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

ITA 708/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4194 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 09-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Presumptive income; TDS
• Section: 143(3); 234B; 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH F, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 708/DEL/2016 ASSESSMENT YEAR: 2011-12 JCIT (INTERNATIONAL TAXATION), DEHRADUN. (APPELLANT) VS. R & B FALCON (A) PTY. LTD., 1 ST FLOOR, SPECTRA, HIGH STREET HIRANANDANI BUSINESS PARK, POWAI, MUMBAI. PAN- AACCR5345Q (RESPONDENT) ITA NO. 710/DEL/2016 ASSESSMENT YEAR: 2011-12 DCIT (INTERNATIONAL TAXATION), DEHRADUN. (APPELLANT) VS. TRANSOCEAN DISCOCERER 534, LLC, C/O NANGIA & CO. DEHRADUN. PAN- AABCT9505F (RESPONDENT) ITA NO. 711/DEL/2016 ASSESSMENT YEAR: 2008-09 DCIT (INTERNATIONAL TAXATION), DEHRADUN. (APPELLANT) VS. TRANSOCEAN OFFSHORE INTERNATIONAL VENTURES LTD., LAKE BOULEVARD ROAD, DISCOCERER 534, LLC, C/O NANGIA & CO., HIRANANDANI BUSINESS PARK, MUMBAI. PAN- AABCT7316B (RESPONDENT) ITA NO. 713/DEL/2016 ASSESSMENT YEAR: 2011-12 JCIT (INTERNATIONAL TAXATION), DEHRADUN. (APPELLANT) VS. SHELF DRILLING INTERNATIONAL INC. TRANSOCEAN HOUSE, LAKE BOULEVARD ROAD, HIRANANDANI BUSINESS PARK, MUMBAI. PAN- AACCS9208D (RESPONDENT) ITA NOS.708, 710, 711, 713 & 714/DEL/2016 2 APPELLANT BY SH. G.K. DHALL, CIT/DR RESPONDENT BY SH. AMIT ARORA, C.A. DATE OF HEARING : 08.05.2019 ITA NO. 714/DEL/2016 ASSESSMENT YEAR: 2012-13 JCIT (INTERNATIONAL TAXATION), DEHRADUN. (APPELLANT) VS. VANTAGE INTERNATIONAL MANAGEMENT CO., C/O SRBC & ASSOCIATES, 4 TH & 5 TH FLOOR, PLOT NO. 2B, TOWER-2, SECTOR- 126, NOIDA. PAN- AADCV3089Q (RESPONDENT) APPELLANT BY SH. J.K. MISHRA, CIT/DR RESPONDENT BY SH. SANDEEP KARHAIL, ADVOCATE ORDER PER L.P. SAHU, A.M.: ALL THESE APPEALS FILED BY THE REVENUE IN THE CAS ES OF DIFFERENT ASSESSEES ARE DIRECTED AGAINST SEPARATE ORDERS OF FIRST APPELLATE AUTHORITIES RELATING TO ASSESSMENT ORDERS PASSED U/S. 143(3) READ WITH SECT ION 144C OF THE IT ACT, 1961 FOR THE CAPTIONED ASSESSMENT YEARS. THE GROUNDS RAI SED IN ALL THESE APPEALS ARE COMMON AND SINCE THE ISSUE AND FACTS INVOLVED THERE IN ARE IDENTICAL, THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS CONSOLIDATED ORDER. BOTH THE PARTIES AGREED THAT THE DECISION IN ONE APPEAL SHAL L EQUALLY BE APPLICABLE TO OTHER APPEALS. FOR THE SAKE OF CONVENIENCE, WE FIRST TAKE UP THE APPEAL OF REVENUE IN THE CASE OF R & B FALCON (A) PTY. LTD. THE GROUNDS RAIS ED IN THIS APPEAL READ AS UNDER : DATE OF HEARING 0 9 .05.2019 DATE OF PRONOUNCEMENT 10.0 5 .2019 ITA NOS.708, 710, 711, 713 & 714/DEL/2016 3 (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE DRP HAS ERRED IN HOLDING THAT RECEIPTS ON ACCOUNT O F SERVICE TAX ARE NOT INCLUDIBLE IN GROSS REVENUE OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF