Exclusion of service tax from gross revenue for profit calculation under Income Tax Act

The Tribunal held that service tax receipts should not be included in the gross revenue for computing profits under section 44BB of the Income Tax Act. Citing the decision of the Hon'ble Delhi High Court, it was determined that service tax, being a statutory levy, does not constitute income and should not be part of the gross receipts. The appeal of the revenue was dismissed based on this ruling.

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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 I.T. Act, 1961.

Detailed Analysis:

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

The primary issue in this case revolves around 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.

Arguments and Contentions:

The revenue contended that the service tax collected should be included in the gross receipts for the purpose of calculating the presumptive income under section 44BB. The Ld. DR argued that section 44BB is a self-contained code that provides for the computation of profits at a fixed percentage of gross receipts, and all deductions, exemptions, and exclusions from income are deemed to have been allowed. The DR cited several judicial pronouncements to support the inclusion of service tax in the aggregate amount brought to tax under section 44BB, emphasizing that the service tax receipt is connected with the business of exploration and extraction of oil and should be included in the aggregate amount to be taxed.

On the other hand, the assessee argued that service tax is a statutory levy and should not form part of the gross receipts as per the provisions of section 44BB. The assessee contended that service tax is in the nature of reimbursement and is collected on behalf of the government, thus it should not be considered as income-generating receipts. The assessee relied on the decision of the Hon'ble Delhi High Court in the case of DIT vs. Mitchell Drilling International Pty. Limited, which held that service tax being a statutory levy should not form part of gross receipts under section 44BB.

Judgment:

The Tribunal, after considering the rival submissions and perusing the records, held that the issue of the excludability of service tax in the gross receipts is squarely covered by the judgment of the Hon'ble Delhi High Court in the case of Mitchell Drilling International Pty Limited. The relevant observations of the High Court were noted, emphasizing that service tax collected by the assessee and passed on to the government should not form part of the gross receipts for the purposes of computation of the gross income under section 44BB.

The Tribunal concurred with the decision of the Delhi High Court, which stated that service tax does not have any element of income and therefore cannot form part of the gross receipts for the purpose of computing the presumptive income of the assessee under section 44BB. The Tribunal also noted the position clarified by the CBDT in its circulars, which stated that service tax paid by the tenant does not partake the nature of income of the landlord and should not be included in the fees for professional services or technical services for TDS purposes.

Conclusion:

The Tribunal held that the service tax receipts do not form part of the receipts for computation of income under section 44BB of the Income Tax Act. Consequently, the appeal of the revenue was dismissed.

Order:
The appeal of the revenue is dismissed. The order was pronounced in open court on the 25th day of November, 2021.

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