2014 (1) TMI 1322 - AT - Income Tax

ITAT ruling: Service tax receipts excluded from income but expense reimbursements included.

The ITAT allowed the appellant's appeal partially by excluding service tax receipts from gross receipts for income determination under section 44BB of the ... Determination of income u/s 44BB of the Act - Receipts of service tax to be included in gross receipts – Held that:- The decision in M/s Sedco Forex International Drilling Inc., C/o Nangia & Co., Versus Additional DIT, International Taxation, Dehradun [2012 (7) TMI 250 - ITAT, DELHI] followed - The service tax is a statutory liability like custom duty - reimbursement of custom duty paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement - service tax being a statutory liability, would not involve any element of profit and accordingly, the same could not be included in the total receipts for determining the presumptive income - The AO is directed to exclude service tax from the gross receipts for the purpose of determining the income under Section 44BB of the Income-tax Act, 1961 – Decided in favour of Assessee. Amount included in gross receipts u/s 44BB of the Act - Reimbursement of actual expenses – Held that:- The decision in CIT and Another Vs. Halliburton Offshore Services Inc. - [2007 (9) TMI 230 - UTTARAKHAND HIGH COURT] followed - The amount had been received by the assessee - Therefore, the Assessing Officer added the said amount which was received by the non-resident company rendering services under the provisions of section 44BB and imposed the income tax – Decided against Assessee. Issues:1. Inclusion of service tax receipts in gross receipts for income determination under section 44BB of the Income-tax Act, 1961.2. Inclusion of amounts received as reimbursement of expenses in gross receipts under section 44BB of the Income Tax Act, 1961.Analysis:Issue 1: Inclusion of service tax receipts in gross receipts for income determination under section 44BB of the Income-tax Act, 1961.The appellant contested the inclusion of service tax receipts in gross receipts for income determination under section 44BB. The ITAT referred to a previous decision in the appellant's own case for AY 2008-09, where it was held that service tax, being a statutory liability, should not be considered as part of the amount for deemed profits under section 44BB. The ITAT relied on the decision of the Hon'ble Jurisdictional High Court and the Mumbai Bench, concluding that service tax does not involve any profit element and should be excluded from total receipts for determining presumptive income. As no contrary decision was presented, the ITAT directed the Assessing Officer to exclude service tax from gross receipts for income determination under section 44BB, thereby allowing the appellant's appeal on this issue.Issue 2: Inclusion of amounts received as reimbursement of expenses in gross receipts under section 44BB of the Income Tax Act, 1961.The appellant also challenged the inclusion of amounts received as reimbursement of expenses in gross receipts under section 44BB. During the hearing, the appellant's counsel acknowledged that the issue was unfavorable to the appellant based on a decision of the Hon'ble Jurisdictional High Court in a similar case. The ITAT cited the case where the High Court upheld the Assessing Officer's decision to include amounts received as reimbursement in the income calculation under section 44BB. Consequently, the ITAT rejected the appellant's argument on this issue, aligning with the precedent set by the High Court. Therefore, the appellant's appeal on this matter was dismissed.In conclusion, the ITAT partially allowed the appellant's appeal by excluding service tax receipts from gross receipts for income determination under section 44BB but upheld the inclusion of amounts received as reimbursement of expenses in the gross receipts calculation under the same section.