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TMI Blog2025 (1) TMI 1531X X X X Extracts X X X X X X X X Extracts X X X X ..... of Corporate Affairs. The assessee is engaged in rendering offshore drilling services to Oil and Gas Exploration and production companies globally. The assessee was engaged by Reliance Industries Ltd. for rendering drilling, side tracking, testing, completing and plugging oil well and exploration services. The assessee filed the return of income for AY 2021-22 on 14.03.2022 declaring total income at Rs. 27,52,60,013/-. Since the assessee has undertaken work in connection with extraction of / production of mineral oils it is claimed by the assessee that it qualifies for taxation as per section 44BB of the Act at a deemed profit of 10% of gross revenues. The assessee's case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. During the course of assessment, the Assessing Officer called on the assessee to furnish the details of all receipts including reimbursement received under its contracts. The AO further called on the assessee to give reasons if any sum has been excluded from its total receipts used for computing deemed profit under section 44BB of the Act. The assessee in response to the notice submitted that a sum of Rs. 34,43,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the GST element is separately shown in the invoices raised by the assessee (page 79 of the appeal set) which substantiates the fact that GST is a separate levy collected by the assessee. The ld. AR also submitted that since the GST is collected and deposited into the Government A/c there is no element of profit included in the levy and therefore it cannot be included as the income for the purpose of section 44BB of the Act. It is also argued by the ld. AR that GST is a statutory levy and therefore, is not an income paid or payable / received or deemed to be received for provision of services or facilities for extraction or production of mineral oil in India by the assessee for the purpose of section 44BB of the Act. The ld. AR placed reliance on the decision of the Co-ordinate Bench in the case of Orient Overseas Container Line Ltd. (ITA No. 3278/Mum/2023 dated 24.10.2024) wherein the Co-ordinate Bench has held that GST cannot be considered as part of receipt for the presumptive tax under section 44B of the Act. The ld. AR argued that the ratio laid down by the Co-ordinate Bench in the context of section 444B of the Act is also applicable to section 44BB of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd GST is levied on such service charge is also indicated separately. Service charge is indicated separately and GST is levied on such service charge is also indicated separately (please refer Pages 79-80 of Factual Paperbook -DRP directions). Judicial precedents relied upon by the taxpayer Various Supreme Court and High Court rulings inter-alia including Vantage International, Transocean Offshore, Schlumberger Asia and Boskalis International Dredging, etc. CBDT circulars on tax deduction at source. Various Supreme Court and High Court rulings inter-alia including Vantage International, Transocean Offshore, Schlumberger Asia and Boskalis International Dredging, etc. CBDT circulars on tax deduction at source. Arguments/Judicial Precedents relied upon by the tax authorities Supreme Court decision in the case of Sedco Forex International Inc. Amendment to Section 145A of the Act read with Income Computation and Disclosure Standards provisions. Supreme Court decision in the case of Sedco Forex International Inc. Amendment to Section 145A of the Act read with Income Computation and Disclosure Standards provisions. 5. The ld. DR on the other hand relied on the order of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. [(4) Notwithstanding anything contained in sub-section (2) of section 32 and subsection (1) of section 72, where an assessee declares profits and gains of business for any previous year in accordance with the provisions of sub-section (1), no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year.] Explanation.-For the purposes of this section,- (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) "mineral oil" includes petroleum and natural gas." 7. For the purpose of receipt under section 44BB of the Act the assessee excluded a sum of Rs. 34,43,50,596/- being the GST component on the invoices raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25 March 2019) (followed the decision of Delhi High Court and Mitchell Drilling International Pty Ltd. (ITA No. 403/2013 and 384/2015) dated 28/09/2015 and held as under: "3. Learned Counsel for the Assessee drew our attention to a decision of the Delhi High Court in the case of Director of Income-tax-1 Vs. Mitchell Drilling International (P.) Lid 3 in which identical issue had come up for consideration. The High Court referred to the decision of this Court in the case of Sudarshan Chemicals Industries Limited (supra) which was approved by the Supreme Court in case of CIT Vs. Lakshmi Machine Works and also on the decision in the case of Schlumberger Asia Services Ltd. (supra) and held as under: "In Lakshmi Machine Works (supra), the Supreme Court approved the decision of the Bombay High Court in Sudarshan Chemicals Industries Ltd (xupra) 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a payment in consideration of the services and facilities provided by the assessee, in connection with the prospecting. extraction and production of mineral oils in India, would it then fall within the ambit of sub-section (2) of Section 44BB. 28. As the expression 'amount paid or payable' in Section 44BB(2)(a), and the expression amount received or deemed to be received in Section 44BB(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, it is only such amounts, paid or payable for the services provided by the assessee, which can form part of the gross receipts for the purposes of computation of gross income under Section 44BB(1) read with Section 44BB(2). DIT v. Mitchell Drilling International (P.) Ltd. [2015] 62 taxmann.com 24/234 Taxman 818/[2016] 380 ITR 130 (Delhi). On its literal construction, Section 44BB(2) would only be the amount paid by the ONGC to the assessee on account of (i) provision of services in connection with or (ii) supply of plant and machinery on hire used in, the prospecting, extraction and production of mineral