TaxTMI 
TaxTMI 
2024 (11) TMI 954
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.... law, the Ld. AO and Ld. DRP has erred in including an amount of Rs. 96,51,49,085, being the amount of GST charged, to the gross revenue for the purpose of computing presumptive income under section 44B of the Act. 3.2. On the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP has erred in not following the order passed by the Mumbai Bench of Hon'ble Income-tax Appellant Tribunal ('ITAT") in Appellant's own case for AYs 2007-08, 2008-09, 2010- 11, 2011-12, 2013-14, 2015-16 and 2016-17 wherein it has been held that service tax is not includible for the purpose of computing presumptive income under Section 44B of the Act. 3.3. On the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP have breached the principle of consistency and principle of judicial discipline by not following the aforesaid decisions and directions. 3.4. Without prejudice to the fact that addition of Rs. 7,23,86,182 relating to inclusion of GST in gross receipts is bad in law, Ld. AO has erred in not providing eligible treaty benefit as per Article 8 of the India-Hong Kong DTAA." 3. The brief facts are that assessee, Orient Overseas C....
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.... collected is not includible in determining the income under section 44B of the Act has been confirmed by the jurisdictional Mumbai ITAT in the assessee's own case for assessment years 2007-08 2008-09, 2010-11. 2013-14, 2015-16and 2016-17 (ITA No.7089/Mum/2010, ITA No 7365/Mum/2012, ITA No 7494/Mum/2013, ITA No 457/Mum/2015 ITA No. 2420/Mum/2017, ITA No. 6796/Mum/2018 and ITA no 6929/Mum/2019). However this decision of the Hon'ble ITAT has not been accepted by the department and further appeal filed is filed before Bombay High Court. The Department has also filed appeal for AY 2013-14 arising from the ITA no. 2420/M/2017 dated 20.11 2018 and AY 2015-16 arising from the ITA no 6796/Mum/2018 dated 15.01.2020 The Hon'ble DRP has also upheld the addition on this issue for AY 2015-16 and 2016-17 3.4 The various decisions quoted by the assessee in support of its argument are distinguishable on facts & circumstances of the case The service tax / GST is the liability of service provider Whether the assessee collects service tax / GST from service recipient or not is totally irrelevant. Even without collection of service tax / GST from the service recipient assessee will st....
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....g income u/s.44B made by the ld. AO right from A.Y.2007-08 to 2016-17 have been deleted by the tribunal. However, the Revenue's contention had been that, since department has preferred the appeal which is pending before the Hon'ble High Court, therefore to keep the issue alive this addition is being made. Further, it has been brought on record that ld. DRP in A.Y.2018-19 decided this issue in favour of the assessee by majority view of 2:1; however, in A.Y.2020-21, this issue has been decided against the assessee by majority of 2:1 ratio principally on account of interpretation of Section 145A. The directions issued by ld. DRP in A.Y.2018-19, the key observations are summarized in the following manner:- i. The critical word/expression is on account of in section 44B(2)(1) and (ii) of the Act, which would decide the issue. Incidence of service tax/ GST arises 'on account of creation of taxability of the service under the relevant Parliamentary statute and not on account of the business activities mentioned in 448(2)(1) and (1) of the Act. ii. If it is considered that GST collected by the assessee is directly in connection with services provided and revenue earne....
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....ther judicial precedents are no longer good due to introduction of Section 145A. He relied on the ruling of Knight Frank (India) Pvt. Ltd (Bombay High Court) [2016] 72 taxmann.com 300 (Bombay) and stated that the explanation under Section 145A seeks to clarify that taxes should be included for valuation of goods notwithstanding any right acquired to recover such taxes. 6. On the contrary in A.Y. 2020-21 i.e. impugned assessment year two DRP members have relied on amendment made to the provision of Section 145A and also interpreted the judgment of Hon'ble Supreme Court in the case of Sedco Forex International Inc. v. CIT [2017] 87 taxmann.com 29 (SC) to hold that GST is to be included for computing deemed income u/s. 44B. The observation and the reasoning given by the DRP is summarized in the following manner:- a. GST is on account of provision of relevant services (i.e. carriage of cargo). Had there been no provision of relevant services, the case of payment of GST by the assessee and indirect charge on the customer would not have arisen. b. Coinciding with the introduction of GST, the term 'Services' has been introduced vide Finance Act, 2018 with retr....
