section 44BB service tax were to be excluded from gross receipts

Amti Arora, Chartered Accountant for the Appellant. B.R.R. Kumar for the Respondent.

ORDER

H.S. Sidhu, Judicial Member – The assessee has filed this appeal against the impugned order dated October 25, 2012 passed by the learned Commissioner of Income-tax (Appeals)-II, New Delhi relevant to the assessment year 2009-10 on the following grounds :

“Based on the facts and circumstances of the case, your appellant respectfully submits the following grounds which are without prejudice to each other :

Ground No. 1

That based on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Dehradun erred in upholding the order of the Assessing Officer that receipts of Rs.10,08,03,172 on account of service tax were includible in the gross receipts for the purpose of determining income under section 44BB of the Income-tax Act, 1961.

Ground No. 2

That based on the facts and circumstances of the case, the learned Commissioner of Income-tax erred in not following the judgment of the jurisdictional Income-tax Appellate Tribunal, Delhi ‘G’ Bench in I.T.A. No. 5284/Del/2011 in the case of Sedco Forex International Driling Inc. v. Addl. Director of Income-tax wherein it was held that service tax receipts were not includible in the gross receipts for the purpose of determining income under section 44BB of the Income-tax Act, 1961.

Your appellant prays that the erroneous order be cancelled and appropriate relief may be granted to the appellant.

Your appellant craves leave to add to, alter, amend, vary, omit, substitute or delete any of the aforementioned grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal.”

2. The brief facts of the case are that the return of income was filed by the assessee, electronically on September 28, 2009 declaring total income of Rs. 9,20,28,446. The case was processed under section 143(3) on March 30, 2011, and a refund of Rs. 78,51,490 was determined and issued to the assessee. The case was selected for scrutiny under CASS. Accordingly, notice under section 143(2) of the Income-tax Act was issued on September 15, 2010 by the Assistant Director of Income-tax (International Taxation), Dehradun. Notice under section 142(1) of the Income-tax Act along with questionnaire was issued by the Assessing Officer. In pursuance to the various notices and due opportunities of hearing, the authorised representative of the assessee attended the assessment proceedings from time to time and submitted the replies. After hearing the assessee and perusing the submissions of the assessee, the Assessing Officer was of the view that the address of the company is given in the return of income as 332, Ambaji Sadan, Nanda Patkar Road, Ville Parle (E), Mumbai which has been admitted to be the permanent establishment in India by the assessee NRC. During the previous year, the assessee has received revenues on account of the contract entered into with Oil and Natural Gas Corporation Ltd. The assessee NRC has a permanent establishment in India. For availing the benefit of section 44BB, the assessee is having a permanent establishment in India through which it is carrying out business in India. Since the assessee has not claimed any benefit under the Double Taxation Avoidance Agreement and has not filed any tax residency certificate, the case was assessed under the provisions of the Indian Income-tax Act. The assessee has claimed that the taxable income on the revenues during the year to be computed only in terms of section 44BB of the Income-tax Act, 1961 claiming to be engaged in providing of services and on facilities, in connection with, or supply plant and machinery on hire used, or to be used in the prospecting for, or extraction or production of mineral oils. The copies of contract on which the aforesaid revenues were earned were with the Assessing Officer.

3. The assessee has filed the return of income under section 44BB(1) and has computed its taxable income at 10 per cent. of the gross revenues taking Rs. 92,02,84,456. But as per the details and revenue break-up submitted by the assessee, during the course of assessment proceedings, the Assessing Officer observed that the assessee has not offered to tax gross receipts on account of reimbursement on account of service tax receipts. The income of the assessee is taxable in India in view of the fact that it is accruing and arising in India under section 5 of the Income-tax Act, 1961. Since the activity of the assessee is first leg activity that pertains to the contract with consortium/PSCs, receipts from charter hire of rig of the assessee is taxable in India under section 44BB of the Income-tax Act, 1961. The assessee has also received revenue in the form of reimbursements on account of service tax, as mentioned above, which have not been included by the assessee in its gross receipts. The assessee was accordingly asked to substantiate its claim of the said amounts vide questionnaire/show cause letter dated July 26, 2011 and October 20, 2011 and note sheet queries issued from time to time. The assessee further asked as to why service tax may not be included in the total income and the tax accordingly. In response thereto, the assessee filed its replies/submissions. The Assessing Officer after considering the submissions of the assessee and after relying upon the various judgments has held that the amounts received by the assessee by way of reimbursement of expenses, mobilisation and demobilisation charges and fees, handling charges are to be included in the amounts specified in sub-section (2) of section 44BB, to determine the deemed profit of the assessee. In view of the above, the receipts on account of reimbursement of expenses are taken into account to determine deemed profit of 10 per cent. of the gross receipts of the assessee during the year as per section 44BB of the Income-tax Act, 1961. The reimbursement of service tax too, is to be included in the gross receipts and taken into account to determine deemed profit of 10 per cent. of the gross of the assessee during the year as per section 44BB of the Income-tax Act, 1961. In view of the above, the income of the assessee-company was computed as under:

4. Accordingly, it was proposed to complete the assessment on a total income of Rs. 10,21,08,763 for which draft assessment order is being prepared and issued as per the provisions of section 143(3) of the Income-tax Act. Thereafter, the Assessing Officer finalised the assessment at a total income of Rs. 10,21,08,763 as per the provisions of section 143(3) read with section 144C(3)(a) of the Income-tax Act vide his order dated January 6, 2012.

5. Against the order of the learned Assessing Officer, the assessee appealed before the learned Commissioner of Income-tax (Appeals), who vide impugned order dated October 25, 2012 has dismissed the appeal of the assessee.

