2018 (2) TMI 53 - AT - Income Tax

Gross receipts for the purpose of determination of income u/s 44BB - Receipts on account of reimbursements of expenses incurred on supply of materials inclusion - Held that - It was not in dispute that the amount had been received by the assessee. Therefore the AO added the said amount which was received by the nonresident company rendering services under the provisions of section 44 BB to the ONGC and imposed the income tax thereon. He was justified in doing so. - Decided against assessee. TDS - Reimbursement of service tax and interest on service tax - Held that - This issue is to be decided is in favour of the assessee in case of DIT Vs. Mitchell Drilling International Pvt. Ltd. 2015 (10) TMI 259 - DELHI HIGH COURT wherein the Jurisdictional Delhi High Court decided the issue in favour of the assessee. In Circular No. 4/2008 dated 28th April 2008 it was clarified that Service tax paid by the tenant doesn t partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore, it has been decided that tax deduction at source) under sections 194-1 would be required to be made on the amount of rent paid/payable without including the service toot. In Circular No. 1/2014 dated 13th January 2014, it has been clarified that service tax is not to be included in the fees for professional services or technical services and no TDS is required to be made on the service tax component under Section 194J.

Summary

Issues Involved:
1. Inclusion of reimbursements of expenses incurred on supply of materials in gross receipts under section 44BB.
2. Inclusion of reimbursements of expenses incurred on provision of fuel in gross receipts under section 44BB.
3. Inclusion of reimbursements of service tax in gross receipts under section 44BB.
4. Inclusion of reimbursements of interest on service tax in gross receipts under section 44BB.

Detailed Analysis:

Issue 1: Inclusion of Reimbursements of Expenses Incurred on Supply of Materials
The appellant contested the inclusion of INR 118,655,056 received as reimbursements for expenses on supply of materials in the gross receipts for determining income under section 44BB of the Income Tax Act, 1961. The CIT(A) affirmed the action of the Assessing Officer (A.O). The Tribunal referred to the Jurisdictional High Court decision in CIT Vs. Halliburton Offshore Services Inc., which held that section 44BB is a complete code in itself, and all amounts paid or payable to the assessee, whether in or out of India, are mutually inclusive for determining deemed profits and gains at 10%. The Tribunal dismissed Ground No. 1 of the assessee's appeal, aligning with the High Court's interpretation.

Issue 2: Inclusion of Reimbursements of Expenses Incurred on Provision of Fuel
The appellant challenged the inclusion of INR 692,665,431 received as reimbursements for expenses on provision of fuel in the gross receipts under section 44BB. The CIT(A) upheld the A.O's decision. The Tribunal again referred to the Halliburton Offshore Services Inc. case, emphasizing that all amounts paid or payable are included in the gross receipts for determining deemed profits. Consequently, Ground No. 2 of the assessee's appeal was dismissed.

Issue 3: Inclusion of Reimbursements of Service Tax
The appellant argued against the inclusion of INR 486,455,033 received as reimbursements for service tax in the gross receipts under section 44BB. The Tribunal referred to the Delhi High Court decision in DIT Vs. Mitchell Drilling International Pvt. Ltd., which clarified that service tax collected and passed on to the government does not form part of the gross receipts for computing presumptive income under section 44BB. The High Court noted that service tax does not have any element of income and should not be included in the gross receipts. The Tribunal allowed Ground No. 3 of the assessee's appeal, following the High Court's ruling.

Issue 4: Inclusion of Reimbursements of Interest on Service Tax
The appellant contested the inclusion of INR 7,254,268 received as reimbursements for interest on service tax in the gross receipts under section 44BB. The Tribunal again referred to the Mitchell Drilling International Pvt. Ltd. case, which held that service tax and its related reimbursements do not form part of the gross receipts for computing presumptive income. The Tribunal allowed Ground No. 4 of the assessee's appeal, consistent with the High Court's interpretation.

Conclusion:
The Tribunal dismissed Grounds No. 1 and 2 of the assessee's appeal, affirming the inclusion of reimbursements for materials and fuel in the gross receipts under section 44BB, as per the Halliburton Offshore Services Inc. case. However, Grounds No. 3 and 4 were allowed, excluding reimbursements for service tax and interest on service tax from the gross receipts, in line with the Mitchell Drilling International Pvt. Ltd. decision. The appeal was thus partly allowed.