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....ne the 'income". while section 194-I acts upon the already determined 'income'. A section which strives and aims to determine "income ought not be subjected to prior determination of income. 7. However, the minority decision of one of the DRP member agreed with the objection raised by the assessee and was of the opinion that on the reasoning that the decision of the Hon'ble SC in the case of Sedco Forex International Inc. (supra), the assessing officer missed the point that the inclusion of mobilization fees in the receipt for the purposes of section 44BB of the Act, was before the Hon'ble SC and not service tax/ GST collected by the assessee under the respective laws and paid to the central govt. Rather, the decision/ ratio laid down in the Sedco case (supra) supports the objection by the assessee. 8. We have heard both the parties at length, perused the relevant materials referred to before us. The controversy before is whether GST is to be included while computing the deemed profit u/s 44B. Section 44B is a special provision for computing profits and gains of shipping business in the case of non-residents. Prior to insertion of Section 44B, taxable prof....
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....ge accounts". Difficult and complicated issues arise in such assessments, particularly in relation to depreciation (including unabsorbed depreciation of earlier years), the balancing charge/allowance and the apportionment of overhead expenses. With a view to simplifying and rationalizing the assessments in such cases, the Finance Act, 1975 has made a special provision in section 44B for computing profits and gains of shipping business in the case of non-residents. Under this provision, profits and gains of a non-resident from the business of operation of ships will not be calculated in accordance with the provisions of sections 28 to 434 but will instead be taken at 7.5 per cent of the aggregate of the following amounts, namely: (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at any port in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. 38. ..... 39. Section 172 mak....
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.... 1st April, 1976 and will accordingly apply in relation to assessment year 1976-77 and subsequent years." 10. The entire controversy which now has risen in this year is the interpretation of Section 145A inserted by the Finance Act 2018 with retrospective effect from 01/04/2017 on the issue of applicability of income computation and disclosure standards. The said provision of Section 145A reads as under:- 145A"For the purpose of determining the income chargeable under the head "Profits and gains of business or profession" (i) the valuation of inventory shall be made at lower of actual cost or net realizable value computed in accordance with the income computation and disclosure standards notified under sub- section (2) of section 145; (ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; (iii)... (iv)... ... Explanation 1. - for the purposes of this section....
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....therein. Earlier there were various litigations whether the valuation of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT credit is available, and in order to ensure that the value of opening and closing stock reflect the correct value, the amendment was brought in Section 145A by the Finance Act, 1998. This was explained then by the CBDT Circular in the following manner:- "Method of accounting in certain cases 52.1 The issue relating to whether the value of the closing stock of the inputs, work-in- progress and finished goods must necessarily include the element for which MODVAT credit is available, has been the matter of considerable litigation over the years. 52.2 Consistent with the other provisions of the Act, with a view to pot on end to this point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 1454 is inserted. This section provides that the valuation of purchase, sole and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be furt....
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....ved in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. Thus, what is relevant for computing the deemed income u/s.44B is the amount paid or payable or amount received or deemed to be received on account of carriage of passengers, etc. 15. Section 145A of the Act takes into consideration "valuation of sale or purchase of goods/services and of inventory", whereas Section 44B (2) considers specified amounts i.e. "amount paid or payable on account of the carriage of goods shipped at any port in India" and "amount received or deemed to be received on account of the carriage of goods shipped at any port outside India. The terms amount paid or payable' and 'amount received or deemed to be received mentioned under Section 44B cannot be replaced with the term 'valuation' in the absence of any specific enabling provisions under Section 44B or Section 145A of the Act or any other provisions of the Act. For instance, Section 50CA is a deeming provision which enables replacement of consideration with 'fair market value' where the amount of consideration is less than the fair ma....
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....computing the Presumptive income of the Assessee under Section 44BB of the Act. 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 44BB of the Act. The Court accordingly holds that for the purposes of computing the Presumptive income of the Assessee for the purposes of Section 44BB of the Act, the service tax collected by the Assessee on the amount paid to it for rendering services is not to be included in the gross receipts in terms of Section 44BB(2) read with 44BB(I). 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." 4. We are in respectful agreement with this view expressed by the Delhi High Court in which identical question had arisen. 5. In the result, Income Tax Appeal is dismissed. 17. Full Bench of ....
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....e Government, is not an amount paid to the assessee towards the services provided by the latter in connection with the prospecting, extraction or production of mineral oils, it is not required to be included in the amounts specified in clauses (a) and (b) of Section 44BB(2)." 18. Apart from that in the case of the assessee itself the Tribunal have consistently has been holding that service tax being in the nature of statutory payment does not involve any element of profit therefore, cannot be included in the gross receipts. 19. The case of the department before us is that the judgments rendered in the context of service tax could not be applicable under the new GST. We find that though GST has replaced by erstwhile service tax law to provide a single tax of supply of goods and services right from manufacture to consumer. For the sake of ready reference Section 68 of erstwhile Service Tax law and Section 49 of CGST Act, the comparison is given herein below. Service Tax GST Section 68 of Finance Act, 1994. Section 68 relates to payment of service tax. Sub-section (1) thereof stipulates that every person, providing taxable service to any person, shall pay service tax....
