2015 (1) TMI 355 - AT - Income Tax

ITAT ruling on service tax inclusion in gross receipts under sections 44BB & 44AB

Ensco Maritime Limited, C/o. Nangia & Co. Versus Asstt. Director of Income Tax (International Taxation)

The ITAT partially allowed the appeal, ruling in favor of the assessee on the inclusion of service tax charged in gross receipts under section 44BB, ... Determination of income u/s 44BB - mobilization revenue proportionate to the voyage undertaken by the rig outside Indian territorial waters to be included in gross receipts or not – Nature of mobilization/demobilization activities - Held that:- Following the decision in WesternGeco Interational Ltd Gurgaon. Versus ADIT International Taxation, Dehradun [2014 (10) TMI 735 - ITAT DELHI] - the entire payment in question was made for the purpose of execution of the contract in India - Mobilisation is a stage payment, as part of the total consideration for execution of the contract - The assessee would be moving its machinery from one place of work to another place of work - Mobilisation is paid as an advance for such movement and is generally adjusted against running bills - Mobilisation is an incidental activity to the main activity of carrying out the contract in India – Decided against assessee. Determination of income u/s 44BB - Reimbursement of expenses to be included in the gross receipts for the purpose of determining income or not – Held that:- Following the decision in M/s Sedco Forex International Drilling Inc C/o Nangia & Company Versus Assistant Director of Income Tax, International Taxation [2014 (1) TMI 1322 - ITAT DELHI] - 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. Determination of income u/s 44BB - Receipts against the service tax to be included in the gross receipts for the purpose of determining income or not - Held that:- Following 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] - The service tax is a statutory liability like custom duty - service tax being a statutory liability, would not involve any element of profit and accordingly, it could not be included in the total receipts for determining the presumptive income - service tax 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 – Decided in favour of Assessee. Issues Involved:1. Inclusion of mobilization revenue in gross receipts for income determination under section 44BB.2. Inclusion of receipts against reimbursement of expenses in gross receipts for income determination under section 44AB.3. Inclusion of service tax charged in gross receipts for income determination under section 44BB.Analysis:Issue 1: Mobilization RevenueThe assessee challenged the inclusion of mobilization revenue in gross receipts under section 44BB. The ITAT referred to a previous decision and held that mobilization revenue is part of the total consideration for executing a contract in India and not a separate payment for transportation outside India. The ITAT dismissed the appeal, stating that mobilization is an incidental activity to the main contract execution in India, following the judgment of the Hon'ble Uttarakhand High Court.Issue 2: Reimbursement of ExpensesThe dispute involved the inclusion of receipts against reimbursement of expenses in gross receipts under section 44AB. The ITAT relied on a previous decision and ruled against the assessee, stating that such reimbursements are to be included in gross receipts for income determination. The ITAT followed the judgment of the Hon'ble Jurisdictional High Court, rejecting the appeal based on the applicability of a similar case law.Issue 3: Service Tax ChargedRegarding the inclusion of service tax charged in gross receipts under section 44BB, the ITAT considered a previous decision and favored the assessee. The ITAT held that service tax is a statutory liability and does not involve any profit element, hence should not be included in gross receipts for income determination. The ITAT directed the Assessing Officer to exclude service tax from gross receipts, following the decision of the Hon'ble Jurisdictional High Court.In conclusion, the ITAT partially allowed the appeal, deciding each issue based on relevant judgments and legal interpretations. The judgment provided detailed reasoning for each issue, citing applicable case laws and maintaining consistency with previous decisions.