charges and handling charges also not having any element of profit. Since the service tax Act has been came into force subsequent to the insertion of the explanation therefore, there was no reason/occasion for including the service tax along with the demurrage charges and handling charges in the explanation however when any other amount of similar nature is required to be included .....

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or goods shipped would be part of such amount for computation of profit and gains u/s 44B. Thus, the theory of element of profit would not apply to the aggregate amount as specified in sub- ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd. 13 section 2 of section 44B. Moreover service tax is incidental to the transactions of carriage of passengers etc. and goods shipped and the amount paid or payable to and received or receivable by the assessee on account of service tax is .....

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