CHINA SHIPPING CONTAINER LINES ( HONG KONG)CO. LTD, MUMBAI V. ADIT (IT) 1(2), MUMBAI

ITA 8516/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70711 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 24-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR
• Assessee Lawyers: JIGER SAIYA
• Keywords: Presumptive income; Business income
• Section: 143(3); 80HHC; 234B; 28

Judgement Text

, IN THE IN IN THE IN IN THE IN IN THE INCOME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL L BENCH, L BENCH, L BENCH, L BENCH, MUMBAI MUMBAI MUMBAI MUMBAI . , !' !' !' !' , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI B. R B. R B. R B. RAMAKOTAIAH AMAKOTAIAH AMAKOTAIAH AMAKOTAIAH, AM , AM , AM , AM & && & SHRI SHRI SHRI SHRI VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, ,, , JM JMJM JM ./ I.T.A. N I.T.A. N I.T.A. N I.T.A. NO. O.O. O.8516 8516 8516 8516/MUM/2010 /MUM/2010 /MUM/2010 /MUM/2010 ( #$ #$ #$ #$ % % % % / ASSESSMENT YEAR :2007-08) CHINA SHIPPING CONTAINER LINES (HONG KONG) CO. LTD. DYNASTY BUSINESS PARK, UNIT NOS.608-611, ANDHERI KURLA ROAD, ANDHERI(E) MUMBAI-400093 $ $ $ $ / VS. ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)- 1(2), SCINDIA HOUSE MUMBAI-400038 & ./ '' ./ PAN/GIR NO. :AACCC5161B ( &( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*&( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) &( &( &( &( + + + + / APPELLANT BY : MR. JIGER SAIYA )*&( )*&( )*&( )*&( , ,, , + + + + /RESPONDENT BY : MR. NARENDER KUMAR $ $ $ $ , ,, , - - - - / DATE OF HEARING : 25 TH JULY 2013 .% .% .% .% , ,, ,- - - - /DATE OF PRONOUNCEMENT: 23 RD AUGUST 2013 / / O R D E R PER : !' , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 20.10.2010 PASSED U/S 143(3) R.W.S 144C (13) IN PURSUANT TO THE DIRECTIONS OF DRP DATED 29.9.2010 U/S 144C(5) O F INCOME TAX ACT FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1 (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT DIRECTOR OF INCOME-TAX ( INTERNATIONAL TAXATION) 1(1), MUMBAI (ADIT) HAS ERRED IN INCL UDING THE AMOUNT OF SERVICE TAX COLLECTED OF RS. 2,72,30,136, AS PART OF GROSS RECEIPTS FOR DETERMINING THE TAXABLE INCOME O F THE APPELLANT. ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 2 1 (B) THE LEARNED ADIT OUGHT TO HAVE APPRECIATED TH AT SERVICE TAX IS A STATUTORY LEVY AND THE APPELLANT ONLY ACTS AS AGENT ON BEHALF OF GOVERNMENT FOR COLLECTION AND DEPOSIT OF SERVICE TAX INTO THE TREASURY AND THEREFORE, THE AMOUNT SO COLL ECTED SHOULD NOT FORM PART OF GROSS FREIGHT FOR COMPUTING THE TA XABLE INCOME. 1(C) THE LEARNED ADIT FURTHER ERRED IN NOT APPRECIA TING THAT SERVICE TAX IS NEITHER A COLLECTION ON ACCOUNT OF CARRIAGE OF GOODS NOR IN THE NATURE OF DEMURRAGE CHARGES OR H ANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NATURE TO F ALL WITHIN THE PURVIEW OF SECTION 44B OF THE IT ACT. 2 WITHOUT PREJUDICE TO ABOVE, THE ADIT ERRED IN NOT APPRECIATING THAT SINCE THE INDIAN AGENT OF THE APPELLANT HAS BE EN REMUNERATED WITH A COMMISSION AT ARMS LENGTH, NO F URTHER ATTRIBUTION CAN BE MADE IN THE HANDS OF THE APPELLA NT SINCE ITS TAX LIABILITY GETS EXTINGUISHED. