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2024 (9) TMI 958 - AT - Income TaxGST amount inclusion while computing the gross receipts u/s. 44BB - assessee is a non-resident company incorporated under the law of Brazil and is engaged in providing onshore and offshore oil well drilling services and had entered into a contract with Oil and Natural Gas Corporation Limited (ONGC) for charter hire of Anchor Moored Drilling Rig Olinda Star for drilling operations to be carried out in offshore waters of India - HELD THAT - Though the CBDT Circulars is a clarification on the issue of excluding service tax component while computing the income of the assessee who is a resident, the intention of the said Circular nevertheless is to exclude the service tax component while deducting TDS on the rent paid or payable for the purpose of computing the income of the assessee. This, in our view, would also be applicable in the present case where the assessee being a non resident is given the benefit of special rate of tax as per section 44BB of the Act where the intention of the legislature is only to tax the assessee @ 10% on the amount paid or payable to the assessee, received on account of the business activity of the assessee. The word amount here cannot be interpreted to mean the GST/service tax which is collected by the assessee from its customers and paid to the Government. CBDT Circular mentioned above has categorically excluded the service tax component, while computing the income of the assessee and the same could not be interpreted differently to include GST/service tax while computing the profit and gains of a non resident, engaged in the business of exploration, etc. of mineral oils. Furthermore, it is to be noted that section 44BB is a special provision for computing the profits and gains in connection with the business of exploration, etc. of mineral oils which evidences that for the purpose of computing the profit and gains of the assessee, the natural corollary would be from the receipts which are in the nature of income that has to be considered for the said purpose and not the service tax that the assessee was duty bound to collect from its customers in addition to the charges for the services rendered by it. As decided in M/s. Schulumberger Asia Services Limited 2009 (7) TMI 51 - UTTARAKHAND HIGH COURT which was in line with the issue in the present case as to whether the service tax collected by the assessee was to be included in the amount paid or payable for computation of presumptive tax as per section 44BB(1) and (2) of the Act, it was held that the reimbursement of service tax should not be included in the aggregate amount while calculating the profits and gains as per section 44BB of the Act. It is also pertinent to point out that the co-ordinate bench in the case of McDermott International Management 2024 (2) TMI 636 - ITAT DELHI has also held that the service tax component do not form part of the receipt for computation of income as per section 44BB - Decided in favour of assessee.
Issues Involved:
1. Whether the GST amount paid by the assessee should be included while computing the gross receipts under Section 44BB of the Income Tax Act. Issue-wise Detailed Analysis: 1. Inclusion of GST in Gross Receipts under Section 44BB: The primary issue in this appeal was whether the GST amount paid by the assessee should be included while computing the gross receipts under Section 44BB of the Income Tax Act. Background: The assessee, a non-resident company incorporated under Brazilian law, engaged in providing onshore and offshore oil well drilling services, entered into a contract with ONGC for the charter hire of a drilling rig. The assessee filed its return of income for the Assessment Year 2021-22, declaring a total income of Rs. 22,42,84,694/-. The Assistant Commissioner of Income Tax (A.O.) observed that the assessee excluded Rs. 27,28,69,105/- received as 'reimbursement of service tax' from the total receipts while computing the deemed profit under Section 44BB. The A.O. proposed to include this amount in the gross receipts, determining the total income at Rs. 25,15,71,604/-. The Dispute Resolution Panel (DRP) upheld this inclusion. Arguments by the Assessee: The assessee contended that the service tax collected and paid to the government should not form part of the aggregate income under Section 44BB. The assessee relied on several judicial precedents, including: - DIT (IT) vs. Schlumberger Asia Services Limited (Uttarakhand High Court) - DIT vs. Mitchell Drilling International (P) Ltd. (Delhi High Court) - ACIT Int. Taxation vs. McDermott International Management (ITAT Delhi) Additionally, the assessee cited CBDT Circulars No. 1/2014 and No. 4/2008, which clarified that service tax should not be included in the gross receipts for computing income. Arguments by the Revenue: The Revenue argued that the GST amount has a direct nexus to the services rendered by the assessee and should be included in the gross receipts under Section 44BB. The Revenue relied on: - Clause (2)(b) of Section 44BB, which includes 'amount received' or 'deemed to be received' in India. - The decision of the Hon'ble Apex Court in Sedco Forex International Inc. vs. CIT. - The decision of the Uttarakhand High Court in CIT vs. Halliburton Offshore Service Inc. The Revenue contended that the special provision under Section 44BB, being a complete code for determining profits and gains, should include the GST amount in the gross receipts. Tribunal's Analysis: The Tribunal examined the rival submissions and materials on record. It noted that Section 44BB is a special provision for computing profits and gains from the business of exploration of mineral oils, which includes a presumptive income rate of 10%. The Tribunal emphasized that the intention of the legislature was to tax the income derived from the business activities and not the statutory taxes like GST collected on behalf of the government. The Tribunal referred to the decision of the Delhi High Court in DIT vs. Mitchell Drilling International (P) Ltd., which held that service tax collected by the assessee does not have any element of income and should not be included in the gross receipts under Section 44BB. The Tribunal also considered the CBDT Circulars, which clarified that service tax should not be included in the gross receipts for computing income. Conclusion: The Tribunal concluded that the GST/service tax collected by the assessee should not be included in the gross receipts while computing the profits and gains under Section 44BB. The Tribunal allowed the appeal filed by the assessee, setting aside the final assessment order that included the GST amount in the gross receipts. Order Pronounced: The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 09.09.2024.
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