ADIT, Dehradun V. M/s. R & B Falcon (A) Pty Ltd., Mumbai

ITA 1048/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8114 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 02-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Keywords: Presumptive income; Business income
• Section: 234B; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1048/DEL/2014 AY: 20 10-11 ADIT VS R & B FALCON (A) PTY LTD., INTERNATIONAL TAXATION, 1 ST FLOOR, SPECTRA HIGH STREET, AAYAKAR BHAWAN, HIRANANDANI BUSINESS PAR K, 13A-SUBHASH ROAD, POWAI, MUMBAI. DEHRAUN. (PAN: AACCR5345Q) (APPELLANT) (RESPONDEN T) APPELLANT BY : SHRI ANUJ ARORA, CIT DR RESPONDENT BY : SHRI AMIT ARORA, CA DATE OF HEARING: 08.02.2016 DATE OF PRONOUNCEMENT: 29.04.2016 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN PREFERRED BY THE DEPAR TMENT AGAINST THE IMPUGNED ORDER DATED 19.12.2013 PASSED BY THE LD. CIT(A)-II, DEHRADUN FOR ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE IS A NON-RESIDENT COMPANY INCORPORA TED UNDER THE LAWS OF AUSTRALIA. DURING THE YEAR UNDER CONSI DERATION, IT HAD OFFERED REVENUES TO TAXATION ON ACCOUNT OF ONGO ING CONTRACT DATED 12.12.2006 ENTERED WITH ONGC LTD. FOR CHARTER HIRE OF A JACK UP RIG. THE OPERATIONS OF THE ASSESSEE CONSIS TED OF PERFORMING THE DRILLING OPERATIONS THROUGH PROVISIO N OF RIG AND I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 2 INTEGRATED SERVICES. THE ASSESSEE, IN ITS RETURN O F INCOME, HAD CLAIMED THAT THE TAXABLE REVENUES WERE TO BE COMPUT ED IN TERMS OF SECTION 44BB OF THE INCOME TAX ACT, 1961 (HEREIN AFTER CALLED THE ACT). DURING THE COURSE OF SCRUTINY ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER CAME TO KNOW THAT AN AMOUNT O F RS.114,351,759/- RECEIVED ON ACCOUNT OF SERVICE TAX HAD NOT BEEN ADDED TO THE GROSS REVENUE CHARGEABLE TO TAX U /S 44BB OF THE ACT. IT WAS THE ASSESSEES CONTENTION THAT STA TUTORY CHARGES CANNOT FORM PART OF THE AMOUNT FOR THE PURPOSE OF D EEMED PROFIT U/S 44BB OF THE ACT. AS PER THE ASSESSEE, SERVICE TAX WAS IN THE NATURE OF REIMBURSEMENT AND HENCE NOT INCLUDIBLE IN GROSS RECEIPTS FOR THE PURPOSE OF TAXATION. THE ASSESSEE CONTENDED THAT IT HAD ACTED ONLY AS A COLLECTION AGENCY FOR THE GO VERNMENT FOR COLLECTION OF SERVICE TAX AND AS SUCH, THE COLLECTI ONS ON ACCOUNT OF SERVICE TAX COULD NOT BE CONSIDERED AS INCOME GE NERATING RECEIPTS IN THE HANDS OF THE ASSESSEE. IT WAS FURT HER CONTENDED BEFORE THE ASSESSING OFFICER THAT ANY RECEIPT UNCON NECTED WITH THE BUSINESS OF EXPLORATION, EXPLOITATION OF OIL ET C. COULD NOT FORM PART OF THE TAXABLE RECEIPTS U/S 44BB OF THE ACT. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT FOR THE P URPOSE OF PRESUMPTIVE DETERMINATION OF THE ASSESSEES PROFIT, THE QUANTUM I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 3 OF AMOUNT RECEIVED FROM THE CUSTOMERS AGAINST ITS S ERVICE TAX OBLIGATION HAD TO BE ESSENTIALLY CONSIDERED AS PART OF THE RECEIPT AND, ACCORDINGLY, A SUM OF RS. 114,351,759/- WAS AD DED BACK FOR THE PURPOSE OF CALCULATING THE GROSS RECEIPTS ON WH ICH THE PRESUMPTIVE TAX RATE HAD TO BE APPLIED. APART FROM THIS, THE ASSESSING OFFICER ALSO ADDED BACK RS. 225,347,824/- TO THE GROSS RECEIPTS ON ACCOUNT OF REIMBURSEMENT RECEIVED. 