TaxTMI 
TaxTMI 
2025 (3) TMI 1266
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned Order dated 25 October 2023 passed u/s. 143(3) r.w.s. 144C(13) of the Act is ab-initio void being barred by limitation and hence, ought to be struck down. 1.2. The Id. AO erred in not appreciating that timelines for passing final assessment order as per section 153 of the Act being 12 months from the end of relevant AY 2021-22 was 31 March 2023. Accordingly, the final order passed under section 143(3) r.w.s. 144C(13) of the Act on 23 October 2023 is time barred. 1.3 The Id. AO erred in ignoring the decision of jurisdictional Mumbai High Court in the case of Shelf Drilling Ron Tappmeyer Ltd vs ACIT International tax [2023] (153 taxmann.com 162). 2. Inclusion of Goods & Service tax (GST) in the computation of presumptive income under section 44BB of the Act 2.1. The Id. AO erred in holding that GST would form part of the gross receipts for the purposes of income computation under section 448B(1) of the Act. The learned DDIT erred in not excluding from the gross receipts, GST of Rs. 13,10,09,191 collected by the appellant from customers in a fiduciary capacity. 2.2. The Id. AO erred in disregarding the favorable ITAT order and direction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as asked to show-cause as to why the same should not be added to the gross receipts. 4. In response to the show-cause, the assessee submitted that it has offered gross receipts aggregating to Rs. 92,44,25,985/- u/s. 44BB of the Act on the basis of amount received from its customers. Further submitted that it has collected GST on behalf of the government aggregating to Rs. 13,10,09,191/- which are in the nature of taxes, which are collected from the service recipient and remitted into the government treasury and the company merely acts as a link between the service recipient and the Central government and the collection so made on behalf of the government cannot be brought to tax in its hand under the presumptive provision u/s. 44 BB of the Act. Further reliance was placed on its own order passed by the Tribunal for A.Y. 2010-11 wherein it's was held that the service tax doesn't form part of the gross receipts for the purposes of presumptive taxation u/s. 44 BB of the Act. Further reliance was placed on the DRP directions for A.Y 2016-17 and 2020-21 wherein the service tax was not held includable in gross receipts. 5. The submissions so filed by the assessee were consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applicant assessee and does not possess a separate character. e. Section 44BB must necessarily be read with Sec. 145A, else Section 44BB is an exercise in vacuum. It would benefit to reiterate that Sec. 44BB is a special code providing a "computational provision, which is inherently reliant on Sec. 145A, being the "Accounting provision. That is the reason why the Legislature, in its wisdom, did not extend the non obstante provision beyond Sections 28 to 41 and sections 43 and 43A of the Act. f. Having once held that of the judgment of Knight Frank (India) (P.) Ltd. [2016] 72 taxmann.com 300 (Bombay) would not apply to the instant case in view of amended clause 145A(a)(ii) of the Act, there is nothing that stops the Ld. AO from taking the sums received/deemed received in toto (Without any splitting up of GST or any other levy) in connection to the eligible services/facilities. g. In view of the drastic amendment in the Act, the scenario stands altered. Section 145A has been substituted by the Finance Act 2018 for A.Y. 2018-19 and onwards. h. The judgement of the Hon'ble SC in Sedco Forex International Inc. can be taken to cover the matter in f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by way of GST and it cannot be included as income for the purposes of section 44BB of the Act. It was submitted that GST being a statutory levy is not an amount paid or payable/received or deemed to be received for provision of services and facilities for extraction of production of mineral oil for the purpose of presumption of taxation u/s. 44BB of the Act. It was submitted that the matter is squarely covered by the decision of the Coordinate Bench in case of Orient Overseas Container Line Limited V. DCIT (International Taxation) in ITA no. 3278/MUM/2023 wherein the Coordinate Bench has held that GST cannot be considered as part of the receipt for presumptive taxation u/s. 44B of the Act. It was further submitted that the said order of the Coordinate Bench has thereafter been followed by the Coordinate Bench in case of Seadrill International Ltd. V. ACIT (IT)-4(2)(1) in ITA No. 4700/MUM/2023 dated 07.01.2025 in the context of section 44BB of the Act. It was submitted that the provisions of section 44B and section 44 BB of the Act are similarly worded and the ratio laid down in these decisions therefore squarely applies in the facts of the present case and in light of the same, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India, and (ii) 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. Explanation For the purposes of this sub-section, the amount referred to in clause (1) or clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature. 