2017 (12) TMI 302 - AT - Income Tax

Taxing of income u/s. 44BB as against section 44B - assessee had given three ships on hire that the ships were used for transporting men/goods to offshore locations of India that that the hirer was carrying the activities related to the exploration and production of mineral oil at offshore location - Held that - Section 44BB will prevail over section 44B as it is a special section which came on statute later and deals with specific activities. If the services provided by the assessee are excluded very little purpose will be served of incorporating section 44BB for computing the profits in relation to the services connected with exploration and extraction of mineral oils. The provision will then operate in a very limited field. In our opinion the Parliament intent was not to give a limited field to the section 44BB. That is why for taking care of the activities related with oil exploration and to segregate the general shipping activities mentioned in section 44B a special provision i. e. 44BB was introduced. The ships were hired by the user for transporting men/machines to locations where it was doing exploration/production of mineral oil. Thus it was not a case of transporting goods or livestock by ships simplicitor. The activity was directly and closely related with services rendered by plant and machinery and the ships for the purpose of section 44BB have been treated as plant. As the services were rendered in connection with prospecting for and exploration activities so in our opinion the income arising out of such activities has to be assessed u/s. section 44BB and not u/s. 44B of the Act. Gross receipts for the purpose of computing the presumptive income of the assessee u/s. 44BB - service tax collection addition - Held that - Service tax collected by the assessee has to be deposited in the government by all the service-tax-collectors. On behalf of the State they collect the tax and deposit in the treasury. There is element of income in it. We hold that the order of the FAA does not suffer from any legal or factual infirmity. So confirming the same we decide the effective ground of appeal against the AO for both the AY. s.

Summary

Issues Involved:
1. Taxation of income under Section 44BB vs. Section 44B of the Income Tax Act.
2. Inclusion of service tax in gross receipts for computing income chargeable to tax under Section 44BB.

Detailed Analysis:

1. Taxation of Income under Section 44BB vs. Section 44B:

The primary issue is whether the income earned by the assessee, a Singapore-based company engaged in ship-owning, operating, and chartering, should be taxed under Section 44BB or Section 44B of the Income Tax Act. The Assessing Officer (AO) determined that the income should be assessed under Section 44BB, which pertains to the provision of services or facilities in connection with or the supply of plant and machinery on hire for activities relating to the exploration or extraction of mineral oils. The assessee, however, contended that its income should be taxed under Section 44B, which deals with the operation of ships.

The First Appellate Authority (FAA) upheld the AO's decision, noting that the vessels provided by the assessee were specialized for activities related to the exploration and extraction of mineral oil, thus falling under Section 44BB. The FAA referenced several case laws to support this position, including Jindal Drilling and Industries Ltd., Hyundai Heavy Industries Co. Ltd., and ONGC Ltd., among others.

Upon appeal, the Tribunal analyzed the legislative history and purpose of Sections 44B and 44BB. Section 44B, effective from AY 1975-76, simplifies the computation of profits for non-resident shipping enterprises by taxing 7.5% of the aggregate amounts received for the carriage of goods and passengers. Section 44BB, effective retrospectively from AY 1983-84, provides a special provision for computing income from services or facilities related to the exploration of mineral oils, taxing 10% of the aggregate amounts received.

The Tribunal concluded that Section 44BB, being a specific provision for activities related to mineral oil exploration, prevails over Section 44B. It emphasized that the assessee's ships, used for transporting men and goods to offshore locations for exploration activities, fall under the scope of Section 44BB. The Tribunal also rejected the argument that the assessee could opt for a lower tax rate under Section 44B, stating that no such choice is provided by the law. Consequently, the Tribunal upheld the FAA's order, confirming that the income should be taxed under Section 44BB.

2. Inclusion of Service Tax in Gross Receipts:

The second issue pertains to whether service tax collected by the assessee should be included in the gross receipts for computing income chargeable to tax under Section 44BB. The AO included the service tax in the gross receipts based on a decision by the Delhi Bench of the Tribunal in the Technip Offshore Contracting case.

On appeal, the FAA referred to the Mumbai Bench of the Tribunal's decision in Islamic Republic of Iran Shipping Lines, which held that service tax, being a statutory payment collected on behalf of the government, should not be included in the gross receipts. The FAA also cited the Uttarakhand High Court's decision in Schlumberger Asia Services Ltd., which excluded customs duty from the total turnover for computing profits under Section 44BB, and the Tribunal's decision in Orient Overseas Container Line, which held that service tax should not be included in gross receipts for Section 44BB computations.

The Tribunal agreed with the FAA's reasoning, stating that service tax collected by the assessee must be deposited with the government and does not constitute income. Therefore, it should not be included in the gross receipts for computing the presumptive income under Section 44BB. The Tribunal confirmed the FAA's order, directing the AO to exclude the service tax from the gross receipts.

Final Judgment:

The Tribunal dismissed all appeals filed by the assessee and the AO, upholding the FAA's orders for the relevant assessment years.