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DDIT HAS ERRED IN LEVYING INTEREST OF RS. 1 0,30,721 UNDER SECTION 234B OF THE IT ACT DESPITE THE FACT T HAT THE ASSESSEE WAS NOT LIABLE TO PAY ANY ADVANCE TAX ON T HE BASIS OF THE FACT THAT THE INCOME OF THE APPELLANT WAS ANYWA Y TAX DEDUCTIBLE AT SOURCE. 3. GROUND NO. 1(A) TO (C) REGARDING INCLUSION OF SE RVICE TAX IN THE GROSS RECEIPTS FOR THE DETERMINATION OF TAXABLE INC OME AS PER THE PROVISIONS OF SECTION 44B. THE ASSESSEE IS A COMPAN Y INCORPORATED IN HONG KONG AND ENGAGED IN THE BUSINESS OF OPERATIONS OF SHIPS IN INTERNATIONAL WATERS. THE ASSESSEE HAS COMPUTED THE TOTAL INCOME @ 7.5% OF TOTAL COLLECTION AS PER THE PROVISIONS OF S ECTION 44B R.W.S. 172 OF INCOME TAX ACT. THE AO FOUND THAT THE ASSESSEE HAS NOT INCLUDED THE SERVICE TAX COLLECTED BY IT IN THE GROSS RECEIPT FO R THE PURPOSE OF COLLECTION OF INCOME U/S 44B OF THE ACT. ACCORDINGL Y, THE AO ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE SERVICE TAX CO LLECTED BY THE ASSESSEE SHOULD NOT BE CONSIDERED AS PART OF GROSS RECEIPTS FOR THE PURPOSE OF COMPUTATION OF INCOME U/S 44B OF THE INC OME TAX ACT. IN ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 3 RESPONSE THE ASSESSEE SUBMITTED THAT THE SERVICE TA X AMOUNTING TO ` 2,72,30,136/- HAS BEEN COLLECTED DURING THE RELEVAN T ASSESSMENT YEAR BUT THE SAME CANNOT BE INCLUDED IN THE PRESUMPTIVE INCOME. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND INCLU DED THE SERVICE TAX AMOUNT OF ` 2,72,30,136/- COLLETED BY THE ASSESSEE IN THE GROSS RECEIPT OF THE ASSESSEE FOR THE PURPOSE OF TAXATION AS PER THE PROVISIONS OF SECTION 44B. THE AO ISSUED A DRAFT ASSESSMENT ORDER DATED 1 3.12.2009 AGAINST WHICH THE ASSESSEE FILED OBJECTION BEFORE DISPUTE R ESOLUTION PANEL (DRP). THE DRP HAS CONFIRMED THE INCLUSION OF SERVICE TAX COLLECTED BY THE ASSESSEE IN THE AMOUNT OF GROSS RECEIPT FOR DETERMI NATION OF THE TAXABLE INCOME AS PER THE PROVISIONS OF SECTION 44B. CONSEQ UENTLY THE AO HAS FRAMED THE ASSESSMENT ORDER DATED 20.10.2010 IN PUR SUANT TO THE DRP DIRECTION AND INCLUDED THE SERVICE TAX COLLECTED BY THE ASSESSEE IN THE GROSS RECEIPTS FOR THE PURPOSE OF DETERMINATION OF THE INCOME U/S 44B OF THE ACT. 4. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT THE SERVICE TAX CANNOT BE PART OF THE AMOUNT OF GROSS R ECEIPTS FOR THE PURPOSE OF COMPUTATION OF INCOME U/S 44B. HE HAS RE FERRED SECTION 44B AND SUBMITTED THAT IT IS A DEEMING PROVISION UNDER WHICH THE INCOME OF THE ASSESSEE IS DETERMINED AS A SUM EQUAL TO 7.5% O F THE AGGREGATE AMOUNT PAID OR PAYABLE TO THE ASSESSEE ON ACCOUNT O F CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT ANY PORT IN INDIA AS WELL AS ANY PORT OUTSIDE INDIA. THE LD. AR HAS CONTENDED THAT THE SERVICE TAX COLLECTED BY THE ASSESSEE ON BEHALF OF THE GOVERNME NT CANNOT BE ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 4 TREATED AS AMOUNT PAID OR PAYABLE TO THE ASSESSEE O N ACCOUNT OF CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOODS ET C. HE HAS FURTHER SUBMITTED