PROFITS UNDER THE PROVISIONS OF SECTION 44BB OF THE IT ACT, 1961. (II) WHETHER THE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT SECTION 44BB OF THE ACT IS A SELF- CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFIT AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSE E AND ALL THE DEDUCTIONS AND EXCLUSIONS FROM THE GROSS RECEIPTS ARE DEEMED TO HA VE BEEN ALLOWED TO THE ASSESSEE. (III) WHETHER THE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT ONCE THE RECEIPTS ARE OFFERED TO TAX U/S 44BB OF THE ACT WHI CH PROVIDES FOR COMPUTATION OF PROFITS ON GROSS BASIS, THERE IS NO SCOPE FOR CO MPUTING OR RE-COMPUTING THE PROFITS BY EXCLUDING ANY PART OF THE RECEIPTS FROM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATING THE VERY PURPOSE OF PROVIDING FOR A PRESUMPTIVE SCHEME OF TAXATION U/S 44BB OF THE ACT AND OBVIATING THE NEED FOR MAINTAINING ACCOUNTS FOR INDIVIDUAL RECEIPTS, PAYME NTS ETC. (IV) WHETHER THE DRP HAS ERRED IN IGNORING THE RATI O OF THE JUDGMENT IN THE CASE OF M/S CHOWRINGHEE SALES BUREAU (P) LTD. (82 I TR 542, SC) WHEREIN THE HONBLE APEX COURT HAS HELD THAT THE SALES TAX COLLE CTED BY AN ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS FORMS PART OF ITS B USINESS RECEIPTS. OWING TO THE INHERENT SIMILARITY IN THE NATURE OF SALES TAX AND SERVICE TAX, THE RATIO OF THE JUDGMENT IN THE SAID CASE IS DIRECTLY APPLICABLE TO THE INSTANT CASE. 2. FROM THE AFORESAID GROUNDS OF APPEAL AND THE FAC TS OF THE CASE, IT IS SEEN THAT THE ONLY QUESTION WHICH NEEDS ADJUDICATION AT THIS STAGE IS WHETHER THE RECEIPTS ON ACCOUNT OF SERVICE TAX ARE INCLUDIBLE IN GROSS REVE NUE OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF PROFITS UNDER THE PROVISI ONS OF SECTION 44BB OF THE IT ACT OR NOT. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE ISSUE UNDER CONSIDERATION AND HAVE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ITA NOS.708, 710, 711, 713 & 714/DEL/2016 4 LD. AR AT THE OUTSET HAS BEEN THAT THE CORE ISSUE A S CULLED OUT IN GROUNDS OF APPEAL STANDS SETTLED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FO R PRECEDING ASSESSMENT YEAR 2010-11 VIDE ORDER DATED 29.04.2016 (ITA NO. 1048/D EL/2014) IN THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. DR THO UGH RELIED ON THE ORDER OF THE ASSESSING OFFICER, BUT COULD NOT CONTROVERT THE ABO VE CONTENTION OF THE ASSESSEE REGARDING THE ISSUE HAVING BEEN COVERED BY THE DECI SION OF COORDINATE BENCH OF TRIBUNAL. WE HAVE GONE THROUGH THE ABOVE REFERRED ORDER OF TRIBUNAL AND FIND THAT THE CORE ISSUE INVOLVED IN THIS CASE IS COVERE D IN FAVOUR OF THE ASSESSEE IN THE SIMILAR FACTS AND CIRCUMSTANCES. THE DECISIONOF CO- ORDINATE BENCH IN THE IDENTICAL THE FACTS NARRATED THEREIN READ AS UNDER : 2. THE ASSESSEE IS A NON-RESIDENT COMPANY INCORPOR ATED UNDER THE LAWS OF AUSTRALIA. DURING THE