2021 (11) TMI 1201 - AT - Income Tax

Revenues taxable u/s 44BB(2) - service tax includable in the gross revenue for computing profits under presumptive provisions of section 44BB or not ? - assessee is a non-resident company and offered revenues to taxation on account of ongoing contract entered with ONGC Ltd.- HELD THAT - It is seen that the issue of excludability of service tax in the gross receipts is squarely covered by the judgment of Mitchell Drilling International Pty Limited. 2015 (10) TMI 259 - DELHI HIGH COURT wherein as held that service tax being statutory levy should not form part of gross receipts as per provisions of section 44BB of the Act. Hon ble High Court of Uttarakhand in the case of DIT International Taxation Vs M/s Schlumberger Asia Services Ltd. 2019 (4) TMI 1177 - UTTARAKHAND HIGH COURT held that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section(2) of Section 44BB of the Act. The Hon ble Court is clearly spelt that even otherwise, it is not every amount paid on account of provision of services and facilities which must be deemed to be the income of the assessee under Section 44BB. It is only such amounts, which are paid to the assessee on account of the services and facilities provided by them, in the prospecting for or extraction or production of mineral oils, which alone must be deemed to be the income of the assessee. Thus we hold that the service tax receipts do not form part of receipts for computation of income in the section 44BB of the Income Tax Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether service tax is includable in the gross revenue for computing profits under presumptive provisions of section 44BB of the I.T. Act, 1961.

Detailed Analysis:

Issue 1: Inclusion of Service Tax in Gross Revenue under Section 44BB

1. Background and Contention:
- The revenue filed an appeal against the order of the CIT(A)-2, Noida, dated 09/05/2017.
- The core issue is whether service tax should be included in the gross revenue for computing profits under section 44BB of the Income Tax Act, 1961.
- The assessee, a non-resident company, argued that service tax is a statutory charge and should not be part of the gross revenue for taxation purposes under section 44BB, as it acts only as a collection agent for the government.

2. Assessing Officer's Stand:
- The Assessing Officer included the service tax in the gross revenue, arguing that for presumptive determination of profits, all amounts received, including service tax, should be considered.

3. Revenue's Argument:
- The Revenue argued that section 44BB is a self-contained code for computing profits of non-resident assessees engaged in mineral oil exploration.
- The Ld. DR cited several judicial precedents to support the inclusion of various taxes (e.g., excise duty, sales tax, luxury tax) in the aggregate amount for taxation purposes.
- It was argued that service tax receipts are connected with the business of exploration and should be included in the aggregate amount to be taxed under section 44BB.

4. Assessee's Response:
- The assessee relied on the Delhi High Court's decision in DIT vs Mitchell Drilling International Pty. Limited, which held that service tax being a statutory levy should not form part of gross receipts under section 44BB.

5. Tribunal's Analysis:
- The Tribunal reviewed the Delhi High Court's decision in Mitchell Drilling, which clarified that service tax collected by the assessee does not have any element of income and should not be included in the gross receipts for computing presumptive income under section 44BB.
- The Tribunal also referred to the Uttarakhand High Court's decision in DIT International Taxation vs Schlumberger Asia Services Ltd., which supported the exclusion of service tax from the gross receipts.

6. Conclusion:
- The Tribunal held that service tax receipts do not form part of the receipts for computing income under section 44BB of the Income Tax Act.
- The appeal of the revenue was dismissed, and the order was pronounced in the open court on 29/11/2021.

Summary:
The judgment concluded that service tax should not be included in the gross revenue for computing profits under section 44BB of the Income Tax Act, 1961. This conclusion was based on precedents from the Delhi High Court and the Uttarakhand High Court, which clarified that service tax, being a statutory levy, does not constitute income and should be excluded from gross receipts for the purpose of presumptive taxation under section 44BB. The revenue's appeal was dismissed accordingly.