9. At the time of hearing our attention was drawn to Circular No.169 dated 23/06/1975 explaining the rationale of Section 44B and amendment in Section 172 by Finance Act, 1975. For the sake of ready reference same is reproduced hereunder:- "37. Under the existing law, taxable profits of foreign shipping enterprises are determined by suitably apportioning their global profits between their Indian business and foreign business or on the basis of "voyage accounts". Difficult and complicated issues a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent, the profits and gains from the business of operation of ships will be taken at an amount equal to 7.5 per cent of the amount paid or payable to the taxpayer or to any other person on his behalf. on account of carriage of passengers, live-stock, mail or goods shipped at any Indian port, as also of the amount received, or deemed to be received, in India on account of the carriage of passengers, live-stock, mail or goods shipped at any port outside India. ..." Notes on Clauses Clause 8 seeks to insert a new section 44 in the Income-tax Act. Under the new section, in the case of a non-resident, the profits and gains from the business of operation of ships will be taken at amount equal to 71/2 per cent of the amount paid or payable to the assessee or to any other person on his behalf, on account of the carriage of passengers. live-stock, mail or goods shipped at any Indian port as also of the amount received, or deemed to be received, in India on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. This amendment will take effect from 1st April, 1976 and will accordingly apply in relation to assessment year 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the head "Profits and gains of business or profession"- (a) the valuation of inventory shall be made at lower of actual cost or net realizable value computed in the manner provided in the ICDS notified under Sub-Section (2) of section 145; (b) 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 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, 12. Ergo, amendment to Section 145A was to include taxes of cost of sales / services for valuation of inventory to align with ICDS-2 and nowhere it can be inferred that it tantamount to change the computation mechanism on presumptive basis of taxation. Earlier Section 145A was inserted to bring clarity with the method of accounting for valuation of purchase and sale of goods and inventory, to determine business income. It in effect. provides that for inventory valuation, the amount actually paid or incurred by way of any tax, duty, cess or fees shall be included therein. Earlier there were various litigations whether the valuation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....included by adjusting the turnover and closing inventory, the same are reduced by adjusting the purchases and opening inventories, if paid, before the due date of filing tax return under Section 139(1) of the Act. 14. In case of presumptive taxation, deduction of expenses is not allowed i.e., purchase and inventory elements are to be ignored for computing deemed income under Section 44B, because the section starts with no-obstante clause overriding computation under sections 28 to 43. The deemed income has to be computed on specified amounts only and nothing more can be added which is not within the scope of Section 44B of the Act because Section 44B provides that non-resident is engaged in the business of operation of ships, then sum equal to 7.5% of the amounts referred to Sub-section (2) has to be computed for the purpose of deemed profits. These amounts are firstly, 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 secondly, the amount received or deemed to be received in India by or on behalf of the assessee on account o....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2015 and held as under: "3. Learned Counsel for the Assessee drew our attention to a decision of the Delhi High Court in the case of Director of Income-tax-1 Vs. Mitchell Drilling International (P.) Lid 3 in which identical issue had come up for consideration. The High Court referred to the decision of this Court in the case of Sudarshan Chemicals Industries Limited (supra) which was approved by the Supreme Court in case of CIT Vs. Lakshmi Machine Works and also on the decision in the case of Schlumberger Asia Services Ltd. (supra) and held as under: "In Lakshmi Machine Works (supra), the Supreme Court approved the decision of the Bombay High Court in 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion with the prospecting. extraction and production of mineral oils in India, would it then fall within the ambit of sub-section (2) of Section 44BB. 28. As the expression 'amount paid or payable' in Section 44BB(2)(a), and the expression amount received or deemed to be received in Section 44BB(2)(b), is qualified by the words 'on account of the provision of services and facilities in connection with, or supply of plant and machinery, it is only such amounts, paid or payable for the services provided by the assessee, which can form part of the gross receipts for the purposes of computation of gross income under Section 44BB(1) read with Section 44BB(2). DIT v. Mitchell Drilling International (P.) Ltd. [2015] 62 taxmann.com 24/234 Taxman 818/[2016] 380 ITR 130 (Delhi). On its literal construction, Section 44BB(2) would only be the amount paid by the ONGC to the assessee on account of (i) provision of services in connection with or (ii) supply of plant and machinery on hire used in, the prospecting, extraction and production of mineral oils. As the amount reimbursed by the ONGC, towards the service tax paid by assessee earlier to the Government, is not an amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t ledger, in accordance with section 41, to be maintained in such manner as may be prescribed. (3) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed. (4) The available amount in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to conditions restrictions such and within such time as may be prescribed. Rule 3(1) of the Cenvat Credit Rules provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider. A manufacturer or producer of final products or a provider of output service shall be allowed to take credit of Service tax paid on any input service received b. Service tax collected in excess (unjust enrichment) Both under the Service Tax Law and GST Law, there are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government. c. Levy is an indirect tax which can be collected from the buyer / service recipient Service Tax and GST both are an indirect tax and can be passed on by service provider to the service recipient. 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 83-Finance Act, 1994 Section 83 makes certain provisions of the Excise Central 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. Rule 4A of Ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... customers. We have perused the copy of the sample invoice produced before us at our direction wherein, it is seen that service charge is indicated separately and CGST is levied on such service charge is also indicated separately. If the GST services have been indicated in the invoice separately then it cannot be included for purpose of taxation while computing the income. For instance there are various TDS provisions and CBDT has clarified through various circulars that if GST services are indicated 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. 13 of 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of Bombay in the case of Knight Frank (India) Pvt. Ltd (Bombay High Court) [2016] 72 taxmann.com 300 (Bombay). However the Hon'ble Court held that Section 145A restricts its ambit only to valuation of purchase and sale of goods in inventory and would not apply to service tax billed on rendering of service as service tax billed has no relation to any goods nor does it have anything to do with bringing goods to a particular location. Section 145A which is for the method of accounting which starts with 'for the purpose of determining the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he amendment was introduced vide Finance Act 2018 to bring certainty on the issue of applicability of ICDS and not to validate the circular. Even otherwise, in the aforesaid Circular, CBDT has also clarified that where there is a conflict between ICDS which is a general provision and specific provisions, specific provision shall prevail. 30. Before us, the plea was taken that if GST is to be added to the amounts paid on account of taxes, then deduction of such GST is also required to be given u/s. 43B. Though the provision of Section 44B overrides Section 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the above case will apply to assessee's case also since the issue contended is identical. We notice that the Co-ordinate Bench in the above decision has held that GST should not part of gross receipts for computing presumptive income under section 44B of the Act the reasons as listed below - (i) GST is a statutory levy collected separately as part of invoice and therefore cannot be included for purpose of taxation while computing the presumptive income. In assessee's case from the perusal of records, we notice that the GST is a separate line item in the invoice. (ii) If GST is included in the income for applying the presumptive tax of 10% then the same would amount to tax on tax i.e. Income tax on an indirect tax levy (iii) The intention is to tax the receipt / charges / consideration arising out of the services rendered on presumptive basis and that GST being a mandatory 'statutory levy" cannot be said to be in the nature of charges / receipt / consideration (iv) Section 44B overrides the provisions of Section 29 of the Act, and therefore Section 145A is not applicable for computing deemed income under Section 44B. This should be....