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.... the Service Tax Law and GST Law, there are adequate provisions which requires timely deposit of taxes collected including excess taxes collected. Where the taxes collected and not deposited, there are provisions which enables recovery of taxes by the Government. Relevant extract of the provisions is reproduced hereunder: Service Tax Reference under the law, rules, etc. Provisions Reference under the law, rules, etc. Provisions Section 73A (1) and (2) -Finance Act, 1994. Section 73A(1) stipulates that any person who is liable to pay service tax, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service, from the recipient of taxable service as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. Section 73A(2)stipulates that where any person, who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. Section 76 of CGST Act, 2017 1) Notwithstanding anythin....
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.... under the law, rules, etc. Provisions Section 83 - Finance Act, 1994 Section 83 makes certain provisions of the Central Excise Act applicable, and thereunder the provisions of, among others, sections 12A and 12B of the Central Excise Act shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise. Section 49(9) Of CGST Act, 2017 Every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both. Every person who has collected from any other person any amount as representing the tax under this Act, and has not paid the said amount to the Government, shall forthwith pay the said amount to the Government, irrespective of whether the supplies in respect of which such amount was collected are taxable or not Rule 4A of Service Tax Rules Service provider shall issue an invoice which shall mention the amount of Service tax payable thereon. Section 12B of Central Excise Act, 1994 Section 12-B provides = that ....
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....d separately in the invoice then no tax would be deducted at GST components. By way of illustration following circulars have been referred to before us under various Sections:- Sr. No. Circular No. Relevant Section 1. Circular No. 5 of 2023 Section 194BA 2. Circular no. 20 of 2023 Section 194-O 3. Circular no. 12 of 2022 Section 194R 4. Circular no. 13 of 2022 Section 194S 5. Circular no. 13of 2021 Section 194Q 22. If we accept the contention of the revenue, then it would lead to a situation where calculation of tax of reimbursement of taxes would tantamount to collection of tax on taxes. Section 44B(2) of the Act provides for deemed taxation on amount paid or payable / received on account of 'carriage' of goods, passengers, etc. Further, the Explanation thereto clarifies that the amounts in connection with the carriage would include 'demurrage charges', 'handling charges" and other amounts of a 'similar nature". Thus, what is sought to be included u/s 44B are the charges' recovered from the consignor of the cargo/ customer as a consideration for transportation from a port in India to outside India....
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....he income chargeable under the head 'Profits and gains of business or profession', being a general provision, would not apply to the special provisions of section 44B of the Act. Further, the words "For the purpose of determining the income chargeable under the head "Profits and gains of business or profession..." in section 145A signifies that the essence of section is to compute income under the head profits and gains of business or profession which is computed as per provisions of Section 29 of the Act. On the contrary, provisions of Section 44B (1) starts with a non obstante clause "Notwithstanding anything to the contrary contained in sections 28 to 43A...". Since Section 44B overrides the provisions of Section 29 of the Act, therefore in our opinion Section 145A is not applicable for computing deemed income under Section 44B. 27. Thus, the decision of the Hon'ble Bombay High Court will not be applicable in this case same was not rendered in the context of Section 44B and in any case in so far as the observation of the Hon'ble High Court that any tax or levy cannot be part of turnover receipts unless it is not paid, is not applicable in the case of the assessee. It ....
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....ction 28-43A of the Act, but other sections including Section 43B are not specifically over ridden by Section 44B. This issue has been decided by the Hon'ble Uttarakhand High Court in the case of DIT v. Schlumberger Asia Services Ltd. [2019] 414 ITR 1 (Uttarakhand) (FB) wherein it has held that the benefit of deduction of tax can be claimed by the assessee in view of section 43B(a), while computing its income under section 28, and the provisions of section 43B would prevail notwithstanding anything contained in, among others. Thus, it has been stated that invoking the provisions of Section 43B under Section 44B shall force the assessee to prepare a memorandum account wherein the specified amounts are credited and adjusted by GST due to Section 145A and correspondingly, GST discharged before the due date of filing of tax return specified under Section 139 of the Act is debited to such account. However, preparation of such memorandum account is neither required under the Act nor can replace the express provisions of Section 44B of the Act. We therefore, find merits in such contention of the ld. Counsel that if it is held that Section 145A are applicable for computing deemed income u/....