2016 (3) TMI 39 - AT - Income Tax

Inclusion of Service Tax in Gross Receipts Upheld for Taxable Income Calculation

M/s. China Shipping Container Lines (Hong Kong) Co. Ltd. Versus The Asstt. Director (Intl. Taxation) 1 (2), Mumbai

The Tribunal upheld the inclusion of service tax in gross receipts for determining taxable income under Section 44B of the Income Tax Act, dismissing the ... Computation of profit earned by non-resident from Shipping business u/s 44B - Inclusion of service tax in the gross receipts of the assessee for determination of the assessee’s taxable income as per the provisions of section 44B - Held that:- Following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for assessment year 2007-08 [2013 (10) TMI 743 - ITAT MUMBAI ] we hold that service tax collected by the assessee would form part and parcel of the aggregate amount as specified in Sub-section (2) of section 44B of the Act for the purpose of determining the profits and gains of the assessee’s business under this section. In this view of the matter, we uphold the orders of the authorities below - Decided against assessee Issues Involved:1. Inclusion of service tax collected in the gross receipts for determining taxable income under Section 44B of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Inclusion of Service Tax Collected in Gross Receipts:The primary issue in this appeal is whether the service tax collected by the assessee should be included in the gross receipts for determining the taxable income under Section 44B of the Income Tax Act, 1961. The assessee, a company engaged in the shipping business, filed its return of income for the assessment year 2010-11, declaring a total income of Rs. 1,02,53,393/-. During the scrutiny, the Assessing Officer (AO) included an additional Rs. 51,86,212/- in the gross receipts on account of service tax collected, thereby determining the income at Rs. 1,06,42,360/-.The assessee contended that service tax is a statutory levy collected on behalf of the government and does not have any profit element. Therefore, it should not be included in the gross receipts for computing taxable income. The Dispute Resolution Panel (DRP), however, upheld the AO's decision, following a precedent set by a Co-ordinate Bench of the Tribunal in the assessee's own case for the assessment year 2007-08.Upon appeal, the Tribunal examined the issue in detail. It was noted that Section 44B simplifies the assessment and computation of profits and gains from the shipping business of non-residents by deeming 7.5% of the aggregate amounts specified in sub-section (2) as taxable income. These amounts include payments made or payable for the carriage of passengers, livestock, mail, or goods shipped at any port in India, as well as amounts received or deemed to be received in India for similar services at ports outside India.The Tribunal referred to the Supreme Court's decision in Chowringhee Sales Bureau (P) Ltd., which established that sales tax receipts, although collected on behalf of the government, are treated as trading receipts. Similarly, the Tribunal reasoned that service tax, being incidental to the shipping business and included in the invoices, should be considered part of the gross receipts for computing income under Section 44B.The Tribunal also differentiated this case from the decision in CIT vs. Sudarshan Chemicals Industries Ltd., which dealt with the definition of turnover under Section 80HHC and excluded excise duty and sales tax from turnover. The Tribunal emphasized that Section 44B does not provide for such exclusions and includes demurrage and handling charges, which, like service tax, do not have a profit element but are still part of the aggregate amount for determining presumptive income.In conclusion, the Tribunal upheld the inclusion of service tax in the gross receipts for determining the taxable income under Section 44B, dismissing the assessee's appeal.Judgment:The assessee's appeal for the assessment year 2010-11 is dismissed. The service tax collected by the assessee forms part of the aggregate amount specified in Sub-section (2) of Section 44B for the purpose of determining the profits and gains of the shipping business. The orders of the lower authorities were upheld, and the Tribunal followed its earlier decision in the assessee's own case for the assessment year 2007-08.Order Pronounced:The order was pronounced in the open court on 22/01/2016.