Service tax excluded from gross receipts when computing presumptive income under Section 44BB

The ITAT Delhi ruled that service tax should be excluded from gross receipts when computing presumptive income under Section 44BB. Following precedents from Delhi HC in Mitchell Drilling International and Uttarakhand HC in DIT International Taxation v. Schlumberger Asia Services, the tribunal held that service tax, being a statutory levy, does not constitute income of the assessee. The court emphasized that only amounts paid for actual services in mineral oil prospecting, extraction, or production qualify as deemed income under Section 44BB, not statutory reimbursements like service tax. Decision favored the assessee against revenue.

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Issues Involved:
1. Whether service tax is includable in the gross revenue for computing profits under presumptive provisions of section 44BB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Inclusion of Service Tax in Gross Revenue under Section 44BB:

The core issue in this case is whether service tax should be included in the gross revenue for computing profits under the presumptive provisions of section 44BB of the Income Tax Act, 1961.

The revenue filed appeals against the order of the CIT(A)-2, Noida, dated 27.07.2017. The assessee, a non-resident company, offered revenues to taxation under section 44BB for a contract with ONGC Ltd. The Assessing Officer (AO) added the service tax amount received to the gross revenue, arguing that it should be included for calculating the presumptive tax. The assessee contended that service tax is a statutory charge and should not be part of the gross receipts, as it acts merely as a collection agent for the government.

The Ld. DR argued that section 44BB is a self-contained code for computing profits of non-resident assessees engaged in oil exploration, and all receipts, including service tax, should be included in the aggregate amount for taxation. Several judicial pronouncements were cited to support this view, including cases involving excise duty, sales tax, and other taxes being included in the taxable receipts.

Conversely, the Ld. AR referred to the Delhi High Court's decision in DIT vs Mitchell Drilling International Pty. Limited, which held that service tax, being a statutory levy, should not form part of the gross receipts under section 44BB. The court observed that service tax collected by the assessee and passed on to the government does not constitute income and should not be included in the gross receipts for computing presumptive income.

The Tribunal reviewed the rival submissions and the relevant judicial precedents. It noted that the Delhi High Court in Mitchell Drilling held that service tax does not have any element of income and cannot form part of the gross receipts for computing presumptive income under section 44BB. The Uttarakhand High Court in DIT vs Schlumberger Asia Services Ltd. also held that reimbursements of service tax do not form part of the aggregate amount under section 44BB.

Based on these judgments, the Tribunal concluded that service tax receipts do not form part of the gross receipts for computing income under section 44BB of the Income Tax Act. Consequently, the appeal of the revenue was dismissed.

Order pronounced in open court on 25th November, 2021.

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