2013 (10) TMI 743 - AT - Income Tax

Appeal partially allowed: Service tax included in gross receipts, interest issue ruled in favor of assessee

The Tribunal partly allowed the appeal. It upheld the inclusion of service tax in gross receipts under section 44B but dismissed the argument regarding ... Inclusion of statutory taxes in gross receipts for presumptive taxation under section 44B - Deeming nature of section 44B and exclusion of sections 28-43A - Service tax as trading/business receipt reflected in invoices - Distinction between receipts and element of profit for computing presumptive income - Agent-versus-principal character of statutory levy collected on behalf of government - Interest liability under section 234B where deductor/payer is statutorily obliged to deduct tax at sourceInclusion of statutory taxes in gross receipts for presumptive taxation under section 44B - Service tax as trading/business receipt reflected in invoices - Deeming nature of section 44B and exclusion of sections 28-43A - Distinction between receipts and element of profit for computing presumptive income - Service tax collected by the assessee forms part of the aggregate amount for computing presumptive income under section 44B. - HELD THAT: - The Tribunal held that section 44B is a special deeming provision which computes profits of a non-resident shipping business as 7.5% of the aggregate amounts paid or payable or received or deemed to be received on account of carriage of passengers, livestock, mail or goods. The provision overrides sections 28-43A for computation, and the aggregate includes amounts such as demurrage, handling charges or any other similar amounts. Service tax collected in respect of carriage transactions is reflected in shipping invoices and is incidental to the carriage transaction; excluding it merely because it lacks an element of profit would be inconsistent with the legislature's choice to include various non profit elements in the aggregate. The Tribunal therefore treated service tax as part of the trading/business receipts to be included in the aggregate amount under subsection (2) of section 44B and upheld the authorities below. The Tribunal rejected the argument that service tax, being collected as a statutory levy on behalf of the Government, should be excluded from gross receipts for section 44B calculations. [Paras 8, 10, 11, 12]Service tax collected is includible in the aggregate receipts for computation of presumptive income under section 44B.Interest liability under section 234B where deductor/payer is statutorily obliged to deduct tax at source - No interest under section 234B is chargeable on the assessee where tax was required to be deducted at source by the payer and the payer failed to deduct. - HELD THAT: - Following the decision of the Bombay High Court in DIT (International Taxation) v. NGC Network Asia LLC, the Tribunal held that where the payer is under a statutory duty to deduct tax at source and fails to do so, interest under section 234B cannot be fastened on the payee. Applying that principle, the Tribunal decided the assessee's challenge to the levy of interest in its favour. [Paras 14]Assessee is not liable to pay interest under section 234B in the circumstances; this ground is allowed.Final Conclusion: The appeal is partly allowed: the inclusion of service tax in the aggregate receipts for computation of presumptive income under section 44B is upheld, the challenge to attribution (ground 2) is rejected as devoid of merit in view of that finding, and the levy of interest under section 234B is set aside in favour of the assessee. Issues Involved:1. Inclusion of service tax in gross receipts for determining taxable income under section 44B.2. Attribution of income when Indian agent is remunerated at arm's length.3. Levy of interest under section 234B.Issue-Wise Detailed Analysis:1. Inclusion of Service Tax in Gross Receipts:The primary issue revolves around whether the service tax collected by the assessee should be included in the gross receipts for determining taxable income under section 44B of the Income Tax Act. The assessee, a Hong Kong-based company engaged in the operation of ships, argued that service tax is a statutory levy collected on behalf of the government and should not be considered part of gross receipts. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disagreed, including the service tax in the gross receipts.The Tribunal examined various arguments and precedents. The assessee cited the Supreme Court decision in Union of India v. Gosalia Shipping (P.) Ltd. and the Tribunal's decision in Islamic Republic of Iran Shipping Lines, arguing that service tax should not be included as it does not involve profit. However, the Department Representative (DR) argued that under section 44B, all amounts received or receivable, including service tax, should be considered.The Tribunal noted that section 44B overrides sections 28 to 43A and mandates that 7.5% of the aggregate amounts paid or payable for carriage of goods or passengers be deemed as profits. The Tribunal emphasized that service tax, being part of the invoices for shipping services, is a trading receipt and should be included in the gross receipts. The Tribunal upheld the AO and DRP's decision to include service tax in the gross receipts for determining taxable income under section 44B.2. Attribution of Income When Indian Agent is Remunerated at Arm's Length:The assessee contended that since its Indian agent was remunerated at arm's length, no further attribution of income should be made. The Tribunal, referencing its findings on the inclusion of service tax, found no merit in this ground. The Tribunal reiterated that the profit and gain are estimated without regard to the element of profit in the receipts, thus dismissing the assessee's argument.3. Levy of Interest Under Section 234B:The assessee challenged the levy of interest under section 234B, arguing that it was not liable to pay advance tax as its income was subject to tax deduction at source (TDS). The Tribunal referred to the jurisdictional High Court's decision in DIT (International Taxation) v. NGC Network Asia LLC, which held that when the payer is required to deduct tax at source, no interest can be charged from the payee under section 234B for the payer's failure to deduct tax. Following this precedent, the Tribunal decided in favor of the assessee, ruling that interest under section 234B should not be levied.Conclusion:The appeal was partly allowed. The Tribunal upheld the inclusion of service tax in gross receipts under section 44B and dismissed the ground regarding attribution of income due to arm's length remuneration of the Indian agent. However, the Tribunal ruled in favor of the assessee on the issue of interest under section 234B, following the jurisdictional High Court's decision. The order was pronounced on August 23, 2013.