3. IN THE FIRST APPEAL, THE ASSESSEE CHALLENGED THE ADDITIONS AS WELL AS LEVY OF INTEREST U/S LEVY OF INTEREST U/S 2 34B AND 234C OF THE ACT. THE LD. CIT (A) IN THE IMPUGNED ORDER ALL OWED THE ASSESSEES GROUNDS RELATING TO SERVICE TAX AND LEVY OF INTEREST U/S 234B AND 234C BUT DISMISSED ITS GROUND RELATING TO REIMBURSEMENT RECEIPTS. NOW THE DEPARTMENT IS IN A PPEAL AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(APPEALS) HAS ERRED HOLD ING THAT RECEIPTS ON ACCOUNT OF SERVICES TAX ARE NOT INCLUDI BLE IN GROSS REVENUE OF THE ASSESSEE FOR THE PROPOSE OF COMPUTAT ION OF PROFITS UNDER THE PRESUMPTIVE PROVISIONS U/S 44BB O F THE INCOME TAX ACT, 1961 (THE ACT). 1.1 WHETHER THE LD.CIT (A) HAS ERRED IN NOT APPREC IATING THE FACT THAT THE PROVISIONS OF SECTION 44BB OF THE ACT ARE A SELF- CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSEE AND AL L THE DEDUCTIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN ALLOWED TO THE ASSESSEE. I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 4 1.2 WHETHER THE LD.CIT (A) HAS ERRED IN NOT APPR ECIATING THE FACT THAT ONCE THE RECEIPTS ARE OFFERED TO TAX U/S 44BB OF THE ACT WHICH PROVIDES FOR COMPUTATION OF PROFITS O N GROSS BASIS, THERE IS NO SCOPE FOR COMPUTING OR RE-COMPUT ING THE PROFITS BY EXCLUDING ANY ELEMENT OF THE RECEIPTS FR OM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATIN G THE VERY PURPOSE OF PROVIDING FOR A SCHEME OF SIMPLER M ODE OF COMPUTATION OF PROFITS U/S 44BB OF THE ACT AND OBVI ATING THE NEED FOR ACCOUNTING FOR INDIVIDUAL RECEIPTS AND PAY MENTS ETC. 1.3 WHETHER THE LD.CIT (A) HAS ERRED IN IGNORING T HE RATIO OF THE JUDGMENT IN THE CASE OF M/S CHOWRINGHEE SALES B UREAU (P) LIMITED (82 ITR 542, SC) WHEREIN THE HONBLE AP EX COURT HAS HELD THAT THE SALES TAX COLLECTED BY AN ASSESSE E IN THE ORDINARY COURSE OF ITS BUSINESS FORMS PART OF ITS B USINESS RECEIPTS. OWING TO THE INHERENT SIMILARITY IN THE N ATURE IF THE SALES TAX AND SERVICE TAX, THE RATIO OF THE JUDGMEN T IN THE SAID CASE IS DIRECTLY APPLICABLE IN THE FACTS OF TH E INSTANT CASE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE L( CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT LIABLE TO PAY INTEREST U/S 234B OF THE ACT AND IN OBSERVING THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY DECISION IN TL CASE OF M/S MAERSK [334 ITR 79, UTTARAKHAND]. 2.1 THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING TH E FACTS THAT THE CASE OF MAERSK WAS DISTINGUISHABLE ON FACT S WHEREIN THE EMPLOYER FILED TO DEDUCT TAX AT SOURCE DESPITE THE SPECIFIC MANDATORY PROVISIONS OF THE ACT STIPUL ATING THE EMPLOYER BEING LIABLE TO DEDUCT TAX ON THE SALARY P AID TO THE EMPLOYEE, THEREBY HOLDING THAT AN EMPLOYEE IS NOT L IABLE TO PAY ADVANCE TAX ON SALARY. THE ITAT HAS ERRED IN RE LYING UPON THIS DECISION AS THE CASE DOES NOT LAY DOWN A GENERAL PROPOSITION OF LAW THAT INTEREST U/S 234B IS NOT CH ARGEABLE IN ALL CASES PARTICULARLY IN CASES WHERE THE NONRES IDENT ASSESSEE/PAYEE/DEDUCTEE HAS PLAYED A ROLE IN INDUCI NG NON-DEDUCTION OR SHORT-DEDUCTION ON THE PART OF THE PAYER / DEDUCTOR. 