YEAR UNDER CONSIDERATION, IT HAD OFFERED REVENUES TO TAXATION ON ACCOUNT OF ONGOING CONTRACT DATED 12.12.2006 ENTERED WITH ONGC LTD. FOR CHARTER HIRE OF A JACK UP RIG. THE OPERATIONS OF THE ASSESSEE CONSISTED OF PE RFORMING THE DRILLING OPERATIONS THROUGH PROVISION OF RIG AND INTEGRATED SERVICES. T HE ASSESSEE, IN ITS RETURN OF INCOME, HAD CLAIMED THAT THE TAXABLE REVENUES WERE TO BE COMPUT ED IN TERMS OF SECTION 44BB OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CAME TO KNOW THAT AN AMOUNT OF 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 W AS THE ASSESSEES CONTENTION THAT STATUTORY CHARGES CANNOT FORM PART OF THE AMOUNT FO R THE PURPOSE OF DEEMED PROFIT U/S 44BB OF THE ACT. AS PER THE ASSESSEE, SERVICE TAX W AS IN THE NATURE OF REIMBURSEMENT AND HENCE NOT INCLUDIBLE IN GROSS RECEIPTS FOR THE PURP OSE OF TAXATION. THE ASSESSEE CONTENDED THAT IT HAD ACTED ONLY AS A COLLECTION AGENCY FOR T HE GOVERNMENT FOR COLLECTION OF SERVICE TAX AND AS SUCH, THE COLLECTIONS ON ACCOUNT OF SERV ICE TAX COULD NOT BE CONSIDERED AS INCOME GENERATING RECEIPTS IN THE HANDS OF THE ASSE SSEE. IT WAS FURTHER CONTENDED BEFORE THE ASSESSING OFFICER THAT ANY RECEIPT UNCONNECTED WITH THE BUSINESS OF EXPLORATION, EXPLOITATION OF OIL ETC. COULD NOT FORM PART OF THE TAXABLE RECEIPTS U/S 44BB OF THE ACT. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION T HAT FOR THE PURPOSE OF PRESUMPTIVE DETERMINATION OF THE ASSESSEES PROFIT, THE QUANTUM OF AMOUNT RECEIVED FROM THE CUSTOMERS AGAINST ITS SERVICE TAX OBLIGATION HAD TO BE ESSENTIALLY CONSIDERED AS PART OF THE RECEIPT AND, ACCORDINGLY, A SUM OF RS. 114,351,759/ - WAS ADDED BACK FOR THE PURPOSE OF CALCULATING THE GROSS RECEIPTS ON WHICH THE PRESUMP TIVE 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. ITA NOS.708, 710, 711, 713 & 714/DEL/2016 5 3. IN THE FIRST APPEAL, THE ASSESSEE CHALLENGED THE ADDITIONS AS WELL AS LEVY OF INTEREST U/S LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. THE LD. CIT (A) IN THE IMPUGNED ORDER ALLOWED THE ASSESSEES GROUNDS RELATING TO SERVICE TAX AND LEVY OF INTEREST U/S 234B AND 234C BUT DISMISSED ITS GROUND RELATING TO REIMBURSE MENT RECEIPTS. NOW THE DEPARTMENT IS IN APPEAL AND HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD CIT(APPEALS) HAS ERRED HOLDING THAT RECEIPTS ON ACC OUNT OF SERVICES TAX ARE NOT INCLUDIBLE IN GROSS REVENUE OF THE ASSESSEE FOR THE PROPOSE OF COMPUTATION OF PROFITS UNDER THE PRESUMPTIVE PROVISIONS U/S 44BB OF THE IN COME TAX ACT, 1961 (THE ACT). 1.1 WHETHER THE LD.CIT (A) HAS ERRED IN NOT APPRECI ATING THE FACT THAT THE PROVISIONS OF SECTION 44BB OF THE ACT ARE A SELFCONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSEE AND ALL THE DEDUCTIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN A LLOWED TO THE ASSESSEE. 