2017 (9) TMI 1283 - AT - Income Tax

Service tax receipts excluded from gross revenue for profit computation under Income Tax Act

DCIT Circle – II, International Taxation, Dehradun Versus Sundowner Offshore International (Bermuda) Ltd. C/o M/s Nangia & Co.

The Tribunal upheld that service tax receipts should not be included in the gross revenue for computing profits under section 44BB of the Income Tax Act, ... Computation of the taxable income under Section 44BB - Receipts on account of service tax - non inclusion in gross revenue of the assessee for the purpose of computation of profits under the presumptive provisions of u/s 44BB - Held that:- This issue stands covered by the judgment of DIT vs. Mitchell Drilling International Pvt. Ltd.(2015 (10) TMI 259 - DELHI HIGH COURT) wherein held for the purposes of computing the ‘presumptive income’ of the assessee for the purposes of Section 44 BB of the Act, the service tax collected by the Assessee on the amount paid t it for rendering services is not to be included in the gross receipts in terms of Section 44 BB (2) read with Section 44 BB (1). The service tax is not an amount paid or payable, or received or deemed to be received by the Assessee for the services rendered by it. The Assessee is only collecting the service tax for passing it on to the government. We find that in the assessee’s own case for the earlier year, the Tribunal has allowed this issue in favour of the assessee. Accordingly, following the binding judicial precedence, we decide this issue in favour of the assessee that service tax element cannot be included in the gross receipts for the purpose of computing the profit and thus, the grounds raised by the Revenue are dismissed. Issues:1. Inclusion of service tax receipts in gross revenue for computing profits under section 44BB of the Income Tax Act, 1961.Analysis:1. The appeal was filed by the Revenue against the order of the ld. CIT (Appeals)-II, Dehradun regarding the inclusion of service tax receipts in the gross revenue for computing profits under section 44BB of the Income Tax Act, 1961 for the assessment year 2010-11. The Revenue contended that the service tax receipts should be included in the gross revenue for computing profits under section 44BB. The key issue was whether the service tax receipts should be considered as part of the gross revenue for the purpose of computation of profits under section 44BB.2. The assessee argued that the issue had been previously decided in their favor by the Tribunal in their own case for the assessment year 2010-11 and was supported by a judgment of the Hon'ble Delhi High Court in another case. The Revenue, on the other hand, relied on the order of the Assessing Officer to include the service tax receipts in the gross revenue. The primary contention revolved around the interpretation of section 44BB and whether service tax receipts were to be treated as part of the gross revenue for profit computation.3. The Assessing Officer had held that the entire receipts, including service tax receipts, should be considered to determine the deemed profit of the assessee under section 44BB. The ld. CIT(A), following a Tribunal's order in a similar case, allowed the assessee's appeal. The Hon'ble Delhi High Court's judgment in the case of DIT vs. Mitchell Drilling International Pvt. Ltd. was referred to, which emphasized that service tax collected by the assessee does not form part of the gross receipts for computing presumptive income under section 44BB.4. The Hon'ble Delhi High Court, in its judgment, analyzed various precedents and held that service tax collected by the assessee should not be included in the gross receipts for computing presumptive income under section 44BB. The Court emphasized that service tax is collected by the assessee as a collecting agency for the government and does not constitute income. The judgment was supported by circulars issued by the CBDT. The Tribunal decided in favor of the assessee based on the binding judicial precedence and dismissed the Revenue's appeal.5. Therefore, the Tribunal upheld the decision that service tax receipts should not be included in the gross revenue for the purpose of computing profits under section 44BB of the Income Tax Act, 1961. The appeal of the Revenue was dismissed based on the legal interpretation provided by the Hon'ble Delhi High Court and CBDT circulars.