2.2 THE LD. CIT(A) HAS ERRED IN FAILING TO TAKE NOT E OF THE OBSERVATIONS OF THE HONBLE HIGH COURT IN THE CASE OF M/S I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 5 MITSUBISHI [330 ITR 578, DEL] THAT THE ROLE OF THE ASSESSEE/PAYEE/DEDUCTEE IN SHORT-DEDUCTION OR NON- DEDUCTION OF TAX NEEDS TO BE ASCERTAINED BEFORE CLA IM REGARDING NON-LIABILITY TO INTEREST U/S 234B OF THE ACT IS ACCEPTED, A PROPOSITION AFFIRMED SUBSEQUENTLY IN TH E CASE OF M/S ALCATEL LUCENT (JUDGMENT OF DELHI HIGH COURT DA TED 07.11.2013 IN INCOME TAX ACT, 1961 NO. 327 & ORS OF 2012). 4. THE LD. DR SUBMITTED THAT SECTION 44BB MAKES A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF THE NO N-RESIDENT ASSESSEE ENGAGED IN THE BUSINESS OF EXPLORATION, ET C., OF MINERAL OILS. SUB-SECTION (1) PROVIDES THAT IN RESPECT OF S UCH AN ASSESSEE, NOTWITHSTANDING ANYTHING CONTAINED IN SECTIONS 28 T O 41 AND SECTIONS 43 TO 43A, AN ASSESSEE SHALL BE DEEMED TO HAVE EARNED TEN PER CENT PROFIT ON THE AMOUNT MENTIONED IN SUB- SECTION (2) RECEIVED BY HIM. IT WAS SUBMITTED BY THE LD. DR THA T SECTION 44BB IS A COMPLETE CODE IN ITSELF. IT PROVIDES BY A LEGAL FICTION TO BE THE PROFITS AND GAINS OF THE NON-RESIDENT ASSESS EE ENGAGED IN THE BUSINESS OF OIL EXPLORATION AT THE RATE OF 10 P ER CENT OF THE AGGREGATE AMOUNT SPECIFIED IN SUB-SECTION (2). HE S UBMITTED THAT THE HON'BLE UTTRAKHAND HC HAS CONSISTENTLY HELD IN THE FOLLOWING CASES THAT THE AGGREGATE AMOUNT RECEIVED BE INCLUDE D IN TOTAL INCOME FOR TAXATION UNDER SECTION 44BB: I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 6 [2008] 169 TAXMAN 138 (UTTARAKHAND) REIMBURSEMENT OF FREIGHT AND HALLIBURTON OFFSHORE SERVICES INC TRANSPORTATION CHARGES [2009] 181 TAXMAN 46 (UTTARAKHAND) REIMBUR SEMENT OF CATERING ENSCO MARITIME LTD. CHARGES [2009] 181 TAXMAN 144 (UTTARAKHAND) REIMBURSEMENT FUEL EXPENSES RBF RIG CORPORATION (2008) 170 TAXMAN 459(UTTARAKHAND) MOBILIZAT ION CHARGES SEDCO FOREX INTERNATIONAL INC. [2008] 170 TAXMAN 286 (UTTARAKHAND) REIMBURSEMENT OF COST OF SPARE PARTS B.J. SERVICES CO. MIDDLE EAST 5. THE LD. DR SUBMITTED THAT SERVICE TAX RECEIPTS N EED TO BE INCLUDED IN AGGREGATE AMOUNT BROUGHT TO TAX UNDER S ECTION 44BB BECAUSE: (I) SECTION 44BB IS A SELF CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSEE AND ALL THE DEDUCTIO NS, EXEMPTIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN ALLOWED; (II) IT IS OPEN TO THOSE WHO WANT TO CLAIM DEDUCTIONS, EXEMPTIONS AND EXCLUSIONS IN ASSESSMENT TO OPT TO PROCEED UNDER SECTION 44BB (3) . (III) ONCE THE RECEIPTS ARE OFFERED TO TAX U / S 44BB (1) & (2), WHICH PROVIDES FOR COMPUTATION OF PROFITS ON GROSS BASIS, THERE IS NO SCOPE FOR COMPUTING OR RE- COMPUTING THE PROFITS BY EXCLUDING ANY ELEMENT OF RECEIPTS FROM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATING THE VERY PURPOSE OF PROVIDING F OR A SCHEME OF SIMPLER MODE OF COMPUTATION OF PROFITS AND OBVIATING THE NEED FOR ACCOUNTING FOR INDIVIDUA L RECEIPTS OR PAYMENTS. I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 7 6. THE LD. DR FURTHER SUBMITTED THAT THE AMOUNT M ENTIONED IN SUB-SECTION (2) OF SECTION 44BB CLEARLY SHOWS THAT THE AMOUNT PAID TO THE ASSESSEE