2015 (10) TMI 259 - HC - Income Tax

Computation of the taxable income under Section 44BB - Whether the amount of service tax collected by the Assessee from its various clients should have been included in gross receipt while computing income? - Held that - The Court concurs with the decision of the High Court of Uttarakhand in DIT v. Schlumberger Asia Services Ltd (2009 (7) TMI 51 - UTTARAKHAND HIGH COURT) which held that the reimbursement received by the Assessee of the customs duty paid on equipment imported by it for rendering services would not form part of the gross receipts for the purposes of Section 44 BB of the Act. The Court accordingly holds that for the purposes of computing the presumptive income of the assessee for the purposes of Section 44 BB of the Act, the service tax collected by the Assessee on the amount paid t it for rendering services is not to be included in the gross receipts in terms of Section 44 BB (2) read with Section 44 BB (1). The service tax is not an amount paid or payable, or received or deemed to be received by the Assessee for the services rendered by it. The Assessee is only collecting the service tax for passing it on to the government. The Court further notes that the position has been made explicit by the CBDT itself in two of its circulars. 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-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax. 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 of the Act. - Decided in favour of the Assessee.

Summary

Issues:
1. Inclusion of service tax collected by the Assessee in gross receipts for computing taxable income under Section 44BB of the Income Tax Act, 1961.

Analysis:
1. The case involved a company engaged in providing equipment on hiring and manpower for oil and gas exploration. The Assessee excluded service tax collected from customers while computing income for Assessment Year 2008-09 under Section 44BB (3) of the Act.
2. The Assessing Officer included the service tax amount in the gross receipts, but the Commissioner of Income Tax (Appeal) allowed the Assessee's appeal. The ITAT upheld the CIT (A) order, leading to the Revenue's appeal.
3. The key question was whether the service tax collected should be part of gross receipts under Section 44BB. The Revenue argued based on Supreme Court decisions, while the Assessee cited circulars and court rulings to support excluding service tax.
4. Section 44BB provides for presumptive income taxation for non-resident businesses in oil exploration. The Court noted that only amounts paid for services provided by the Assessee should be part of gross receipts under this section.
5. Referring to precedents like Chowringhee Sales Bureau and George Oakes (P) Ltd., the Court emphasized that service tax collected but not forming part of the Assessee's income should not be included in gross receipts for presumptive income calculation under Section 44BB.
6. The Court highlighted CBDT circulars stating that service tax is not considered income and should not be included in taxable amounts. It concluded that service tax collected is not part of income and should not be included in gross receipts for computing presumptive income under Section 44BB.
7. The judgment aligned with the decision of the High Court of Uttarakhand in a similar case, emphasizing that reimbursements like customs duty do not constitute gross receipts under Section 44BB.
8. Ultimately, the Court ruled in favor of the Assessee, holding that service tax collected should not be included in gross receipts for computing presumptive income under Section 44BB, based on legal interpretations, precedents, and CBDT circulars.