THAT THE SERVICE TAX IS PAID ON THE CONSI DERATION FOR SERVICES AND THEREFORE, THE AMOUNT OF SERVICE TAX ITSELF CAN NOT BE INCLUDED IN THE CONSIDERATION OF SERVICES. FOR THE PURPOSE OF SECTI ON 44B ONLY THE GROSS AMOUNT PAID OR PAYABLE TO THE ASSESSEE ON ACCOUNT O F CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOODS AS TO BE TAKEN INTO CONSIDERATION AND NOTHING ELSE. HE HAS REFERRED THE DECISION OF H ONBLE SUPREME COURT IN CASE OF UNION OF INDIA VS GOSALIA SHIPPING P. LT D. 113 ITR 307 AND SUBMITTED THAT THE CONSIDERATION FOR CARRIAGE OF GO ODS IS THE AMOUNT WHICH THE CHARTERS HAD AGREED TO MAKE TO THE OWNERS OF THE SHIP AND THEREFORE THE AMOUNT OF SERVICE TAX WHICH IS COLLEC TED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT CANNOT BE CONSIDERED A PAR T OF CONSIDERATION. HE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUN AL IN CASE OF ISLAMIC REPUBLIC OF IRAN SHIPPING LINES VS DCIT (INTERNATIO NAL TAXATION) 46 SOT 101 (URO) AND SUBMITTED THAT THE TRIBUNAL HAS CONSI DERED AND DECIDED AN IDENTICAL ISSUE BY HOLDING THAT SERVICE TAX WHIC H IS STATUTORY LIABILITY WITHOUT ANY INVOLVED OF THE ELEMENT OF PROFIT AND A CCORDINGLY THE SAME CANNOT BE INCLUDED IN THE TOTAL RECEIPTS FOR DETERM INING THE PRESUMPTIVE INCOME U/S 44B. THE LD. AR HAS FURTHER SUBMITTED TH AT THOUGH THERE ARE DECISIONS OF THE TRIBUNAL AGAINST THE ASSESSEE HOWE VER, IN THE CASE OF ISLAMIC REPUBLIC OF IRAN SHIPPING LINES THE TRIBUNA L HAS DECIDED THE ISSUE BY RELYING UPON THE DECISION OF HONBLE JURISDICTIO N HIGH COURT AS IN CASE OF CIT VS SUDARSHAN CHEMICALS INDUSTRIES LTD. 245 I TR 769 THEREFORE, THE SAID DECISION OF THE TRIBUNAL HAS TO BE FOLLOWED. H E HAS ALSO RELIED UPON ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 5 THE DECISION OF THIS TRIBUNAL IN CASE OF ORIENT OVE RSEAS CONTAINER LINE LTD. VS ADIT (INTERNATIONAL TAXATION) IN ITA NO. 78 09/M/2010 VIDE ORDER DATED 17.5.2013 AND SUBMITTED THAT THE DECISION IN CASE OF ISLAMIC REPUBLIC OF IRAN SHIPPING LINES HAS BEEN FOLLOWED I N THIS CASE. 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT SECTION 44B OF THE ACT IS SPECIAL PROVISION AND ANY DEDUCTION U/S 28 TO 43A WOULD NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINATION OF INCO ME U/S 44B. HE HAS FURTHER CONTENDED THAT UNDER THE PROVISIONS OF SECT ION 44B WHAT IS TO BE CONSIDERED IS THE AMOUNT RECEIVED OR PAYABLE TO THE ASSESSEE AND NOT THE NET INCOME. THE LD. DR HAS FORCEFULLY CONTENDED THAT THE AMOUNT RECEIVED INCLUDES ALL THE AMOUNTS RECEIVED OR RECEI VABLE BY THE ASSESSEE INCLUDING THE SERVICE TAX. THE SERVICE TAX IS AN IN TEGRAL PART OF RECEIPTS AND CANNOT BE TREATED AS SEPARATE RECEIPTS AS IT IS INCLUDED IN THE INVOICES. HE HAS RELIED UPON THE DECISION OF DELHI BENCHES OF TRIBUNAL IN CASE OF TECHNIP OFFSHORE CONTRACTING B.V. REPORTED IN 29 SOT 33 AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT THE SERVI CE TAX WOULD BE A PART OF THE GROSS RECEIPTS FOR THE PURPOSE OF DETERMININ G THE INCOME U/S 44B. THE LD. DR HAS POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE ISSUE IN CASE OF TECHNIP