1.2 WHETHER THE LD.CIT (A) HAS ERRED IN NOT APPRECI ATING THE FACT THAT ONCE THE RECEIPTS ARE OFFERED TO TAX U/S 44BB OF THE ACT WHI CH PROVIDES FOR COMPUTATION OF PROFITS ON GROSS BASIS, THERE IS NO SCOPE FOR COMPUT ING OR RE-COMPUTING THE PROFITS BY EXCLUDING ANY ELEMENT OF THE RECEIPTS FROM THE TOTA L TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATING THE VERY PURPOSE OF PROVIDING F OR A SCHEME OF SIMPLER MODE OF COMPUTATION OF PROFITS U/S 44BB OF THE ACT AND OBVIA TING THE NEED FOR ACCOUNTING FOR INDIVIDUAL RECEIPTS AND PAYMENTS ETC. 1.3 WHETHER THE LD.CIT (A) HAS ERRED IN IGNORING TH E RATIO OF THE JUDGMENT IN THE CASE OF M/S CHOWRINGHEE SALES BUREAU (P) LIMITED (8 2 ITR 542, SC) WHEREIN THE HONBLE APEX COURT HAS HELD THAT THE SALES TAX COLLE CTED BY AN ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS FORMS PART OF ITS BUS INESS RECEIPTS. OWING TO THE INHERENT SIMILARITY IN THE NATURE IF THE SALES TAX AND SERVICE TAX, THE RATIO OF THE JUDGMENT IN THE SAID CASE IS DIRECTLY APPLICABLE IN THE FACTS OF THE INSTANT CASE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF 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 FAVOU R 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 FACTS WHEREIN THE EMPLOYER FI LED TO DEDUCT TAX AT SOURCE DESPITE THE SPECIFIC MANDATORY PROVISIONS OF THE AC T STIPULATING THE EMPLOYER BEING LIABLE TO DEDUCT TAX ON THE SALARY PAID TO THE EMPLO YEE, THEREBY HOLDING THAT AN EMPLOYEE IS NOT LIABLE TO PAY ADVANCE TAX ON SALARY. THE ITAT HAS ERRED IN RELYING UPON THIS DECISION AS THE CASE DOES NOT LAY DOWN A GENERAL PROPOSITION OF LAW THAT INTEREST U/S 234B IS NOT CHARGEABLE IN ALL CASES PA RTICULARLY IN CASES WHERE THE NONRESIDENT ASSESSEE/PAYEE/DEDUCTEE HAS PLAYED A RO LE IN INDUCING NON-DEDUCTION OR SHORT-DEDUCTION ON THE PART OF THE PAYER / DEDUC TOR. ITA NOS.708, 710, 711, 713 & 714/DEL/2016 6 2.2 THE LD. CIT(A) HAS ERRED IN FAILING TO TAKE NO TE OF THE OBSERVATIONS OF THE HONBLE HIGH COURT IN THE CASE OF M/S MITSUBISHI [330 ITR 57 8, DEL] THAT THE ROLE OF THE ASSESSEE/PAYEE/DEDUCTEE IN SHORT-DEDUCTION OR NONDE DUCTION OF TAX NEEDS TO BE ASCERTAINED BEFORE CLAIM REGARDING NON-LIABILITY TO I NTEREST 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 DATED 07.11.2013 IN I NCOME TAX ACT, 1961 NO. 327 & ORS OF 2012). 4. THE LD. DR SUBMITTED THAT SECTION 44BB MAKES A S PECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF THE NON-RESIDENT ASSESSEE ENGA GED IN THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS. SUB-SECTION (1) PROVIDES THAT IN R ESPECT OF SUCH 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 CEN T PROFIT ON THE AMOUNT MENTIONED IN SUB-SECTION (2) RECEIVED BY HIM. IT WAS SUBMITTED B Y THE LD. DR THAT SECTION 44BB IS A COMPLETE CODE IN ITSELF. IT PROVIDES BY A LEGAL FIC TION TO BE THE PROFITS AND GAINS OF THE NON- RESIDENT ASSESSEE ENGAGED IN THE BUSINESS OF OIL EX PLORATION AT THE RATE OF 10 PER