6. Aggrieved with the order of the learned Commissioner of Income-tax (Appeals), the assessee is in appeal before us.

7. Shri Amti Arora, the learned authorised representative for the assessee stated that the issue in dispute is similar to the issue involved in the case of Ensco Maritime Ltd. v. Asstt. DIT (International Taxation)[2014] 36 ITR (Trib.) 192 (Delhi) in which the co-ordinate “B” Bench, Income-tax Appellate Tribunal, New Delhi vide order dated September 5, 2014 has decided the similar and identical issue in favour of the assessee. He also filed the copy of the order dated September 5, 2015, as aforesaid.

8. On the other hand, the learned Departmental representative relied upon the orders passed by the Revenue authorities.

9. We have heard both parties and perused the records available with and especially the order dated September 5, 2014 passed by the Income-tax Appellate Tribunal, Delhi “B” Bench, New Delhi in I.T.A. No. 5482/Del/ 2013 assessment year 2010-11 in the case of Ensco Maritime Ltd. (supra), we are of the view that the issue involved in dispute is squarely covered in favour of the assessee by the decision of the co-ordinate Bench, Income-tax Appellate Tribunal, New Delhi in the aforesaid case in which one of the Judicial Member was the party. The relevant paragraphs 11 and 12 from pages 197 to 198 of the aforesaid order is reproduced below:

“11. With regard to ground No. 3 regarding service tax charged amounting to Rs. 15,50,62,604 is concerned, learned counsel of the assessee during the hearing has filed a copy of the decision of the Income-tax Appellate Tribunal, Bench “G”, New Delhi passed in I.T.A. No. 5284/Del/2011 (assessment year 2008-09) in the case of Sedco Forex International Drilling Inc. v. Addl. DIT (International Taxation), Dehradun vide order dated June 29, 2012 and submitted that the issue in the present case is squarely covered by the aforesaid decision in favour of the assessee. We find that this decision has also been followed earlier by the Tribunal in I.T.A. No. 504/Del/2013 (assessment year 2009-10) in the case of the same assessee vide which the Tribunal has decided the issue in favour of the assessee vide its order dated August 2, 2013. The relevant paragraphs 3 and 4 are reproduced hereunder :

‘3. We have heard both the sides and perused the material placed before us. We find that this issue is covered in favour of the assessee by the decision of the Income-tax Appellate Tribunal in the assessee’s own case for the assessment year 2008-09 dated June 29, 2012 vide I.T.A. No. 5284/Del/2011, wherein the Income-tax Appellate Tribunal held as under :

“The service tax is a statutory liability like customs duty. The hon’ble Uttarakhand High Court in their decision in DIT (International Taxation) v. Schlumberger Asia Services Ltd. [2009] 317 ITR 156 (Uttarakhand) concluded that reimbursement of customs duty paid by the assessee could not form part of amount for the purpose of deemed profits under section 44BB unlike the other amounts received towards reimbursement. Following the view in this decision, Mumbai Bench in their decision in Islamic Republic of Iran Shipping Lines (supra) held that service tax being a statutory liability, would not involve any element of profit and accordingly, the same could not be included in the total receipts for determining the presumptive income. In the light of view taken by the Mumbai Bench, especially when the learned Departmental representative did not place any material before us controverting the aforesaid findings of the learned Commissioner of Income-tax (Appeals) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are of the opinion that service tax paid by the assessee could not form part of amount for the purpose of deemed profits under section 44BB unlike the other amounts received towards reimbursement. Therefore, ground No. 3 in the appeal is allowed.”

4. From the above, it is evident that the Income-tax Appellate Tribunal decided the above issue in favour of the assessee following the decision of the hon’ble jurisdictional High Court in the case of DIT (International Taxation) v.Schlumberger Asia Services Ltd. [2009] 317 ITR 156 (Uttarakhand). No contrary decision of the hon’ble jurisdictional High Court has been pointed out. In view of the above, we, respectfully following the above decision of the hon’ble jurisdictional High Court and also the decision of the Income-tax Appellate Tribunal in the assessee’s own case citedsupra, direct the Assessing Officer to exclude service tax from the gross receipts for the purpose of determining the income under section 44BB of the Income-tax Act, 1961. Accordingly, ground Nos. 1 and 2 of the assessee’s appeal are allowed.’

12. From the above, it is evident that the Income-tax Appellate Tribunal decided the above issue in favour of the assessee by following the judgment of the hon’ble jurisdictional High Court in the case of DIT (International Taxation)v. Schlumberger Asia Services Ltd. [2009] 317 ITR 156 (Uttarakhand). No contrary decision of the hon’ble jurisdictional High Court has been pointed out by the learned Departmental representative. In view of the above, we respectfully following the above decision of the hon’ble High Court of Uttarakhand and also the decision of the Income-tax Appellate Tribunal decide the issue in favour of the assessee.”

10. Keeping in view of the aforesaid order dated September 5, 2014 passed by the Income-tax Appellate Tribunal, Delhi “B” Bench, New Delhi in I.T.A. No. 5482/Del/2013 assessment year 2010-11 in the case of Ensco Maritime Ltd. (supra) in which one of the Members was the party wherein the issue in dispute was decided in favour of the assessee. Respectfully, following the precedent of the co-ordinate Bench as aforesaid, we quash the orders of the authorities below and direct the Assessing Officer to exclude service tax from the gross receipts for the purpose of determining the income under section 44BB of the Income-tax Act, 1961 and decide the issue in favour of the assessee by allowing the appeal of the assessee.

11. In the result, the appeal filed by the assessee is allowed.