2013 (11) TMI 419 - AT - Income Tax

Service tax not taxable income: Tribunal upholds CIT(A)'s decision.

ADIT (IT) 3(1), Mumbai Versus Haldor Topsoe A/s, C/O. Vijay Deepak & Co.

The Tribunal dismissed the department's appeals, affirming the CIT(A)'s decision that service tax collected by the assessee should not be considered part ... Whether amount of service tax is part of ‘Fees for Technical Services’ – Held that:- Following Veolia Ea-Compagnie [2013 (11) TMI 418 - ITAT CHENNAI] - Reimbursement of service tax could not form part of taxable income of the assessee - Fee for technical services is for the services rendered by the assessee and service tax collected by the assessee from the recipient of services on such fee would not form part of fee for technical services – Decided against Revenue. Issues:Department's appeal against CIT(A) orders regarding the inclusion of service tax in 'Fees for Technical Services' under the Income Tax Act, 1961.Analysis:1. Issue of Inclusion of Service Tax in 'Fees for Technical Services':- The department appealed against the CIT(A) orders concerning the treatment of service tax in the calculation of 'Fees for Technical Services' under the Income Tax Act, 1961.- The assessee, a non-resident company, contended that the service tax collected on services rendered and paid to the Government should not be liable to income tax.- The Assessing Officer (AO) disagreed, citing the AADT between India and Denmark and the decision in Chowringhee Sales Bureau Pvt Ltd vs. CIT, holding that service tax should be included in the gross amount of royalties/fees for technical services for tax calculation purposes.2. CIT(A)'s Decision and Rationale:- The CIT(A) ruled that service tax paid by the service procurer to the provider should not be considered as fees for technical services.- He emphasized that service tax is a government levy collected from the service provider, with an overriding title to be paid to the government, devoid of any profit element for the service provider.- Consequently, the CIT(A) directed the AO to delete the income tax levied on the service tax collected by the assessee for the relevant assessment years.3. Arguments and Counter-Arguments:- The Departmental Representative supported the AO's stance, equating service tax to sales tax and justifying its inclusion in the gross receipt for tax purposes.- The assessee's representative argued that service tax is collected on behalf of the government and is not a receipt for the assessee, citing relevant circulars and distinguishing the case from Chowringhee Sales Bureau Pvt Ltd.- Reference was made to a similar case before ITAT, Chennai Bench, where service tax was considered a reimbursement to the government and not part of the assessee's trading receipt.4. Tribunal's Decision and Precedents:- The Tribunal reviewed the arguments and the decision in a similar case involving service tax reimbursement, where it was held that service tax should not form part of the taxable income.- It was clarified that service tax is not an expense incurred by the assessee but a statutory levy on service recipients, with the government having an overriding right on the amount collected.- Citing Section 44D and Section 115A of the Income Tax Act, the Tribunal upheld the CIT(A)'s decision, emphasizing that service tax collected by the assessee should not be considered as part of the assessee's receipts.5. Final Verdict:- The Tribunal dismissed the department's appeals for the assessment years in question, affirming the CIT(A)'s decision that service tax collected by the assessee should not be treated as part of the assessee's receipts for tax calculation purposes.- The Tribunal's decision was based on the precedent set by a co-ordinate bench, supporting the view that service tax reimbursement does not constitute taxable income for the assessee.In conclusion, the Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee regarding the non-inclusion of service tax in 'Fees for Technical Services' for tax calculation purposes, based on established legal principles and precedents.