2012 (9) TMI 564 - AT - Income Tax

Computation of gross receipts for the purposes of taxation u/s 44BB - Whether service tax will be included ? - the assessee is an Australia Company - Held that - Service tax which is a statutory liability, would not involve any element of profits and a service provider is collecting the same from its customers on behalf of the Government and, accordingly, same cannot be included in the total receipts for determining the presumptive income as decided in Islamic Republic of Iran Shipping Lines (2011 (4) TMI 637 - ITAT MUMBAI) - service tax paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement - Decided against Revenue

Summary

Issues:
1. Whether service tax is part of gross receipts for the purpose of taxation under section 44BB of the Income Tax Act, 1961.

Analysis:
The appeal in this case was against the order passed by the CIT(A)- XXIX, New Delhi, challenging the decision that service tax should not be included in the gross receipts for taxation under section 44BB of the Income Tax Act, 1961. The assessee, a company incorporated in Australia, provided equipment on hiring and manpower services for exploration and production of mineral oil and natural gas. The dispute arose when the Assessing Officer added the service tax collected by the assessee to its gross receipts for computing total income, which the assessee contested. The assessee argued that service tax is collected by the service provider as an agent of the Government and is held in trust for the Government, hence should not be included in the total receipts for determining presumptive profit under section 44BB. The CIT(A) accepted the assessee's plea, emphasizing that service tax is a statutory levy mandated by law and does not result in income or profit for the service provider.

The department appealed the CIT(A)'s decision, citing a decision by the Authority for Advance Ruling and contending that service tax should be considered part of receipts for presumptive income under section 44BB. The department also referred to a case regarding custom duty to distinguish it from service tax. The assessee, on the other hand, relied on a decision by the ITAT 'G' Bench, arguing that service tax should be excluded for computing presumptive income under section 44BB. The ITAT considered a similar issue in a previous case and upheld the assessee's argument, stating that service tax collected by the assessee should not be included in total receipts for determining presumptive income under section 44BB. The ITAT emphasized that service tax is a statutory liability and does not involve any element of profit for the service provider.

Ultimately, the ITAT upheld the CIT(A)'s order, dismissing the department's appeal. The decision was based on the earlier ITAT 'G' Bench ruling and the absence of contrary or higher court precedents cited by the department. The ITAT concluded that service tax paid by the assessee should not form part of the amount for determining presumptive profits under section 44BB, in line with the legal interpretations provided in previous judgments.