ON ACCOUNT OF PROVISION OF SER VICES AND FACILITIES IN CONNECTION WITH THE EXTRACTION OR PRO DUCTION OF MINERAL OIL, WHETHER PAID IN OR OUTSIDE INDIA, ARE TO BE INCLUDED. IT WAS SUBMITTED BY THE LD. DR THAT THE SERVICE TAX RE CEIPT SQUARELY FALLS WITHIN THE PRINCIPLE ENUNCIATED IN CHOWRINGHE E SALES BUREAU (P.) LTD. V. CIT [1973] 87 ITR 542 (SC) WHEREIN IT WAS LAID DOWN THAT SALES TAX CHARGED FORMS PART OF THE TRADI NG RECEIPTS AND IS AS SUCH LIABLE TO BE ASSESSED TO INCOME TAX. THE LD. DR SUBMITTED THAT SINCE THEN THE COURTS HAVE CONSISTEN TLY HELD SIMILARLY FOR ALL KINDS OF TAXES OR GOVERNMENT RECE IPTS (THAT WERE RECEIVED BY THE ASSESSEE DURING THE RELEVANT PY) TH AT THESE ARE TAXABLE RECEIPTS AND HE RELIED ON THE FOLLOWING JUD ICIAL PRONOUNCEMENTS: CITATION CITATION CITATION CITATION TAX / RECEIPT TAX / RECEIPT TAX / RECEIPT TAX / RECEIPT [1997] 228 ITR 112 (ALL) JAGDISH PRASAD NIGAM EXCISE DUTY [2006] 154 TAXMAN 266 (ALL) MOHAN SHRAMIC CENTRAL SALES TAX AND UDYOG LTD LOCAL SALES TAX [2012] 28 TAXMANN.COM 94 (CAL) PODDAR SURCHARGE IS PART OF RENT PROJECTS I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 8 [2013] 35 TAXMANN.COM 565 (ALLAHABAD) UP HOTELS LUXURY TAX [1982] 9 TAXMAN 173 (PUNJ_HAR) KUNJPURA KILN ROYALTY(PAYABLE TO GOVERNMENT ) [2006] 154 TAXMAN 274 (ALLAHABAD) RAMPUR DISTILLERY EXPORT DUTY [2015] 58 TAXMANN.COM 206 (BOMBAY) OVIRA LOGISTICS SERVICE TAX 7. THE LD. DR SUBMITTED THAT IN VIEW OF THE ABOVE M ENTIONED CASE LAWS, THE RECEIPT OF SERVICE TAX FROM ONGC IS DEFINITELY CONNECTED WITH THE BUSINESS OF EXPLORATION AND / OR EXTRACTION OF OIL AND NEEDS TO BE INCLUDED IN THE AGGREGATE AM OUNT TO BE BROUGHT TO TAX UNDER SECTION 44BB. HE FURTHER SUBMI TTED THAT IT IS NOT PRECISE TO CATEGORIZE SERVICE TAX RECEIPT MERELY AS A STATUTORY LIABILITY . IT IS ALSO TO BE CATEGORISED AS CONTRACTUAL LIABILITY WHEREBY THE 'SERVICE RECEIVER' AGREES TO BEAR THIS EXPENSE AND ACCORDINGLY PAYS THE 'SERVICE PROVIDER' (ASSESSEE). IT WAS SUBMITTED THAT IT IS THE PRACTICE IN THE OIL AND GAS INDUSTRY TO CONTRACTUALLY BIND THE 'SERVICE RECEIVE R' TO BEAR THIS EXPENSE. THUS, IT IS A MATTER OF CONTRACT (IMPLICIT OR EXPLICIT) BETWEEN THE PARTIES BECAUSE IT IS IMPROBABLE / IMPO SSIBLE THAT 'SERVICE RECEIVER' WILL AGREE TO REIMBURSE A LIABIL ITY WHICH IS SPECIFICALLY THAT OF THE SERVICE PROVIDER (ASSESSEE ). I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 9 8. ON THE LEVY OF INTEREST U/S 234B/C, IT WAS THE S UBMISSION OF THE LD. DR THAT THE ISSUE WAS CONSEQUENTIAL AND THE QUANTUM OF INTEREST HAS TO BE ESSENTIALLY WORKED OUT BY THE AS SESSING OFFICER. 9. THE LD. AR, IN RESPONSE, SUBMITTED THAT THE ISSU E OF SERVICE TAX IS COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS MITCHELL DRILLING INTERNATIONAL PTY. LIMITED IN I.T.A. NO. 403/2013 WHEREIN THE HON'BLE DELHI HIGH COURT IN ITS DECISION DATED 28.09.2015 HAS DEALT THE ISSUE AT LE NGTH. HE SUBMITTED THAT IN VIEW OF THE RECENT JUDGMENT OF TH E HONBLE DELHI HIGH COURT IN MITCHELL DRILLING (SUPRA), THE ISSUE IS COVERED IN THE FAVOUR OF THE ASSESSEE. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE RECORDS. IT IS SEEN THAT THE ISSUE OF INCLUDIB ILITY OF SERVICE TAX IN THE GROSS RECEIPTS IS SQUARELY COVERED BY THE JU DGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MITCHELL DR ILLING INTERNATIONAL PTY LIMITED (SUPRA) WHEREIN THE HON'B LE DELHI HIGH COURT HAS HELD THAT SERVICE TAX BEING STATUTORY LEV Y SHOULD NOT FORM PART OF GROSS RECEIPTS AS PER PROVISIONS OF SE CTION 44BB OF THE ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT ARE I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 10 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 FA CILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINER Y ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, O R EXTRACTION OR PRODUCTION OF, MINERAL OILS, A SUM EQ UAL TO TEN PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIF IED IN SUB-SECTION (2) SHALL BE DEEMED TO BE THE PROFITS A ND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' : PROVIDED THAT THIS SUB-SECTION SHALL NOT APPLY IN A CASE WHERE THE PROVISIONS OF SECTION 42 OR SECTION 44D O R SECTION 44DA OR SECTION 115A OR SECTION 293A APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAINS OR ANY O THER INCOME REFERRED TO IN THOSE SECTIONS. (2) THE AMOUNTS REFERRED TO IN SUB-SECTION (1) SHAL L BE THE FOLLOWING, NAMELY: (A) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT O F INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHA LF ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY O N HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, O R EXTRACTION OR PRODUCTION OF, MINERAL OILS 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 PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO B E USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PROD UCTION OF, MINERAL OILS OUTSIDE INDIA. I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 11 9. SECTION 44BB BEGINS WITH A NON OBSTANTE CLAUSE T HAT 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 PAYAB LE OR DEEMED TO BE RECEIVED BY THE ASSESSEE ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNEC TION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED , OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION O R PRODUCTION OF, MINERAL OILS IN INDIA SHALL BE DEEM ED TO BE THE PROFITS AND GAINS OF THE CHARGEABLE TO TAX. THE PURPOSE OF THIS PROVISION IS TO TAX WHAT CAN BE LEGITIMATELY CONSIDERED AS INCOME OF THE ASSESSEE EARNED FROM ITS BUSINESS AND PROFESSION. 10. THE EXPRESSION AMOUNT PAID OR PAYABLE IN SECT ION 44 BB (2) (A) AND THE EXPRESSION AMOUNT RECEIVED O R 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 SUPP LY 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 FO R THE PURPOSES OF COMPUTATION OF THE GROSS INCOME UNDER SECTION 44 BB (1) READ WITH SECTION 44 BB (2). 