OFFSHORE CONTRACTING (SUPRA) HAS RE LIED UPON THE DECISION OF HONBLE UTTARAKHAND HIGH COURT IN CASE OF SEDCO FOREX INTERNATIONAL INC. 214 CTR 192/299 ITR 238. HE HAS ALSO RELIED UP ON THE DECISION OF HONBLE UTTARAKHAND HIGH COURT IN CASE OF TRANS OCE AN OFFSHORE INC. 299 ITR 248 AND SUBMITTED THAT THE HONBLE HIGH COURT H AS HELD THAT THE MOBILIZATION CHARGES RECEIVED BY THE ASSESSEE SHOUL D BE TAXED AS PER ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 6 THE PROVISIONS OF SECTION 44BB. THE LD. DR HAS ALSO RELIED UPON THE FOLLOWING DECISION B. J SERVICES CO. MIDDLE EAST 30 0 ITR 392/G&T RESOURCES (EUROPE) LTD. VS DDIT 55 DTR 312. 6. THE LD. DR HAS FURTHER CONTENDED THAT IN CASE O F SUDARSHAN CHEMICALS INDUSTRIES LTD. (SUPRA) THE HONBLE HIGH COURT HAS HELD THAT THE SALES TAX AND EXCISE DUTY CANNOT BE PART OF THE TURNOVER FOR THE PURPOSE OF SECTION 80HHC WHEREIN THE DEFINITION OF TURNOVER HAS BEEN PROVIDED AND THEREFORE, THE SAID DECISION CANNOT BE APPLIED FOR THE PURPOSE OF DETERMINATION OF THE INCOME AS U/S 44B. THE AGGREGATE AMOUNT HAS TO BE CONSIDERED FOR DETERMINING OF INCO ME AND NOT THE PROFIT ELEMENT IN THE RECEIPTS. THUS, THE LD. DR HA S SUBMITTED THAT IN VIEW OF THE VARIOUS DECISIONS OF HONBLE SUPREME CO URT AS WELL AS HIGH COURT THE EXCISE DUTY, SALES TAX HAS BEEN TREATED A S TRADING RECEIPTS AND SERVICE TAX WHICH IS SIMILAR TO SALES TAX WOULD ALS O THE PART OF THE TRADING RECEIPT AND THEREFORE WOULD BE INCLUDED IN THE AGGR EGATE AMOUNT PAID OR PAYABLE TO THE ASSESSEE FOR THE PURPOSE OF COMPUTAT ION OF INCOME AS PER THE PROVISIONS OF SECTION 44B. ON THIS POINT THE LD . DR HAS RELIED UPON THE FOLLOWING DECISIONS: CHOWRINGHEE SALES BUREAU (P) LTD. VS CIT 87 ITR 542 ACIT VS T. NAGGI REDDY 202 ITR 253 MCDOWELL & CO. LTD. VS CTO 154 ITR 148 JAGDISH PRASAD NAGAM VS CIT 228 ITR 112 (ALL) . 7. IN REJOINDER THE LD. AR HAS SUBMITTED THAT THE S ERVICE TAX IS STATUTORY LEVY COLLECTED FROM SHIPPERS FOR AND ON B EHALF OF THE ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 7 GOVERNMENT. THEREFORE, THE ASSESSEE IS ACTING AS AN AGENT ON BEHALF OF THE GOVERNMENT AND THE SAID AMOUNT CANNOT BE TREATE D AS RECEIPT ON ACCOUNT OF CARRIAGE OF PASSENGERS, LIVESTOCK, GOODS ETC. HE HAS FURTHER CONTENDED THAT APART FORM THE CONSIDERATION AGAINST THE CARRIAGE OF PASSENGERS, LIVESTOCK, GOODS ETC WHAT CAN BE INCLUD ED IS ONLY THE DEMURRAGE CHARGES OR HANDLING CHARGES AS PER THE EX PLANATION TO SECTION 44B AND SERVICE TAX IS NEITHER IN THE NATURE OF DEM URRAGE CHARGES NOR HANDLING CHARGES OR ANY AMOUNT SIMILAR NATURE CANNO T BE INCLUDED IN THE GROSS RECEIPTS FOR THE PURPOSE OF TAXATION AS UNDER THE PROVISIONS OF SECTION 44B. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE RELEVANT MATERIAL ON RECORD AS WELL AS THE VARIOUS DECISIONS RELIED UPON BY EITHER OF THE PARTIES. WITH A VIEW T O SIMPLIFY AND RATIONALISE THE ASSESSMENT AND COMPUTATION OF PROFI T AND GAIN OF SHIPPING BUSINESS IN THE CASE OF NON-RESIDENT THE F INANCE ACT 1975 HAS MADE SPECIAL PROVISION IN SECTION 44B OF THE INCOME TAX ACT. UNDER THIS PROVISION, PROFITS AND GAIN OF NON-RESIDENT FROM TH E BUSINESS OF OPERATION OF SHIPS WILL NOT BE CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28 TO 43A OF THE INCOME TAX ACT BUT THE SAM E WILL BE TAKEN AS 7.5% OF THE AGGREGATE OF THE AMOUNTS PAID OR PAYABL E TO THE ASSESSEE OR TO ANY PERSONS ON HIS BEHALF ON ACCOUNT OF CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOODS, SHIPPED AT ANY PORT IN IN DIA AS WELL THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDIA ON ACCOU NT OF CARRIAGE OF PASSENGERS, LIVESTOCK ETC. AT ANY PORT OUTSIDE INDI A. THUS, FOR THE PURPOSE ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 8 OF DETERMINATION OF THE INCOME U/S 44B IT IS THE GR OSS AMOUNT WHICH IS AGGREGATE OF THE AMOUNT PAID OR PAYABLE WITHIN OR O UTSIDE INDIA ON ACCOUNT OF CARRIAGE OR SHIPPED AT ANY PORT IN INDIA PLUS ANY AMOUNT RECEIVED OR DEEMED TO RECEIVED IN INDIA ON ACCOUNT OF CARRIAGE OR SHIPPED AT ANY PORT OUTSIDE INDIA. THERE ARE TWO CO MPONENTS OF THE AMOUNTS ONE WHICH IS PAID OR PAYABLE TO THE ASSESSE E IN RESPECT OF THE CARRIAGE OR SHIPPED AT PORT IN INDIA AND ANOTHER TH E AMOUNT RECEIVED OR DEEMED TO RECEIVE IN INDIA IN RESPECT OF CARRIAGE O R SHIPPED AT ANY PORT OUTSIDE INDIA. IT IS PERTINENT TO NOTE THAT SECTION 44B OVER RIDES THE PROVISIONS OF SECTION 28 TO 43A, HOWEVER, THE OTHER PROVISIONS OF THE ACT ARE APPLICABLE APART FROM THE PROVISION OF SECTION 44B FOR COMPUTATION OF INCOME OF NON-RESIDENT ENGAGED IN THE BUSINESS OF S HIPPING. IT IS PERTINENT TO NOTE THAT THE S SS SALE ALEALE ALES SS S T TT TAX AXAX AX RECEIPT BY ANY ASSESSEE IS TREATED AS TRADING OR BUSINESS RECEIPT THOUGH THE SALES TAX IS COLLECTED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT AS HELD BY HON BLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU (P) LTD. (S UPRA) IN PARA 9 AS UNDER: 9. THE FACT THAT THE APPELLANT CREDITED THE AMOUNT RECEIVED AS SALES-TAX UNDER THE HEAD SALES-TAX COLLECTION ACCO UNT WOULD NOT, IN OUR OPINION, MAKE ANY MATERIAL DIFFERENCE. IT IS THE TRUE NATURE AND THE QUALITY OF THE RECEIPT AND NOT THE H EAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOKS AS WOULD P ROVE DECISIVE. IF A RECEIPT IS A TRADING RECEIPT, THE FA CT THAT IT IS NOT SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NO T PREVENT THE ASSESSING AUTHORITY FROM TREATING IT AS TRADING RECEIPT. WE MAY IN THIS CONTEXT REFER TO THE CASE OF PUNJAB DIS TILLING INDUSTRIES LTD. VS. CIT (1959) 35 ITR 519 (SC). IN THAT CASE CERTAIN AMOUNTS RECEIVED BY THE ASSESSEE WERE DESCR IBED AS SECURITY DEPOSITS. THIS COURT FOUND THAT THOSE AMOU NTS WERE AN INTEGRAL PART OF THE COMMERCIAL TRANSACTION OF THE SALE OF LIQUOR AND WERE THE ASSESSEES TRADING RECEIPT. IN DEALING WITH THE ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 9 CONTENTION THAT THOSE AMOUNTS WERE ENTERED IN A SEP ARATE LEDGER TERMED EMPTY BOTTLES RETURN SECURITY DEPOSI T ACCOUNT, THIS COURT OBSERVED. 