CENT OF THE AGGREGATE AMOUNT SPECIFIED IN SUB-SECTION (2). HE SUBMITTED THAT THE HON'BLE UTTRAKHAND HC HAS CONSISTENTLY HELD IN THE FOLLOWIN G CASES THAT THE AGGREGATE AMOUNT RECEIVED BE INCLUDED IN TOTAL INCOME FOR TAXATION U NDER SECTION 44BB: [2008] 169 TAXMAN 138 (UTTARAKHAND) REIMBURSEMENT OF FREIGHT AND HALLIBURTON OFFSHORE SERVICES INC TRANSPORTATIO N CHARGES [2009] 181 TAXMAN 46 (UTTARAKHAND) REIMBURSEMENT OF CATERING ENSCO MARITIME LTD. CHARGES [2009] 181 TAXMAN 144 (UTTARAKHAND) RBF RIG CORPORATION REIMBURSEMENT FUEL EXPENSE S (2008) 170 TAXMAN 459(UTTARAKHAND) MOBILIZATION C HARGES 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 SECTION 44BB BECAUSE: (I) SECTION 44BB IS A SELF CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSE E AND ALL THE DEDUCTIONS, EXEMPTIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN ALLOWED; (II) IT IS OPEN TO THOSE WHO WANT TO CLAIM DEDUCTIONS, E XEMPTIONS 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 S COPE FOR COMPUTING OR ITA NOS.708, 710, 711, 713 & 714/DEL/2016 7 RECOMPUTING THE PROFITS BY EXCLUDING ANY ELEMENT OF RECEIPTS FROM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATING THE VERY PURPOSE OF PROVIDING FOR A SCHEME OF SIMPLER MODE OF COMPUTATI ON OF PROFITS AND OBVIATING THE NEED FOR ACCOUNTING FOR INDIVIDUAL REC EIPTS OR PAYMENTS. 6. THE LD. DR FURTHER SUBMITTED THAT THE AMOUNT MEN TIONED IN SUB-SECTION (2) OF SECTION 44BB CLEARLY SHOWS THAT THE AMOUNT PAID TO THE ASSE SSEE ON ACCOUNT OF PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH THE EXTR ACTION OR PRODUCTION OF MINERAL OIL, WHETHER PAID IN OR OUTSIDE INDIA, ARE TO BE INCLUDE D. IT WAS SUBMITTED BY THE LD. DR THAT THE SERVICE TAX RECEIPT SQUARELY FALLS WITHIN THE P RINCIPLE ENUNCIATED IN CHOWRINGHEE SALES BUREAU (P.) LTD. V. CIT [1973] 87 ITR 542 (SC ) WHEREIN IT WAS LAID DOWN THAT SALES TAX CHARGED FORMS PART OF THE TRADING RECEIPTS AND IS AS SUCH LIABLE TO BE ASSESSED TO INCOME TAX. THE LD. DR SUBMITTED THAT SINCE THEN TH E COURTS HAVE CONSISTENTLY HELD SIMILARLY FOR ALL KINDS OF TAXES OR GOVERNMENT RECE IPTS (THAT WERE RECEIVED BY THE ASSESSEE DURING THE RELEVANT PY) THAT THESE ARE TAXABLE RECE IPTS AND HE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: CITATION TAX / RECEIPT [1997] 228 ITR 112 (ALL) JAGDISH PRASAD NIGAM EXC ISE DUTY [2006] 154 TAXMAN 266 (ALL) MOHAN SHRAMIC CENTRAL SALES TAX AND LOCAL SALES UDYOG LTD TAX [2012] 28 TAXMANN.COM 94 (CAL) PODDAR PROJECTS SURC HARGE IS PART OF RENT [2013] 35 TAXMANN.COM 565 (ALLAHABAD) UP HOTELS LU XURY TAX [1982] 9 TAXMAN 173 (PUNJ_HAR) KUNJPURA KILN ROYA LTY (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 A GGREGATE AMOUNT TO BE BROUGHT TO TAX UNDER SECTION 44BB. HE FURTHER SUBMITTED 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 THA T 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 T HE PARTIES BECAUSE IT IS IMPROBABLE / IMPOSSIBLE THAT 'SERVICE RECEIVER' WILL AGREE TO RE IMBURSE A LIABILITY WHICH IS SPECIFICALLY THAT OF THE SERVICE PROVIDER (ASSESSEE). 