Service tax receipts not part of gross revenue for profit calculation under Income Tax Act

The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that service tax receipts are not to be included in gross revenue for profit computation under Section 44BB of the Income Tax Act, 1961. The decision was based on precedents favoring the assessee, emphasizing that service tax collected is not income but a statutory levy for the government. CBDT Circulars also supported excluding service tax from gross receipts for tax purposes.

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Issues Involved:
1. Inclusion of service tax receipts in gross revenue for computation of profits under Section 44BB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Inclusion of Service Tax Receipts in Gross Revenue:

The primary issue in this appeal was whether receipts on account of service tax should be included in the gross revenue of the assessee for the purpose of computing profits under the presumptive provisions of Section 44BB of the Income Tax Act, 1961.

The revenue argued that Section 44BB is a self-contained code providing for the computation of profits at a fixed percentage of gross receipts, and all deductions and exclusions from income are deemed to have been allowed to the assessee. They contended that including service tax receipts in the aggregate amount for taxation is consistent with the principle established in the case of M/s Chowringhee Sales Bureau (P) Ltd. vs. CIT, where the Supreme Court held that sales tax collected by an assessee forms part of its business receipts.

The assessee countered by citing previous tribunal orders and a decision by the Hon'ble Delhi High Court in the case of Mitchell Drilling International Pty. Limited, which held that service tax, being a statutory levy, should not form part of gross receipts as per the provisions of Section 44BB.

Upon careful consideration, the tribunal noted that similar issues had been decided in favor of the assessee in previous appeals for AY 2008-09 and 2009-10. Specifically, the tribunal referred to the decision of the Hon'ble Delhi High Court in Mitchell Drilling International Pty. Limited, which clarified that service tax collected by the assessee and passed on to the government should not be considered part of the gross receipts for computing presumptive income under Section 44BB. The court reasoned that service tax does not constitute an amount paid or payable for the services rendered by the assessee but is merely collected on behalf of the government.

The tribunal also acknowledged the CBDT Circulars No. 4/2008 and No. 1/2014, which clarified that service tax does not partake in the nature of "income" and should not be included in the gross receipts for the purpose of tax deduction at source.

In conclusion, the tribunal held that the issue is covered in favor of the assessee by the decisions of the ITAT in the assessee's own appeals for AY 2008-09 and 2009-10, as well as the decision of the Hon'ble Delhi High Court. Therefore, the tribunal upheld the order of the CIT(A) and dismissed the appeal of the revenue, ruling that service tax receipts should not be included in the gross revenue for computing profits under Section 44BB.

Result:
The appeal of the revenue was dismissed. The tribunal upheld the CIT(A)'s order, ruling that service tax receipts are not includible in the gross revenue for the purpose of computing profits under Section 44BB of the Income Tax Act, 1961.

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