TaxTMI 
TaxTMI 
2018 (4) TMI 1363
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.... provision of bore well clean up and filtration equipment services and provision of well stimulation and services etc. The Assessing Officer assessed the receipts from Production Sharing Contract (PSC) partners engaged in oil exploration u/s 44BB of the Income Tax Act, 1961 (hereinafter called 'the Act') but the receipts from the non-PSC partners was held by the Assessing Officer (AO) to be in the nature of Fee for Technical Services (FTS)/royalty and taxable @25% of the profit u/s 44DA of Act, being effectively connected to the Permanent Establishment (PE). Further, the receipts of Rs. 6,22,05,120/- being reimbursement of Service Tax/VAT which was not offered to tax by the assessee was also taken into account for determining the tax payable as FTS/royalty. 2.1 Aggrieved, the assessee approached the Ld. Commissioner of Income Tax (Appeals) who held that the receipts of the assessee from the non-PSC partners on account of equipment rental were not in the nature of royalty u/s 9(1)(vii) of the Act r/w section 44DA of the Act but were rather eligible for treatment under presumptive provision of section 44BB of the Income Tax Act, 1961. The Ld. Commissioner of Income Tax (Appe....
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....vered by section 44DA has been specifically excluded from the scope of section 44BB for Asstt Years 2011-12 (the year under consideration) onwards. 2.1 Whether on the facts and circumstances of the case, the Ld CIT (A) has erred in ignoring the distinct scheme of taxation of Fees for Technical Services and royalty and disregarding the insertion of provisos in sections 44BB/44DA/115A and the rationale behind the introduction of said amendment in the Finance Bill 2010 in holding that the income of the assessee company from equipment rental from Non-PSC Partners was covered under the presumptive provisions of section 44BB. 2.2 The Ld. CIT (A) has erred in not appreciating the fact even in terms of ratio of the judgment in the said of OHM Ltd [(352,ITR 406 (Delhi)] cited by him, the provision of section 44BB are not applicable where the scope of the services/facilities provided by an assessee is general in nature falling under section 44DA(1) of the Act. 2.3 The Ld. CIT (A) has erred in mechanically following the decisions in the case of M/s OHM Ltd without first adjusting upon the issue as to whether and how the scope of the services/facilities rendered under the contracts is no....
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.... of Foramer France and M/s Rolls Royce Pvt. Ltd. [2007-TII-03- HC-UKHAND-INTLJ. 5. Whether on the facts and circumstances on the facts, the Ld CIT {A) has erred in reversing the action of the AO who, having held that the assessee's revenues under the Contracts with the Non-PSC Partners are liable to be taxed u/s 44DA, rightly estimated the income of the assessee by applying 25% rate of profit on gross receipts in the absence of books of accounts and details of expenses incurred in providing the services." 3. The Ld. Senior Departmental Representative (Sr. DR) supported the order of the Assessing Officer and submitted that receipt from non-PSC partners was in the nature of Fee for Technical Services and royalty and that the Assessing Officer had rightly taxed the same @25% as they were effectively engaged with the PE. It was submitted that once the receipts are characterised as royalty/FTS, the same are outside the purview of section 44BB in view of the proviso in section 44BB/44DA/115A. 3.1 With reference to the other issue, the Ld. Sr. DR submitted that VAT and Service Tax reimbursements necessarily form part of the gross receipts and the same should be taxed. 4. In respo....
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....egarding the issue of includibility of Service Tax/VAT reimbursement in the gross receipts is concerned, it is seen that the issue is squarely covered by the judgment of the Hon'ble Delhi High Court in the case of Mitchell Drilling International Pty. Limited (supra) wherein the Hon'ble Delhi High Court has held that service tax being statutory levy should not form part of gross receipts as per provisions of section 44BB of the Act. The relevant observations of the Hon'ble High Court are as under:- "8. Section 44BB (1) and (2) of the Act read as under: "44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" : Provided that this sub-....
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....provided the services can legitimately be considered to form part of the gross receipts for the purposes of computation of the Assessee's 'presumptive income' under Section 44BB of the Act. 12. In Chowringhee Sales Bureau (supra) sales tax in the sum of Rs. 32,986 was collected and kept by the Assessee in a separate 'sales tax collection account'. The question considered by the Supreme Court was: 'Whether on the facts and in the circumstances of the case the sum of Rs. 32,986 had been validly excluded from the assessee's business income for the relevant assessment year?". However, there the Assessee did not deposit the amount collected by it as sales tax in the State exchequer since it took the stand that the statutory provision creating that liability upon it was not valid. In the circumstances, the Supreme Court held that the sales tax collected, and not deposited with the treasury, would form part of the Assessee's trading receipt. 13. The decision in George Oakes (P) Ltd. (supra) was concerned with the constitutional validity of the Madras General Sales (Definition of Turnover and Validation of Assessments) Act, 1954 on the ground that the word turnover was defined to....
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....ike the aforementioned tools like interest, rent etc. 'also do not have any element of 'turn over''. 15. In CIT v. Lakshmi Machine Works (supra), the Supreme Court approved the decision of the Bombay High Court in CIT v. Sudarshan Chemicals Industries Ltd. (supra) which in turn considered the decision of the Supreme Court in George Oakes (P) Ltd. (supra). In the considered view of the Court, the decision of the Supreme Court in Lakshmi Machines Works (supra) is sufficient to answer the question framed in the present appeal in favour of the Assessee. The service tax collected by the Assessee does not have any element of income and therefore cannot form part of the gross receipts for the purposes of computing the 'presumptive income' of the Assessee under Section 44 BB of the Act. 16. The Court concurs with the decision of the High Court of Uttarakhand in DIT v. Schlumberger Asia Services Ltd (supra) which held that the reimbursement received by the Assessee of the customs duty paid on equipment imported by it for rendering services would not form part of the gross receipts for the purposes of Section 44 BB of the Act. 17. The Court accordingly holds that for the purposes of co....