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 T O BE ESSENTIALLY WORKED OUT BY THE ASSESSING 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 CAS E OF DIT VS MITCHELL DRILLING ITA NOS.708, 710, 711, 713 & 714/DEL/2016 8 INTERNATIONAL PTY. LIMITED IN I.T.A. NO. 403/2013 W HEREIN THE HON'BLE DELHI HIGH COURT IN ITS DECISION DATED 28.09.2015 HAS DEALT THE ISSUE A T LENGTH. HE SUBMITTED THAT IN VIEW OF THE RECENT JUDGMENT OF THE 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 INCLUDIBILITY OF SERVICE TAX IN THE GR OSS RECEIPTS IS SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF MITCHELL DRILLING INTERNATIONAL PTY LIMITED (SUPRA) WHEREIN THE HON'BLE DELHI HIGH COUR T HAS HELD THAT SERVICE TAX BEING STATUTORY LEVY SHOULD NOT FORM PART OF GROSS RECEIP TS AS PER PROVISIONS OF SECTION 44BB OF THE ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE H IGH COURT ARE 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 FACILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PR OSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS, A SUM EQUAL TO TEN PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB-SECTION (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD 'PROF ITS 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 OR SECTION 44DA OR SECTIO N 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 OF INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF 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, OR EXTRACTION OR PRODUCTION OF, MI NERAL 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 AN D 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 OUTSIDE I NDIA. 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 ASSESS MENTS UNDER SECTION 44 BB. IT INTRODUCES THE CONCEPT OF PRESUMPTIVE INCOME AND ST ATES THAT 10% CREDIT OF THE AMOUNTS PAID OR PAYABLE OR DEEMED TO BE RECEIVED BY T HE 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 PROSPE CTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS IN INDIA SHALL BE DEEME D TO BE THE PROFITS AND GAINS OF THE ITA NOS.708, 710, 711, 713 & 714/DEL/2016 9 CHARGEABLE TO TAX. THE PURPOSE OF THIS PROVISION IS TO TAX WHAT CAN BE LEGITIMATELY CONSIDERED AS INCOME OF THE ASSESSEE EARNED FROM IT S BUSINESS AND PROFESSION. 10. THE EXPRESSION AMOUNT PAID OR PAYABLE IN SECTI ON 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 FOR 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 PASSED ON TO THE GOVERNMENT FROM T HE PERSON TO WHOM IT HAS PROVIDED THE SERVICES CAN LEGITIMATELY BE CONSIDERED TO FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSES OF COMPUTATION OF THE ASS ESSEES PRESUMPTIVE INCOME UNDER SECTION 44BB OF THE ACT. 12. IN CHOWRINGHEE SALES BUREAU (SUPRA) SALES TAX IN THE SUM OF RS. 32,986 WAS COLLECTED AND KEPT BY THE ASSESSEE IN A SEPARATE S ALES TAX COLLECTION ACCOUNT. 