Tribunal rules in favor of excluding service tax from gross receipts under Section 44BB

The Tribunal dismissed the Revenue's grounds, affirming that service tax should not be included in the gross receipts for the purpose of Section 44BB. The issue of interest under Sections 234B and 234C was remanded to the AO for reassessment based on the revised gross receipts. The appeal of the Department was partly allowed for statistical purposes, with the Tribunal upholding the exclusion of service tax from gross receipts under Section 44BB, following the Delhi High Court's decision in Mitchell Drilling.

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Issues Involved:

1. Includibility of service tax in gross revenue under Section 44BB of the Income Tax Act, 1961.
2. Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

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

The assessee, a non-resident company incorporated under the laws of Australia, engaged in drilling operations for ONGC Ltd., claimed that service tax collected should not be included in the gross receipts for taxation under Section 44BB of the Income Tax Act, 1961. The Assessing Officer (AO) disagreed, adding Rs. 114,351,759/- received as service tax to the gross revenue, arguing that Section 44BB is a self-contained code that includes all receipts for computing profits.

The Department contended that service tax should be included in the gross receipts as per Section 44BB, referencing various judicial precedents where similar inclusions were upheld. The Department cited cases such as Halliburton Offshore Services Inc and Ensco Maritime Ltd., where reimbursements were included in the gross receipts under Section 44BB.

The assessee countered by citing 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 for computing presumptive income under Section 44BB. The Tribunal agreed with this view, noting that service tax does not have any element of income and is merely collected on behalf of the government. The Tribunal referenced the CBDT Circulars No. 4/2008 and No. 1/2014, which clarified that service tax should not be included in the taxable income.

Therefore, the Tribunal dismissed the Revenue's grounds, affirming that service tax should not be included in the gross receipts for the purpose of Section 44BB.

2. Levy of Interest under Sections 234B and 234C:

The assessee also challenged the levy of interest under Sections 234B and 234C, which was initially upheld by the AO. The CIT(A) ruled in favor of the assessee, stating that the issue was covered by the decision in the case of M/s Maersk, where it was held that non-resident assessees are not liable to pay advance tax if the payer fails to deduct tax at source.

The Department argued that the CIT(A) erred in applying the Maersk decision, as it did not establish a general rule that interest under Section 234B is not chargeable in all cases. The Department cited the Delhi High Court's decision in M/s Mitsubishi and M/s Alcatel Lucent, which emphasized the need to ascertain the role of the assessee in the non-deduction or short-deduction of tax before deciding on the liability to pay interest under Section 234B.

The Tribunal restored the issue to the AO for re-examination in light of the relief granted to the assessee regarding the inclusion of service tax in gross receipts. The AO was directed to reassess the liability of the assessee under Sections 234B and 234C after considering the revised gross receipts.

Conclusion:

The appeal of the Department was partly allowed for statistical purposes. The Tribunal upheld the exclusion of service tax from gross receipts under Section 44BB, following the Delhi High Court's decision in Mitchell Drilling. The issue of interest under Sections 234B and 234C was remanded to the AO for reassessment based on the revised gross receipts.

Order Pronounced:

The order was pronounced in the Open Court on 29th April 2016.

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