GST amounts excluded from gross receipts computation under section 44BB for non-resident offshore drilling services provider

ITAT Mumbai held that GST amounts should be excluded from gross receipts computation under section 44BB for a non-resident Brazilian company providing offshore drilling services to ONGC. The tribunal ruled that GST collected from customers and remitted to government cannot be considered as income for presumptive taxation purposes. Following CBDT circulars and precedents including Schulumberger Asia Services Limited and McDermott International Management, the court determined that only amounts constituting actual business income should be included in section 44BB calculations, not tax components collected on behalf of government.

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Issues Involved:
1. Whether the GST amount paid by the assessee should be included while computing the gross receipts under Section 44BB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of GST in Gross Receipts under Section 44BB:
The primary issue in this appeal was whether the GST amount paid by the assessee should be included while computing the gross receipts under Section 44BB of the Income Tax Act.

Background:
The assessee, a non-resident company incorporated under Brazilian law, engaged in providing onshore and offshore oil well drilling services, entered into a contract with ONGC for the charter hire of a drilling rig. The assessee filed its return of income for the Assessment Year 2021-22, declaring a total income of Rs. 22,42,84,694/-. The Assistant Commissioner of Income Tax (A.O.) observed that the assessee excluded Rs. 27,28,69,105/- received as 'reimbursement of service tax' from the total receipts while computing the deemed profit under Section 44BB. The A.O. proposed to include this amount in the gross receipts, determining the total income at Rs. 25,15,71,604/-. The Dispute Resolution Panel (DRP) upheld this inclusion.

Arguments by the Assessee:
The assessee contended that the service tax collected and paid to the government should not form part of the aggregate income under Section 44BB. The assessee relied on several judicial precedents, including:
- DIT (IT) vs. Schlumberger Asia Services Limited (Uttarakhand High Court)
- DIT vs. Mitchell Drilling International (P) Ltd. (Delhi High Court)
- ACIT Int. Taxation vs. McDermott International Management (ITAT Delhi)

Additionally, the assessee cited CBDT Circulars No. 1/2014 and No. 4/2008, which clarified that service tax should not be included in the gross receipts for computing income.

Arguments by the Revenue:
The Revenue argued that the GST amount has a direct nexus to the services rendered by the assessee and should be included in the gross receipts under Section 44BB. The Revenue relied on:
- Clause (2)(b) of Section 44BB, which includes 'amount received' or 'deemed to be received' in India.
- The decision of the Hon'ble Apex Court in Sedco Forex International Inc. vs. CIT.
- The decision of the Uttarakhand High Court in CIT vs. Halliburton Offshore Service Inc.

The Revenue contended that the special provision under Section 44BB, being a complete code for determining profits and gains, should include the GST amount in the gross receipts.

Tribunal's Analysis:
The Tribunal examined the rival submissions and materials on record. It noted that Section 44BB is a special provision for computing profits and gains from the business of exploration of mineral oils, which includes a presumptive income rate of 10%. The Tribunal emphasized that the intention of the legislature was to tax the income derived from the business activities and not the statutory taxes like GST collected on behalf of the government.

The Tribunal referred to the decision of the Delhi High Court in DIT vs. Mitchell Drilling International (P) Ltd., which held that service tax collected by the assessee does not have any element of income and should not be included in the gross receipts under Section 44BB. The Tribunal also considered the CBDT Circulars, which clarified that service tax should not be included in the gross receipts for computing income.

Conclusion:
The Tribunal concluded that the GST/service tax collected by the assessee should not be included in the gross receipts while computing the profits and gains under Section 44BB. The Tribunal allowed the appeal filed by the assessee, setting aside the final assessment order that included the GST amount in the gross receipts.

Order Pronounced:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 09.09.2024.

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