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 EXCLUDED FROM THE ASSESSEE'S BUSINESS IN COME FOR THE RELEVANT 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 STATUTORY PROVISION CREATING THAT LIABILITY UPON IT WAS NOT VA LID. IN THE CIRCUMSTANCES, THE SUPREME COURT HELD THAT THE SALES TAX COLLECTED, AN D NOT DEPOSITED WITH THE TREASURY, 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 MADRAS GENERAL SALES (DEFINITION OF TURNOVER AND VALIDATION OF ASSESSMENTS) ACT, 1954 ON THE GROUND THAT THE WORD TURNOVER WAS DEFINED TO INCLUDE SALES TAX COLLECTED BY THE DEALE R ON INTER-STATE SALES. UPHOLDING THE VALIDITY OF THE SAID STATUTE THE SUPREME COURT HELD THAT THE EXPRESSION TURNOVER MEANS THE AGGREGATE AMOUNT FOR WHICH GOODS ARE BOUGH T OR SOLD, WHETHER FOR CASH OR FOR DEFERRED PAYMENT OR OTHER VALUABLE CONSIDERAT ION, AND WHEN A SALE ATTRACTS PURCHASE TAX AND THE TAX IS PASSED ON TO THE CONSUM ER, WHAT THE BUYER HAS TO PAY FOR THE GOODS INCLUDES THE TAX AS WELL AND THE AGGREGAT E AMOUNT SO PAID WOULD FALL WITHIN THE DEFINITION OF TURNOVER. SINCE THE TAX C OLLECTED BY THE SELLING DEALER FROM THE PURCHASER WAS PART OF THE PRICE FOR WHICH THE G OODS WERE SOLD, THE LEGISLATURE WAS NOT INCOMPETENT TO ENACT A STATUTE PURSUANT TO ENTRY 54 IN LIST II MAKE THE TAX SO PAID A PART OF THE TURNOVER OF THE DEALER. 14. IN THE CONSIDERED VIEW OF THE COURT, BOTH THE A FOREMENTIONED DECISIONS WERE RENDERED IN THE SPECIFIC CONTEXTS IN WHICH THE QUES TIONS AROSE BEFORE THE COURT. IN OTHER WORDS THE INTERPRETATION PLACED BY THE COURT ON THE EXPRESSION TRADING ITA NOS.708, 710, 711, 713 & 714/DEL/2016 10 RECEIPT OR TURNOVER IN THE SAID DECISIONS WAS DE TERMINED BY THE CONTEXT. THE LATER DECISION OF THE SUPREME COURT IN CIT V. LAKSHMI MAC HINE WORKS (SUPRA) WHICH SOUGHT TO INTERPRET THE EXPRESSION TURNOVER WAS A LSO IN ANOTHER SPECIFIC CONTEXT. THERE THE QUESTION BEFORE THE SUPREME COURT WAS WHE THER EXCISE DUTY AND SALES TAX WERE INCLUDIBLE IN THE TOTAL TURNOVER WHICH WAS TH E DENOMINATOR IN 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 FOR M PART OF THE BUSINESS PROFITS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF EXPORT T URNOVER. IT WAS OBSERVED: JUST AS COMMISSION RECEIVED BY AN ASSESSEE IS RELATABLE TO E XPORTS AND YET IT CANNOT FORM PART OF TURNOVER, EXCISE DUTY AND SALES-TAX ALSO CANNOT FORM PART OF THE TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 8 0 HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS ACCRUING WITH REFERENCE TO EXPORT TURNOVER. THEREFORE, 'TURNOVER' WAS THE REQUIREMENT. COMMISSION, RENT, INTEREST ET C. DID NOT 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 S UPREME COURT APPROVED THE DECISION OF