Treaty treatment and section 44BB rules exclude service tax from receipts and block section 234B interest for non-residents.

Receipts from anchor handling tug supply operations are discussed in the context of India-Norway DTAA treatment versus presumptive taxation under section 44BB, with the contract viewed as a continuing arrangement whose overall character governs the applicable tax treatment. The note states that service tax collected from customers is a pass-through amount collected for remittance to the Government and is not part of gross receipts for section 44BB computation. It also records that interest under section 234B is not attracted for a non-resident where tax is deductible at source and advance tax liability does not arise in the manner contemplated by the provision.

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Issues: (i) Whether the assessee's receipts from anchor handling tug supply operations were taxable under Article 23(4) of the India-Norway DTAA or under the presumptive scheme of section 44BB of the Income-tax Act, 1961; (ii) whether service tax collected by the assessee was includible in gross receipts for computation under section 44BB of the Income-tax Act, 1961; (iii) whether interest under section 234B of the Income-tax Act, 1961 was leviable on the assessee.

Issue (i): Whether the assessee's receipts from anchor handling tug supply operations were taxable under Article 23(4) of the India-Norway DTAA or under the presumptive scheme of section 44BB of the Income-tax Act, 1961.

Analysis: The contract was treated as a continuing one and the core controversy was whether the receipts could be brought within the beneficial treaty provision relied on by the assessee. The reasoning adopted was that the earlier orders in the assessee's own case had already examined the same contract and the same line of activities, and the treaty benefit could not be denied by isolating particular clauses of the work order. The contract as a whole was held to fall within the treaty framework accepted in the assessee's favour, and the revenue's attempt to recast the receipts under section 44BB was rejected on the same factual pattern.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether service tax collected by the assessee was includible in gross receipts for computation under section 44BB of the Income-tax Act, 1961.

Analysis: The binding legal position applied was that service tax is collected only for remittance to the Government and does not constitute consideration for the services rendered. On that basis, service tax was held not to form part of the gross receipts for the purpose of computing presumptive income under section 44BB. The contrary reliance placed by the revenue was not accepted as the issue was already covered by the applicable High Court ruling.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the assessee.

Analysis: The decision proceeded on the footing that the assessee, being a non-resident whose income was subject to tax deduction at source at the payer stage, was not liable to advance tax in the manner contemplated for levy of interest under section 234B. The applicable precedent was treated as squarely governing the point, and the revenue's objection was not accepted.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The revenue's appeals for both assessment years failed in full, and the relief granted by the first appellate authority was sustained on all disputed issues.

Ratio Decidendi: Where a non-resident's receipts are governed by the applicable treaty treatment and service tax is merely a pass-through collection, such service tax is excluded from gross receipts under section 44BB; correspondingly, interest under section 234B is not attracted where the assessee is not liable to advance tax in the circumstances recognised by binding precedent.

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