11. IT IS IN THIS CONTEXT THAT THE QUESTION ARISES WHETHER THE SERVICE TAX COLLECTED BY THE ASSESSEE AND PASSE D ON TO THE GOVERNMENT FROM THE PERSON TO WHOM IT HAS PROVIDED THE SERVICES CAN LEGITIMATELY BE CONSIDERE D TO FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSES OF COMPUTATION OF THE ASSESSEES PRESUMPTIVE INCOME UNDER SECTION 44BB OF THE ACT. 12. IN CHOWRINGHEE SALES BUREAU (SUPRA) SALES TAX I N THE SUM OF RS. 32,986 WAS COLLECTED AND KEPT BY THE ASSESSEE IN A SEPARATE SALES TAX COLLECTION ACCOUN T. THE QUESTION CONSIDERED BY THE SUPREME COURT WAS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE SUM OF RS. 32,986 HAD BEEN VALIDLY EXCLUDE D I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 12 FROM THE ASSESSEE'S BUSINESS INCOME FOR THE RELEVAN T 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 ST ATUTORY PROVISION CREATING THAT LIABILITY UPON IT WAS NOT V ALID. IN THE CIRCUMSTANCES, THE SUPREME COURT HELD THAT THE SALES TAX COLLECTED, AND NOT DEPOSITED WITH THE TRE ASURY, WOULD FORM PART OF THE ASSESSEES TRADING RECEIPT. 13. THE DECISION IN GEORGE OAKES (P) LTD . (SUPRA) WAS CONCERNED WITH THE CONSTITUTIONAL VALIDITY OF THE M ADRAS GENERAL SALES (DEFINITION OF TURNOVER AND VALIDATIO N OF ASSESSMENTS) ACT, 1954 ON THE GROUND THAT THE WORD TURNOVER WAS DEFINED TO INCLUDE SALES TAX COLLECTED BY THE DEALER ON INTER-STATE SALES. UPHOLDING THE VALI DITY OF THE SAID STATUTE THE SUPREME COURT HELD THAT THE EXPRESSION TURNOVER MEANS THE AGGREGATE AMOUNT FO R WHICH GOODS ARE BOUGHT OR SOLD, WHETHER FOR CASH OR FOR DEFERRED PAYMENT OR OTHER VALUABLE CONSIDERATION, A ND WHEN A SALE ATTRACTS PURCHASE TAX AND THE TAX IS PA SSED ON TO THE CONSUMER, WHAT THE BUYER HAS TO PAY FOR T HE GOODS INCLUDES THE TAX AS WELL AND THE AGGREGATE AMOUNT SO PAID WOULD FALL WITHIN THE DEFINITION OF TURNOVER. SINCE THE TAX COLLECTED BY THE SELLING D EALER FROM THE PURCHASER WAS PART OF THE PRICE FOR WHICH THE GOODS WERE SOLD, THE LEGISLATURE WAS NOT INCOMPETEN T TO ENACT A STATUTE PURSUANT TO ENTRY 54 IN LIST II MAK E THE TAX SO PAID A PART OF THE TURNOVER OF THE DEALER. 14. IN THE CONSIDERED VIEW OF THE COURT, BOTH THE AFOREMENTIONED DECISIONS WERE RENDERED IN THE SPECI FIC CONTEXTS IN WHICH THE QUESTIONS AROSE BEFORE THE CO URT. IN OTHER WORDS THE INTERPRETATION PLACED BY THE COU RT ON THE EXPRESSION TRADING RECEIPT OR TURNOVER IN T HE SAID DECISIONS WAS DETERMINED BY THE CONTEXT. THE LATER DECISION OF THE SUPREME COURT IN CIT V. LAKSHMI MACHINE WORKS (SUPRA) WHICH SOUGHT TO INTERPRET THE EXPRESSION TURNOVER WAS ALSO IN ANOTHER SPECIFIC CONTEXT. THERE THE QUESTION BEFORE THE SUPREME COUR T WAS WHETHER EXCISE DUTY AND SALES TAX WERE INCLUDI BLE I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 13 IN THE TOTAL TURNOVER WHICH WAS THE DENOMINATOR I N THE FORMULA CONTAINED IN SECTION 80 HHC (3) AS IT STOOD IN THE MATERIAL TIME? THE SUPREME COURT CONSIDERED ITS EARLIER DECISION I N CHOWRINGHEE SALES BUREAU (SUPRA) AND ANSWERED THE QUESTION IN THE NEGATIVE. THE SUPREME COURT NOTED THAT FOR THE PURPOSES OF COMPUTING THE TOTAL TURNOVER FOR THE PURPOSE OF SECTION 80 HHC (3) BROKERAGE, COMMISSION , INTEREST ETC. DID NOT FORM PART OF THE BUSINESS PRO FITS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF EXPORT TURNOVER. IT WAS OBSERVED: JUST AS COMMISSION RECE IVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT C ANNOT FORM PART OF TURNOVER, EXCISE DUTY AND SALES-TAX ALSO CANNOT FORM PART OF THE TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80 HHC OF THE ACT W AS TO CONFER A BENEFIT ON PROFITS ACCRUING