THE BOMBAY HIGH COURT IN CIT V. SUDARSHA N CHEMICALS INDUSTRIES LTD. (SUPRA) WHICH IN TURN CONSIDERED THE DECISION OF TH E SUPREME COURT IN GEORGE OAKES (P) LTD. (SUPRA). IN THE CONSIDERED VIEW OF THE COU RT, THE DECISION OF THE SUPREME COURT IN LAKSHMI MACHINES WORKS (SUPRA) IS SUFFICIE NT TO ANSWER THE QUESTION FRAMED IN THE PRESENT APPEAL IN FAVOUR OF THE ASSES SEE. THE SERVICE TAX COLLECTED BY THE ASSESSEE DOES NOT HAVE ANY ELEMENT OF INCOME AN D THEREFORE CANNOT FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSES OF COMPUTING TH E PRESUMPTIVE 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 SERVICES LTD (SUPRA) WHICH HELD TH AT THE REIMBURSEMENT RECEIVED BY THE ASSESSEE OF THE CUSTOMS DUTY PAID ON EQUIPME NT IMPORTED BY IT FOR RENDERING SERVICES WOULD NOT FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSES 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 SERVICE TAX COLLECTED BY THE ASSESSEE ON THE AMOUNT PAID T IT F OR RENDERING SERVICES IS NOT TO BE INCLUDED IN THE GROSS RECEIPTS IN TERMS OF SECTION 44 BB (2) READ WITH SECTION 44 BB (1). THE SERVICE TAX IS NOT AN AMOUNT PAID OR PAYABL E, 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 . 18. THE COURT FURTHER NOTES THAT THE POSITION HAS BE EN MADE EXPLICIT BY THE CBDT ITSELF IN TWO OF ITS CIRCULARS. IN CIRCULAR NO. 4/2 008 DATED 28TH APRIL 2008 IT WAS ITA NOS.708, 710, 711, 713 & 714/DEL/2016 11 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 COLLEC TING AGENCY FOR GOVERNMENT FOR COLLECTION OF SERVICE TAX. THEREFORE, IT HAS BEEN DE CIDED THAT TAX DEDUCTION AT SOURCE) UNDER SECTIONS 194-I OF INCOME TAX ACT WOULD BE REQU IRED TO BE MADE ON THE AMOUNT OF RENT PAID/PAYABLE WITHOUT INCLUDING THE SERVICE T AX. IN CIRCULAR NO. 1/2014 DATED 13TH JANUARY 2014, IT HAS BEEN CLARIFIED THAT SERVIC E TAX IS NOT TO BE INCLUDED IN THE FEES FOR PROFESSIONAL SERVICES OR TECHNICAL SERVICE S 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 THE REVENUE. 11. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGMENT AS LAID DOWN BY THE HON'BLE DELHI HIGH COURT, WE DISMISS GROUND NOS. 1, 1.1, 1.2 AND 1.3 OF THE REVENUE. 4. SIMILAR VIEW HAS BEEN EXPRESSED BY CO-ORDINATE B ENCH IN THE CASE OF OTHER ASSESSEE, TRANSOCEAN OFFSHORE, DISCOVERER, WHO IS O NE OF THE RESPONDENTS IN THESE APPEALS BEFORE US, WHERE ALSO, THE ISSUE UNDER CONS IDERATION STANDS DECIDED BY THE TRIBUNAL IN FAVOUR OF ASSESSEE VIDE ORDER DATED 15. 10.2014. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF CO-ORDINATE BENCHE S, ALL THE APPEALS OF THE REVENUE IN THE CASES OF DIFFERENT ASSESSEES BEFORE US STAND DISMISSED, AS OUR THIS DECISION WOULD APPLY MUTATIS MUTANDIS IN OTHER FOUR APPEALS BEFORE US AS NOTED ABOVE. 5. IN THE RESULT, ALL THESE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.05.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10.05.2019 *AKS*