2021 (11) TMI 1179 - AT - Income Tax

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

Deputy Commissioner of Income Tax (International Taxation), Circle-I, Dehradun Versus M/s. Transocean Offshore International Ventures Ltd.

The ITAT Delhi ruled that service tax should be excluded from gross receipts when computing presumptive income under Section 44BB. Following precedents ... Computing the presumptive income for the purposes of Section 44BB - service tax includable in the gross revenue for computing profits under presumptive provisions of section 44BB or not? - HELD THAT:- It is seen that the issue of excludability of service tax in the gross receipts is squarely covered by the judgment of Mitchell Drilling International Pty Limited [2015 (10) TMI 259 - DELHI HIGH COURT] as held that service tax being statutory levy should not form part of gross receipts as per provisions of section 44BB. Further in the case of DIT International Taxation Vs M/s Schlumberger Asia Services Ltd [2019 (4) TMI 1177 - UTTARAKHAND HIGH COURT] held that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section(2) of Section 44BB. As spelt that even otherwise, it is not every amount paid on account of provision of services and facilities which must be deemed to be the income of the assessee under Section 44BB. It is only such amounts, which are paid to the assessee on account of the services and facilities provided by them, in the prospecting for or extraction or production of mineral oils, which alone must be deemed to be the income of the assessee. Thus service tax receipts donot form part of receipts for computation of income in the section 44BB - Decided against revenue. 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.