2013 (11) TMI 419 - AT - Income Tax

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

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 ... Fees for Technical Services - service tax is reimbursement and not part of gross trading receipts - gross amount of royalties or fees for technical services - distinguishing Chowringhee Sales Bureau on statutory levy collected on behalf of GovernmentFees for Technical Services - service tax is reimbursement and not part of gross trading receipts - gross amount of royalties or fees for technical services - Whether service tax collected by the non-resident assessee from recipients of services forms part of the gross amount of fees for technical services taxable at the prescribed gross rate. - HELD THAT: - The Tribunal affirmed the view of the CIT(A) that service tax collected from the consumer is a statutory levy on the consumer, collected for and payable to the Government, and therefore lacks any profit element to the service provider. Reliance was placed on a coordinate-bench decision in Veolia Ea-Compagnie and on ITAT, Hyderabad (Louis Berger International Inc.) which held that service tax received is in the nature of reimbursement and cannot be treated as trading receipt or part of fee for technical services. The Tribunal noted that Chowringhee Sales Bureau (sales tax treated as part of trading receipt) was considered and distinguished on the basis that service tax is a statutory levy collected on behalf of Government and is paid over; it is not part of the fee earned by the assessee and thus should not be included in the gross amount for levy of tax at the prescribed flat rate under the relevant provisions. No contrary binding decision was placed before the Tribunal; accordingly the Tribunal held that the CIT(A)'s conclusion that such service tax is not taxable in the hands of the assessee was correct. [Paras 6, 7]The orders of the CIT(A) were upheld and the department's appeals rejecting inclusion of service tax in the gross amount of fees for technical services were dismissed for both assessment years.Final Conclusion: The Tribunal dismissed the departmental appeals for assessment years 2001-02 and 2003-04, confirming that service tax collected and paid to the Government is a reimbursement and not includible in the assessee's gross fees for technical services for taxation at the prescribed gross rate. 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.