Exclusion of Service Tax and VAT from Gross Receipts under Section 44BB

The Tribunal allowed both appeals filed by the assessee for AY 2009-10 and AY 2010-11, holding that neither service tax nor VAT should be included in the gross receipts for the purpose of determining income under Section 44BB of the Income-Tax Act, 1961.

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Issues Involved
1. Inclusion of Service Tax in Gross Receipts for Determining Income Under Section 44BB of the Income-Tax Act, 1961.
2. Inclusion of VAT in Gross Receipts for Determining Income Under Section 44BB of the Income-Tax Act, 1961.

Issue-Wise Detailed Analysis

1. Inclusion of Service Tax in Gross Receipts for Determining Income Under Section 44BB of the Income-Tax Act, 1961

Facts and Arguments:
- The assessee, with its registered office in Bermuda and project office in Mumbai, engaged in providing services related to the exploration, exploitation, and production of mineral oil in India, filed its return of income for AY 2009-10.
- The Assessing Officer (AO) included receipts of Rs. 22,13,77,861 on account of service tax in the gross receipts for determining income under Section 44BB.
- The assessee argued that this inclusion was incorrect, citing the Delhi High Court's decision in DIT vs. Mitchell Drilling International Pvt. Ltd., which held that service tax collected by the assessee does not form part of the gross receipts for computing presumptive income under Section 44BB.

Tribunal's Analysis:
- The Tribunal referred to the Delhi High Court's interpretation in Mitchell Drilling International Pvt. Ltd., which clarified that Section 44BB introduces the concept of presumptive income and only amounts paid or payable for services provided by the assessee should be included in gross receipts.
- The Delhi High Court emphasized that service tax collected by the assessee and passed on to the government does not have any element of income and should not be included in the gross receipts for the purpose of Section 44BB.
- The Tribunal also noted that this position is supported by CBDT Circular No. 4/2008, which states that service tax collected does not partake the nature of income of the landlord and is merely collected on behalf of the government.

Conclusion:
- Based on the above legal precedents and CBDT circulars, the Tribunal concluded that the service tax collected by the assessee should not be included in the gross receipts for computing presumptive income under Section 44BB.
- The Tribunal allowed the assessee's appeal on this ground.

2. Inclusion of VAT in Gross Receipts for Determining Income Under Section 44BB of the Income-Tax Act, 1961

Facts and Arguments:
- The AO also included receipts of Rs. 7,645,919 on account of VAT in the gross receipts for determining income under Section 44BB.
- The assessee contested this inclusion, arguing that VAT, like service tax, should not be considered part of the gross receipts as it is collected on behalf of the government.

Tribunal's Analysis:
- The Tribunal considered the principles established in the case of service tax and extended them to VAT.
- It was noted that VAT collected by the assessee is also a statutory levy passed on to the government and does not constitute income for the assessee.
- The Tribunal referred to the same legal precedents and CBDT circulars that applied to service tax, concluding that VAT, like service tax, should not be included in the gross receipts.

Conclusion:
- The Tribunal held that VAT collected by the assessee should not be included in the gross receipts for computing presumptive income under Section 44BB.
- The Tribunal allowed the assessee's appeal on this ground as well.

Final Judgment
- The Tribunal allowed both appeals filed by the assessee for AY 2009-10 and AY 2010-11, holding that neither service tax nor VAT should be included in the gross receipts for the purpose of determining income under Section 44BB of the Income-Tax Act, 1961.
- The order was pronounced in the open court on June 29, 2016.

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