WITH REFERENCE TO EXPORT TURNOVER. THEREFORE, 'TURNOVER' WAS THE REQUIREMENT. COMMISSION, RENT, INTEREST ETC. DID N OT INVOLVE ANY TURNOVER. IT WAS CONCLUDED THAT SALES TAX AND EXCISE DUTY LIKE THE AFOREMENTIONED TOOLS LIKE INTEREST, RENT ETC. ALSO DO NOT HAVE ANY ELEMENT O F 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 PRE SENT 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 PRESUMP TIVE 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 I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 14 SERVICES LTD (SUPRA) WHICH HELD THAT THE REIMBURSEMENT RECEIVED BY THE ASSESSEE OF THE CUSTOMS DUTY PAID O N EQUIPMENT IMPORTED BY IT FOR RENDERING SERVICES WOU LD NOT FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSE S OF SECTION 44 BB OF THE ACT. 17. THE COURT ACCORDINGLY HOLDS THAT FOR THE PURPOS ES OF COMPUTING THE PRESUMPTIVE INCOME OF THE ASSESSEE FOR THE PURPOSES OF SECTION 44 BB OF THE ACT, THE SERVI CE TAX COLLECTED BY THE ASSESSEE ON THE AMOUNT PAID T IT F OR RENDERING SERVICES IS NOT TO BE INCLUDED IN THE GRO SS RECEIPTS IN TERMS OF SECTION 44 BB (2) READ WITH SE CTION 44 BB (1). THE SERVICE TAX IS NOT AN AMOUNT PAID OR PAYABLE, OR RECEIVED OR DEEMED TO BE RECEIVED BY TH E ASSESSEE FOR THE SERVICES RENDERED BY IT. THE ASSES SEE IS ONLY COLLECTING THE SERVICE TAX FOR PASSING IT ON T O THE GOVERNMENT. 18. THE COURT FURTHER NOTES THAT THE POSITION HAS BEEN MADE EXPLICIT BY THE CBDT ITSELF IN TWO OF ITS CIRC ULARS. IN CIRCULAR NO. 4/2008 DATED 28 TH APRIL 2008 IT WAS CLARIFIED THAT SERVICE TAX PAID BY THE TENANT DOES N'T PARTAKE THE NATURE OF 'INCOME' OF THE LANDLORD. THE LANDLORD ONLY ACTS AS A COLLECTING AGENCY FOR GOVER NMENT FOR COLLECTION OF SERVICE TAX. THEREFORE, IT HAS BE EN DECIDED THAT TAX DEDUCTION AT SOURCE) UNDER SECTION S 194-I OF INCOME TAX ACT WOULD BE REQUIRED TO BE MAD E ON THE AMOUNT OF RENT PAID/PAYABLE WITHOUT INCLUDING T HE SERVICE TAX. IN CIRCULAR NO. 1/2014 DATED 13 TH JANUARY 2014, IT HAS BEEN CLARIFIED THAT SERVICE TAX IS NOT TO BE INCLUDED IN THE FEES FOR PROFESSIONAL SERVICES OR T ECHNICAL SERVICES AND NO TDS IS REQUIRED TO BE MADE ON THE SERVICE TAX COMPONENT UNDER SECTION 194J OF THE ACT . 19. THE QUESTION FRAMED, IS THEREFORE, ANSWERED IN THE NEGATIVE I.E. FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 15 11. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO O F THE JUDGMENT AS LAID DOWN BY THE HON'BLE DELHI HIGH COURT, WE DISMI SS GROUND NOS. 1, 1.1, 1.2 AND 1.3 OF THE REVENUE. 12. ON THE ISSUE OF LEVY OF INTEREST U/S 234B/234 C OF THE ACT, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING O FFICER TO EXAMINE THE LIABILITY OF THE ASSESSEE IN LIGHT OF THE FACT THAT ALL RECEIPTS ARE TO BE ASSESSED U/S 44BB OF THE ACT AFTER GIVING EFF ECT TO RELIEF CONFIRMED FOR THE ASSESSEE IN THIS APPEAL. ACCORDI NGLY, GROUND NOS. 2, 2.1 AND 2.2 ARE ALLOWED FOR STATISTICAL PUR POSES. 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OF APRIL, 2016. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: THE 29TH OF APRIL, 2016 GS I.T.A. NO. 1048/DEL/2014 ASSESSMENT YEAR 2010-11 16 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR