2009 (1) TMI 533 - AT - Income Tax

Taxability of profit u/s 44BB - reimbursement of service tax - Non-residents - CIT (A) allowed the relief of 10 per cent on account of reimbursement of service tax included in the gross revenue for computing the income by applying provisions of section 44BB - assessee company is incorporated under the laws of The Netherlands - assessee submitted before AO that the assessee was engaged in the business of providing services and facilities in connection with the exploration/extraction and production of mineral oils in India and has offered its income u/s 44BB - receipts offered to tax were net of service tax. HELD THAT - Section 44BB is a special provision for imposing the Income tax treating 10 per cent of the aggregate amount specified in sub-section (2) of section 44BB as deemed profits and gains of such non-resident assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils. Thus, it is clear that the amount which is to be taken is the amount paid to the assessee whether in or out of India, payable to the assessee whether in or outside India on account of the provision or services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India and the amount received or deemed to be received in India by the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. The Hon ble jurisdictional High Court of Uttarakhand in the case of Sedco Forex International Inc. 2007 (9) TMI 196 - UTTARAKHAND HIGH COURT held that it is the sum received by the assessee which is to be taken into account for the purpose of determining profit u/s 44BB and not the actual taxable income as contemplated u/ss 4 and 5 of the Act. It is not in dispute that the assessee company has realized service tax on account of providing services and facilities in connection with the exploration or extraction of mineral oils in India. The service tax so realized is a part of receipts received by the assessee from ONGC. The service tax realized by the assessee is in respect of services specified u/s 44BB and rendered by it to ONGC. Therefore, respectfully following the proposition laid down by the Hon ble Jurisdictional Uttarakhand High Court, we are incline to hold that AO was justified in including the amount of service tax collected by the assessee in connection with the services or facilities or supply specified u/s 44BB, provided by the assessee to ONGC, in the total receipts for the purpose of determining presumptive profit of 10 per cent u/s 44BB. Thus, the order of CIT (A) is set aside and that of AO is restored on this issue. In result, the appeal filed by the revenue is allowed.

Summary

Issues Involved:
1. Inclusion of service tax in gross revenue for computing income under section 44BB of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Inclusion of service tax in gross revenue for computing income under section 44BB of the Income-tax Act, 1961.

The revenue appealed against the CIT (Appeals) order allowing a relief of Rs. 2,96,018 by excluding service tax from gross revenue for computing income under section 44BB. The assessee, a Netherlands-based company, claimed that service tax should not be part of gross receipts as it is collected on behalf of the government. The Assessing Officer (AO) included service tax in the total receipts, determining the income under section 44BB at 10% of the total receipts, including service tax.

During the assessment, the AO observed that the assessee offered income under section 44BB at 10% of receipts, which included service tax. The AO argued that service tax forms part of contractual receipts for services related to mineral oil exploration/extraction, thus should be included in total receipts. Consequently, the AO computed the income by adding Rs. 29,60,180 (service tax) to the gross contractual revenues, resulting in a total income of Rs. 65,26,490.

The CIT (Appeals) disagreed, excluding service tax from total receipts, reasoning that service tax collections are on behalf of the government, representing reimbursement without profit. The CIT (Appeals) directed the AO to compute income excluding service tax receipts.

The revenue, represented by the learned DR, contended that service tax should be included in total receipts for section 44BB computation, citing Uttarakhand High Court decisions in CIT v. Halliburton Offshore Services Inc., Sedco Forex International Inc., and CIT v. Trans Ocean Offshore Inc. The assessee, represented by the learned AR, argued that service tax collected on behalf of the government should not be included in total receipts, referencing ITAT decisions in Asstt. CIT v. Real Image Media Technologies (P.) Ltd. and Transocean Offshore Deep Water Drilling Inc. v. Asstt. CIT.

The tribunal examined section 44BB, which deems 10% of specified amounts as profits for non-resident assessees providing services related to mineral oil exploration/extraction. The tribunal noted that section 44BB includes amounts paid/payable for services and facilities in connection with mineral oil activities, whether received in or out of India. The tribunal considered Uttarakhand High Court rulings, emphasizing that section 44BB is a complete code in itself, focusing on amounts received for services, not actual taxable income under sections 4 and 5.

The tribunal found that service tax collected by the assessee was part of receipts for services provided to ONGC, falling under section 44BB. The tribunal distinguished the ITAT Chennai decision in Real Image Media Technologies (P.) Ltd., which dealt with section 43B, not section 44BB. The tribunal also distinguished the ITAT Delhi decision in Transocean Offshore Deep Water Drilling Inc., which involved customs duty, not service tax directly related to services under section 44BB.

Concluding that service tax collected for services specified in section 44BB should be included in total receipts for computing presumptive profit, the tribunal set aside the CIT (Appeals) order and restored the AO's order, including service tax in the total receipts for section 44BB computation.

Conclusion: The appeal filed by the revenue was allowed, and the inclusion of service tax in gross revenue for computing income under section 44BB was upheld.