Case Law Details
Delhi High Court held In the case of Director of Income Tax & Principal CIT vs. Mitchell Drilling International Pvt. Ltd. that 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. Accordingly holds that for the purposes of computing the ‘presumptive income’ of the assessee for the purposes of Section 44 BB, the service tax collected by the Assessee is not to be included in the gross receipts.
Facts of the Case
The Assessee is a company engaged in the business of providing equipment on hiring and manpower etc. for exploration and production of mineral oil and natural gas. The Assessee filed its income for declaring an income of Rs.49,31,260 as per provisions of Section 44BB (3) . In computing the gross receipts for the purposes of determining the taxable income, the Assessee did not include a sum of Rs.2,09,24,553/- being the service tax received from its customers. The AO rejected the contention of the Assessee and included the service tax collected by the Assessee in the gross receipts for computing the taxable income under Section 44BB of the Act.
Contention of the Assessee
The ld counsel for the assessee submitted that CBDT Circular No. 4/2008, dated 28th April 2008 and CBDT Circular No. 1/2004, dated 13th January 2014 recognize that the gross sums on which tax was to be deducted at source whether Section 194 I or Section 194 J of the Act would not include service tax. He referred to the decision of the Bombay High Court in CIT v. Sudarshan Chemical Industries Ltd. 245 ITR 769 (Bom) where, after considering the decision in George Oakes (P.) Ltd. [1962] 2 SCR 570, it was held that the ‘turn over’ for the purposes of Section 80HHCof the Act would not include sales tax and excise duty.
He also referred to the decision of the Supreme Court in CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) where again the same question was considered and this time, the Supreme Court also took note of the earlier decision in Chowringhee Sales Bureau [1973] 87 ITR 542. He also referred to the decisions in DIT v. Schlumberger Asia Services Ltd. (2009)317 ITR 156, Sedco Forex International Inc. v. CIT 299 ITR 238 (Uttarakhand) and the decision of this Court in CIT Tax-XI v. M/s DLF Commercial Project Corporation 2015-TIOL-1609-HC-DEL-IT.
Contention of the Revenue
The ld counsel of the revenue submitted that Section 44BB is an instance of taxation of a presumptive income. According to him, the expressions “paid or payable to the assessee” occurring in Section 44 BB (2) (a) and “received or deemed to be received” by the Assessee occurring in Section 44 B (2) (b) have to payable to or received by Assessee on account of the service tax on the sum paid or payable for the services provided by the Assessee. He placed reliance on the decisions of the Supreme Court in Chowringhee Sales Bureau Pvt. Ltd. v. Commissioner of Income-tax [1973] 87 ITR 542 and George Oakes (P.) Ltd. v. State of Madras [1962] 2 SCR 570.
Held by CIT (A)
The CIT (A) allowed the appeal of the assessee and held that service tax collected will not be part of the Gross receipts for computing the taxable income under Section 44BB of the Act.
Held by ITAT
ITAT upheld the order of CIT (A).
Held by High Court
Section 44BB begins with a non obstante clause that excludes the application of Sections 28 to 41 and Sections 43 and 43A to assessments under Section 44 BB. It introduces the concept of presumptive income and states that 10% credit of the amounts paid or payable or deemed to be received by the Assessee on account of “the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India” shall be deemed to be the profits and gains of the chargeable to tax.
The expression ‘amount paid or payable’ in Section 44 BB (2) (a) and the expression ‘amount received or deemed to be received’ in Section 44 BB (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.’ Therefore, only such amounts which are paid or payable for the services provided by the Assessee can form part of the gross receipts.
Both the decisions referred by the revenue were rendered in the specific contexts in which the questions arose before the Court. In CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) , the Supreme Court approved the decision of the Bombay High Court in CIT v. Sudarshan Chemicals Industries Ltd. 245 ITR 769 (Bom) which in turn considered the decision ofthe Supreme Court in George Oakes (P) Ltd. [1962] 2 SCR 570. In the considered view of the Court, the decision of the Supreme Court in Lakshmi Machines Works (2007) 290 ITR 667 (SC) 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.
Also in Circular No. 4/2008 dated 28th April 2008 it was clarified that “Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore, it has been decided that tax deduction at source) under sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.’ In Circular No. 1/2014 dated 13th January 2014, it has been clarified that service tax is not to be included in the fees for professional services or technical services and no TDS is required to be made on the service tax component under Section 194J of the Act.
Accordingly, appeal of the revenue dismissed.