9. IT IS CLEAR FROM THE DECISION OF HONBLE SUPREME COURT THAT THIS ISSUE OF THE AMOUNT RECEIVED AS SALES TAX IS TREATE D AS TRADING RECEIPT OF THE ASSESSEE IS SETTLED. A SIMILAR VIEW HAS BEEN TA KEN BY THE HONBLE SUPREME COURT IN CASE OF ACIT VS T. NAGGI REDDY (SU PRA) AS WELL AS IN CASE OF MCDOWELL & CO. LTD. VS CTO (SUPRA). THE AS SESSEE HAS HEAVILY RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE O F ISLAMIC REPUBLIC OF IRAN SHIPPING LINES VS DCIT (SUPRA) WHEREIN THIS TR IBUNAL HAS RELIED UPON THE DECISION OF HONBLE HIGH COURT IN CASE OF CIT V S SUDARSHAN CHEMICALS INDUSTRIES LTD. (SUPRA) AND HELD THAT SERVICE TAX I S STATUTORY LIABILITY AND WOULD NOT INVOLVED ANY ELEMENT OF PROFIT AND ACCORD INGLY THE SAME CANNOT BE INCLUDED IN THE TOTAL RECEIPT FOR DETERMI NING THE PRESUMPTIVE INCOME. ON THE OTHER HAND, THE LD. DR HAS RELIED UP ON THE DECISION OF THIS TRIBUNAL IN CASE OF DDIT VS TECHNIP OF SOURCES CONTRACTING B.V (SUPRA) WHEREIN THE TRIBUNAL HAS RELIED UPON THE DE CISION OF HONBLE UTTARAKHAND HIGH COURT IN CASE OF SEDKO FOREX INC. (SUPRA) AND HELD THAT SERVICE TAX COLLECTED BY THE ASSESSEE IN CONNECTION WITH THE SERVICES SPECIFIED U/S 44BB OF THE ACT WILL BE INCLUDED IN T HE TOTAL RECEIPT FOR THE PURPOSE OF DETERMINING THE PRESUMPTIVE PROFIT U/S 4 4BB. THERE ARE OTHER SIMILAR DECISIONS OF HONBLE UTTARAKHAND HIGH COURT WHEREIN IT HAS BEEN HELD THAT THE HANDLING CHARGES RECEIVED BY THE ASSE SSEE WILL BE INCLUDED IN THE TOTAL RECEIPT FOR THE PURPOSE OF DETERMINATI ON OF PRESUMPTIVE PROFITS U/S 44BB. THUS, IT IS CLEAR THAT THERE ARE DECISIONS OF THIS TRIBUNAL ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 10 TAKING DIVERGENT VIEW. THE DECISION IN CASE OF SUDA RSHAN CHEMICALS INDUSTRIES LTD. IS IN RESPECT OF TURNOVER FOR THE P URPOSE OF SECTION 80HHC. IT IS PERTINENT TO NOTE THAT SECTION 80HHC OF INCOM E TAX ACT ITSELF HAS PROVIDED THE DEFINITION OF EXPORT TURNOVER AS WELL AS TOTAL TURNOVER AND THE HONBLE HIGH COURT HAS HELD THAT THE EXCISE DUT Y AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT INTO TURNOVER AS THEY DO NOT HAVE ANY ELEMENT OF PROFIT. THIS VIEW HAS BEEN TAKEN BY THE HONBLE HIGH COURT BY DRAWING ANALOGY FROM THE DEFINITION OF TURNOVER PRO VIDED U/S 80HHC ITSELF WHEREIN AS PER THE CLAUSE (B) OF EXPLANATION OF SEC TION 80HHC EXPORT TURNOVER IS DEFINE BY EXCLUDING FREIGHT AND INSURAN CE CHARGES. THEREFORE, ON THE SIMILAR ANALOGY THE HONBLE HIGH COURT HAS H ELD THAT THE EXCISE DUTY AND SALES TAX ALSO HAVE NO ELEMENT OF PROFIT S IMILAR TO THAT OF FREIGHT AND INSURANCE. HOWEVER NO SUCH EXCLUSION FR OM THE AGGREGATE OF AMOUNTS PROVIDED UNDER SUB-SECTION 2 OF SECTION 44B HAS BEEN PERMITTED WHILE COMPUTING THE PROFITS AND GAINS OF THE SHIPPING BUSINESS IN CASE OF NON-RESIDENT AS PER SECTION 44B. WE QUOT E SECTION 44B AS UNDER: SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF SHIPPING BUSINESS IN THE CASE OF NON-RESIDENTS. 44B. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY C ONTAINED IN SECTIONS 28 TO 43A IN THE CASE OF AN ASSESSEE, B EING A NON- RESIDENT, ENGAGED IN THE BUSINESS OF OPERATION OF S HIPS, A SUM EQUAL TO SEVEN AND A HALF PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB-SECTION (2) SHALL BE DEEME D TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TA X UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. (I) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT O F INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON A CCOUNT OF THE CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR G OODS SHIPPED AT ANY PORT IN INDIA; AND ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 11 (II) THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED I N INDIA BY OR ON BEHALF OF THE ASSESSEE ON ACCOUNT OF THE C ARRIAGE 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 (I) OR CLAUSE (II) SHALL INCL UDE THE AMOUNT PAID OR PAYABLE OR RECEIVED OR DEEMED TO BE RECEIVE D, AS THE CASE MAY BE, BY WAY OF DEMURRAGE CHARGES OR HANDLIN G CHARGES OR ANY OTHER AMOUNT OF SIMILAR NATURE. 10. AS WE HAVE ALREADY MENTIONED THAT THE PROVISION S OF SECTION 44B HAS BEEN BROUGHT INTO STATUTE TO SIMPLIFY THE DETER MINATION OF TAXABLE INCOME OF THE NON-RESIDENT WHO ARE IN THE BUSINESS OF SHIPPING. THE PRESUMPTIVE PROFITS AND GAIN OF SUCH BUSINESS CHARG EABLE TO TAX UNDER THE PROVISIONS OF SECTION 44B ARE DETERMINED AS A S UM EQUAL TO 7.5% OF THE AGGREGATE AMOUNTS PAID OR PAYABLE TO THE ASSESS EE ON ACCOUNT OF CARRIAGE OF PASSENGERS ETC. OR GOODS SHIPPED AT ANY PORT IN INDIA AS WELL AS AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDI A ON ACCOUNT OF CARRIAGE OF PASSENGERS OR GOODS SHIPPED AT ANY PORT OUTSIDE INDIA. THERE IS NO DISPUTE THAT THE SERVICE TAX RECEIVED/COLLECT ED BY THE ASSESSEE IS IN RESPECT OF THE SERVICES PROVIDED ON ACCOUNT OF CARR IAGE OF PASSENGERS OR GOODS SHIPPED EITHER ANY PORT IN INDIA OR ANY PORT OUTSIDE INDIA. THEREFORE, THE SAID AMOUNT OF SERVICE TAX IS A PART OF THE INVOICES/BILLS RAISED IN RESPECT OF SHIPPING BUSINESS. THE EXCLUSI ON OF THE SAID AMOUNT ONLY ON THE GROUND THAT IT HAS NO ELEMENT OF PROFIT IN OUR VIEW IS NOT CONSISTENT WITH THE INTENTION OF THE LEGISLATURE WH EN THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED BY WAY OF DEMURRAGE CHARGE S OR HANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NATURE HAS T O BE INCLUDED TO THE AGGREGATE AMOUNT AS PER SUB-SECTION 2 OF SECTION 44 B. THE LEGISLATURE ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 12 HAS MADE IT CLEAR BY INSERTING THE EXPLANATION THAT THE DEMURRAGE CHARGES OR HANDLING CHARGES OR ANY OTHER SIMILAR AM OUNT WOULD BE PART OF THE AGGREGATE AMOUNT FOR THE PURPOSE OF DETERMIN ING THE PRESUMPTIVE PROFITS @ 7.5% OF SUCH AMOUNT. IT IS PERTINENT TO N OTE THAT IF THE ELEMENT OF PROFIT IS THE ONLY CRITERIA FOR INCLUSION OR EXC LUSION OF ANY AMOUNT THEN THE DEMURRAGE CHARGES OR HANDLING CHARGES SHOULD NO T HAVE BEEN INCLUDED IN THE AGGREGATE AMOUNT FOR THE PURPOSE OF DETERMINING THE PRESUMPTIVE INCOME BECAUSE THE DEMURRAGE CHARGES AN D HANDLING CHARGES ALSO NOT HAVING ANY ELEMENT OF PROFIT. SINC E THE SERVICE TAX ACT HAS BEEN CAME INTO FORCE SUBSEQUENT TO THE INSERTIO N OF THE EXPLANATION THEREFORE, THERE WAS NO REASON/OCCASION FOR INCLUDI NG THE SERVICE TAX ALONG WITH THE DEMURRAGE CHARGES AND HANDLING CHARG ES IN THE EXPLANATION HOWEVER WHEN ANY OTHER AMOUNT OF SIMILA R NATURE IS REQUIRED TO BE INCLUDED THEN THE SERVICE TAX AS FAR AS ON THE ASPECT OF HAVING NO ELEMENT OF PROFIT IS SIMILAR IN NATURE TO THAT OF DEMURREGE CHARGES OR HANDLING CHARGES. 