2013 (10) TMI 743 - AT - Income Tax

Computation of profit earned by non-resident from Shipping business u/s 44B of the Income Tax Act Held that - Demurrage charges and handling charges are specifically included in the aggregate amount as prescribed under sub-section 2 - Amount received or receivable/paid or payable to the assessee on account of carriage of passengers etc. or goods shipped would be part of such amount for computation of profit and gains u/s 44B - Theory of element of profit would not apply to the aggregate amount as specified in sub-section (2) of section 44B. Moreover service tax is incidental to the transactions of carriage of passengers etc. and goods shipped and the amount paid or payable to and received or receivable by the assessee on account of service tax is very much part of the amount received on account of the business of shipping. According to the normal commercial practice, levy of tax on sale of goods or service is reflected in the bills either as merged in the price or being shown separately. Therefore, the amount received on account of service tax as part of the price of carriage/shipped service is very much a trading/business receipt and would be part of the aggregate amount for presumptive profit and gain to be determined u/s 44B - Service tax collected by the assessee would form part and partial of the aggregate amount as specified under sub-section 2 of section 44B for the purpose of determining the profit and gain under this section Decided against the Assessee. Interest u/s 234B of the Income Tax Act Held that - This issue is covered by the decision of Hon'ble Jurisdiction High Court in case of DIT (International Taxation) v. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT in which the Hon'ble High Court has held that when a duty is cast on the payer to deduct tax at source then on failure of the payer to do so, no interest can be charges from the payee u/s 234 Decided in favor of Assessee.

Issues Involved:

1. Inclusion of service tax in gross receipts for determining taxable income under section 44B.
2. Attribution of income when Indian agent is remunerated at arm's length.
3. Levy of interest under section 234B.

Issue-Wise Detailed Analysis:

1. Inclusion of Service Tax in Gross Receipts:

The primary issue revolves around whether the service tax collected by the assessee should be included in the gross receipts for determining taxable income under section 44B of the Income Tax Act. The assessee, a Hong Kong-based company engaged in the operation of ships, argued that service tax is a statutory levy collected on behalf of the government and should not be considered part of gross receipts. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disagreed, including the service tax in the gross receipts.

The Tribunal examined various arguments and precedents. The assessee cited the Supreme Court decision in Union of India v. Gosalia Shipping (P.) Ltd. and the Tribunal's decision in Islamic Republic of Iran Shipping Lines, arguing that service tax should not be included as it does not involve profit. However, the Department Representative (DR) argued that under section 44B, all amounts received or receivable, including service tax, should be considered.

The Tribunal noted that section 44B overrides sections 28 to 43A and mandates that 7.5% of the aggregate amounts paid or payable for carriage of goods or passengers be deemed as profits. The Tribunal emphasized that service tax, being part of the invoices for shipping services, is a trading receipt and should be included in the gross receipts. The Tribunal upheld the AO and DRP's decision to include service tax in the gross receipts for determining taxable income under section 44B.

2. Attribution of Income When Indian Agent is Remunerated at Arm's Length:

The assessee contended that since its Indian agent was remunerated at arm's length, no further attribution of income should be made. The Tribunal, referencing its findings on the inclusion of service tax, found no merit in this ground. The Tribunal reiterated that the profit and gain are estimated without regard to the element of profit in the receipts, thus dismissing the assessee's argument.

3. Levy of Interest Under Section 234B:

The assessee challenged the levy of interest under section 234B, arguing that it was not liable to pay advance tax as its income was subject to tax deduction at source (TDS). The Tribunal referred to the jurisdictional High Court's decision in DIT (International Taxation) v. NGC Network Asia LLC, which held that when the payer is required to deduct tax at source, no interest can be charged from the payee under section 234B for the payer's failure to deduct tax. Following this precedent, the Tribunal decided in favor of the assessee, ruling that interest under section 234B should not be levied.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the inclusion of service tax in gross receipts under section 44B and dismissed the ground regarding attribution of income due to arm's length remuneration of the Indian agent. However, the Tribunal ruled in favor of the assessee on the issue of interest under section 234B, following the jurisdictional High Court's decision. The order was pronounced on August 23, 2013.

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