oils. As the amount reimbursed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or by using credit or debit cards or NEFT or RTGS or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed. (2) The input tax credit as self- assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed. (3) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed. (4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and restrictions within such time as may be prescribed. b. Service tax collected in excess (unjust enrichment) Both under the Service Tax Law and GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government c. Levy is an indirect tax which can be collected from the buyer / service recipient Service Tax and GST both are an indirect tax and can be passed on by service provider to the service recipient. Relevant extract of the provisions is reproduced hereunder:" Service Tax Reference under the law, rules, etc. Provisions Reference under the law, rules, etc. Provisions Section 83 - Finance Act, 1994 Section 83 makes certain provisions of the Central Excise Act applicable, and thereunder the provisions of, among others, sections 12A and 12B of the Central Excise Act shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise Section 49(9) Of CGST Act, 2017 Every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both. Every person who has collected from any other person any amount as representing the tax under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion wherein, it is seen that service charge is indicated separately and CGST is levied on such service charge is also indicated separately. If the GST services have been indicated in the invoice separately then it cannot be included for purpose of taxation while computing the income. For instance there are various TDS provisions and CBDT has clarified through various circulars that if GST services are indicated separately in the invoice then no tax would be deducted at GST components. By way of illustration following circulars have been referred to before us under various Sections:- Sr.No. Circular No. Relevant Section Circular No. 5 of 2023 Section 194BA Circular no. 20 of 2023 Section 194-O Circular no. 12 of 2022 Section 194R Circular no. 13 of 2022 Section 194S Circular no. 13of 2021 Section 194Q 22. If we accept the contention of the revenue, then it would lead to a situation where calculation of tax of reimbursement of taxes would tantamount to collection of tax on taxes. Section 44B(2) of the Act provides for deemed taxation on amount paid or payable / received on account of 'carriage' of goods, passengers, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Section 145A restricts its ambit only to valuation of purchase and sale of goods in inventory and would not apply to service tax billed on rendering of service as service tax billed has no relation to any goods nor does it have anything to do with bringing goods to a particular location. Section 145A which is for the method of accounting which starts with 'for the purpose of determining the income chargeable under the head 'Profits and gains of business or profession', being a general provision, would not apply to the special provisions of section 44B of the Act. Further, the words "For the purpose of determining the income chargeable under the head "Profits and gains of business or profession..." in section 145A signifies that the essence of section is to compute income under the head profits and gains of business or profession which is computed as per provisions of Section 29 of the Act. On the contrary, provisions of Section 44B (1) starts with a non obstante clause "Notwithstanding anything to the contrary contained in sections 28 to 43A...". Since Section 44B overrides the provisions of Section 29 of the Act, therefore in our opinion Section 145A is not applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, CBDT has also clarified that where there is a conflict between ICDS which is a general provision and specific provisions, specific provision shall prevail. 30. Before us, the plea was taken that if GST is to be added to the amounts paid on account of taxes, then deduction of such GST is also required to be given u/s.43B. Though the provision of Section 44B overrides Section 28-43A of the Act, but other sections including Section 43B are not specifically over ridden by Section 44B. This issue has been decided by the Hon'ble Uttarakhand High Court in the case of DIT v. Schlumberger Asia Services Ltd. [2019] 414 ITR 1 (Uttarakhand) (FB) wherein it has held that the benefit of deduction of tax can be claimed by the assessee in view of section 43B(a), while computing its income under section 28, and the provisions of section 43B would prevail notwithstanding anything contained in, among others. Thus, it has been stated that invoking the provisions of Section 43B under Section 44B shall force the assessee to prepare a memorandum account wherein the specified amounts are credited and adjusted by GST due to Section 145A and correspondingly, GST discharged before the due date of filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce that the GST is a separate line item in the invoice. (ii) If GST is included in the income for applying the presumptive tax of 10% then the same would amount to tax on tax i.e. Income tax on an indirect tax levy (iii) The intention is to tax the receipt / charges / consideration arising out of the services rendered on presumptive basis and that GST being a mandatory 'statutory levy" cannot be said to be in the nature of charges / receipt / consideration (iv) Section 44B overrides the provisions of Section 29 of the Act, and therefore Section 145A is not applicable for computing deemed income under Section 44B. This should be applicable to section 44BB also. 10. We further notice that the coordinate bench in the above case has distinguished the case laws relied on by the lower authorities in assessee's case. It is also noticed that the assessee in the present case has relied on judgments as have been considered by the coordinate bench in the above case. 11. In view of these discussions and the facts in assessee's case being identical to Orient Overseas Container Line Ltd. (supra), in our considered view the ratio laid down by the Co-ordinate Bench, the above c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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