11. FURTHER THE TERM TURNOVER IS NOT RELEVANT FOR E STIMATION OF PROFIT AND GAIN U/S 44B AND THEREFORE, WHEN THE DEMURREGE CHARGES AND HANDLING CHARGES ARE SPECIFICALLY INCLUDED IN THE A GGREGATE AMOUNT AS PRESCRIBED UNDER SUB-SECTION 2 THEN WHATEVER AMOUNT RECEIVED OR RECEIVABLE/PAID OR PAYABLE TO THE ASSESSEE ON ACCOU NT OF CARRIAGE OF PASSENGERS ETC. OR GOODS SHIPPED WOULD BE PART OF S UCH AMOUNT FOR COMPUTATION OF PROFIT AND GAINS U/S 44B. THUS, THE THEORY OF ELEMENT OF PROFIT WOULD NOT APPLY TO THE AGGREGATE AMOUNT AS S PECIFIED IN SUB- ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 13 SECTION 2 OF SECTION 44B. MOREOVER SERVICE TAX IS I NCIDENTAL TO THE TRANSACTIONS OF CARRIAGE OF PASSENGERS ETC. AND GOO DS SHIPPED AND THE AMOUNT PAID OR PAYABLE TO AND RECEIVED OR RECEIVABL E BY THE ASSESSEE ON ACCOUNT OF SERVICE TAX IS VERY MUCH PART OF THE AMO UNT RECEIVED ON ACCOUNT OF THE BUSINESS OF SHIPPING. ACCORDING TO T HE NORMAL COMMERCIAL PRACTICE, LEVY OF TAX ON SALE OF GOODS OR SERVICE I S REFLECTED IN THE BILLS EITHER AS MERGED IN THE PRICE OR BEING SHOWN SEPARA TELY. THEREFORE, THE AMOUNT RECEIVED ON ACCOUNT OF SERVICE TAX AS PART O F THE PRICE OF CARRIAGE/SHIPPED SERVICE IS VERY MUCH A TRADING/BUS INESS RECEIPT AND WOULD BE PART OF THE AGGREGATE AMOUNT FOR PRESUMPTI VE PROFIT AND GAIN TO BE DETERMINED U/S 44B. 12. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT TH E SERVICE TAX COLLECTED BY THE ASSESSEE WOULD FORM PART AND PARTI AL OF THE AGGREGATE AMOUNT AS SPECIFIED UNDER SUB-SECTION 2 OF SECTION 44B FOR THE PURPOSE OF DETERMINING THE PROFIT AND GAIN UNDER THIS SECTI ON. ACCORDINGLY, WE UPHELD THE ORDERS OF THE AUTHORITIES BELOW QUA THIS ISSUE. 13. GROUND NO. 2 IN VIEW OF OUR FINDING REGARDING G ROUND NO. 1 AND FURTHER WHEN THE PROFIT AND GAIN ARE ESTIMATED WITH OUT HAVING REGARD TO THE ANY ELEMENT OF PROFIT IN THE RECEIPTS WE DO NOT FIND ANY MERIT IN THE GROUND NO. 2. 14. GROUND NO. 3 REGARDING LEVY OF INTEREST U/S 234 B. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATER IAL ON RECORD. THIS ISSUE IS COVERED BY THE DECISION OF HONBLE JURISDI CTION HIGH COURT IN CASE OF DIT (INTERNATIONAL TAXATION) VS NGC NETWORK ASIA LLC 313 ITR 187 IN ITA NO. 8516/M/2010 CHINA SHIPPING CONTAINER LINES (HONG KONG CO. LTD. 14 WHICH THE HONBLE HIGH COURT HAS HELD THAT WHEN A D UTY IS CAST ON THE PAYER TO DEDUCT TAX AT SOURCE THEN ON FAILURE OF TH E PAYER TO DO SO, NO INTEREST CAN BE CHARGES FROM THE PAYEE U/S 234. FOL LOWING THE DECISION OF THE HONBLE HIGH COURT WE DECIDE THIS ISSUE IN FAVO UR OF THE ASSESSEE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST 2013 / , .% 0 1$2 23 RD 3 - , 3 SD/- SD/- ( . ) (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( !' ) # (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 23 RD AUGUST 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI