2018 (9) TMI 1241 - AT - Income Tax

Computation of income u/s 44BB - whether the service tax collected by the assessee shall form part of gross receipts for computing income under Section 44BB? - Held that - We noticed that the learned CIT(A) has followed the decision rendered by the Hon ble Delhi High Court in the case of Mitchell Drilling International (P) Ltd. (2015 (10) TMI 259 - DELHI HIGH COURT) in holding that service tax collected by the assessee cannot form part of gross receipts. - Decided against the revenue.

Issues Involved:
1. Whether service tax collected by the assessee forms part of gross receipts under Section 44BB of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Whether service tax collected by the assessee forms part of gross receipts under Section 44BB of the Income-tax Act, 1961.

Facts of the Case:
The assessee, a non-resident company incorporated under the laws of British Virgin Islands, executed contracts with Cairn Energy India PTY Limited and Canoro Resources Limited, providing land rigs for the excavation of oil and gas. The income was offered for taxation under Section 44BB(1) of the Income-tax Act, 1961. The primary question was whether the service tax collected and deposited to the Central Government should be included in the gross receipts for computing income chargeable to tax under Section 44BB.

Assessment Officer's Decision:
The AO, relying on decisions in the cases of Siem Offshore Inc, Technip Offshore Contracting BV, and China Shipping Container Lines Hong Kong Ltd, held that the service tax collected should be part of the gross receipts for computing presumptive tax under Section 44BB.

CIT(A)'s Decision:
The CIT(A) adjudicated in favor of the assessee, holding that service tax collected should not form part of the gross receipts for computing profit under Section 44BB. This decision was based on the Delhi High Court's ruling in Mitchell Drilling International P. Ltd and subsequent ITAT decisions in cases like Oceaneering International GmbH, Jet Drilling (S) Pte Ltd, and Helix Energy Solutions Group Inc.

Tribunal's Decision:
The tribunal upheld the CIT(A)'s decision, affirming that service tax collected by the assessee does not form part of the gross receipts for computing income under Section 44BB. The tribunal relied on the Delhi High Court's decision in Mitchell Drilling International P. Ltd, which stated that service tax collected by the assessee is not to be included in gross receipts as it does not have any element of income and is merely collected for passing it on to the government.

Key Points from Tribunal's Analysis:
1. Precedent from Delhi High Court: The tribunal followed the Delhi High Court's decision in Mitchell Drilling International P. Ltd, which clarified that service tax collected does not form part of the gross receipts for the purposes of Section 44BB.
2. Contrary Tribunal Decisions: The tribunal acknowledged conflicting decisions at the ITAT level but emphasized that decisions from the High Court should be preferred over those from the Tribunal.
3. Legal Interpretation: The tribunal emphasized that the service tax collected by the assessee is not an amount paid or payable for the services rendered but is collected on behalf of the government, thus not forming part of the gross receipts.
4. CBDT Circulars: The tribunal referred to CBDT Circulars (No. 4/2008 and No. 1/2014), which clarified that service tax does not partake the nature of income and should not be included in the gross receipts for tax purposes.

Conclusion:
The tribunal dismissed the Revenue's appeal, confirming that service tax collected by the assessee should not be included in the gross receipts for computing income under Section 44BB of the Income-tax Act, 1961. This decision was pronounced in the open court on 18.09.2018.

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