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TMI Blog2019 (4) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and production of mineral oils. As the amount reimbursed by the ONGC, towards the service tax paid by assessee earlier to the Government, is not an amount paid to the assessee towards the services provided by the latter in connection with the prospecting, extraction or production of mineral oils, it is not required to be included in the amounts specified in clauses (a) and (b) of Section 44BB(2). CAN SERVICE TAX BE PASSED ON TO THE SERVICE RECIPIENT - Service tax is levied, under the Finance Act, 1994, on services. Service tax is, therefore, a tax on service , and does not form part of the consideration paid for the services rendered, much less services rendered in connection with the prospecting, extraction or production of mineral oils. Reimbursement of service tax by the service recipient to the service provider, representing the amount of tax already paid by the service provider to the Government, would not constitute a part of the amount received for the services rendered by the service provider-assessee to the service recipient-ONGC, much less a part of the amount received for services rendered by the assessee in the prospecting for or the extraction or production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -consideration, no justifiable cause has been shown as to why this Court should take a view different from that of the Delhi High Court, in Mitchell Drilling International Pvt. Ltd. [ 2015 (10) TMI 259 - DELHI HIGH COURT] , more so when the Division Bench of the Delhi High Court has taken a view similar to that of a Division Bench of this Court in M/s Schlumberger Asia Services Ltd. [ 2009 (7) TMI 51 - UTTARAKHAND HIGH COURT] . As the revenue has not been able to show just cause for this Court to take a different view, we see no reason to differ with the Division Bench judgment of the Delhi High Court that reimbursement of service tax is not an amount paid to the assessee on account of providing services and facilities in connection with the prospecting for, or extraction or production of, mineral oils in India. CONCLUSION - We answer the reference in favour of the assessee, and against the Revenue, holding that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income-tax thereon. 2. In M/s Schlumberger Asia Services Ltd. (2009) 317 ITR 156 , the respondentassessee M/s Schlumberger Asia Services Ltd had filed its return declaring its income; the assessing officer had added the amounts, received by the assessee towards reimbursement of customs duty, in assessing its income. On its jurisdiction being invoked, a Division Bench of this Court held that reimbursement towards custom duty paid earlier by the assessee, being statutory in nature, could not form part of the amount for the purposes of deemed profits, unlike the other amounts received towards reimbursement; and the said amount, received by the assessee, was to be excluded in computing profits under Section 44BB of the Act. 3. In Halliburton Offshore Service Inc Vs. Astt. Commissioner of Income Tax, Range-I, Dehradun ITA No. 41 of 2009 (Uttarakhand High Court) , the appeal before the Division Bench of this Court (in ITA No. 41 of 2009) was against the order passed by the Income Tax Appellate Tribunal for the assessment year 2004-05. The ONGC, to whom the assessee provided services, had reimbursed certain amounts to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, ITA No. 62 of 2014, ITA No. 14 of 2015, ITA No. 15 of 2015, ITA No. 44 of 2015, ITA No. 18 of 2016, ITA No. 33 of 2016, ITA No. 36 of 2016, ITA No. 37 of 2016, ITA No. 38 of 2016, ITA No. 39 of 2016, ITA No. 54 of 2018 and ITA No. 57 of 2018), were listed before us on 26.02.2019. We had, by our order dated 26.02.2019, dismissed ITA No. 41 of 2009 as the assessee had conceded before the Income Tax Appellate Tribunal that the issue was to be decided against the assessee in the light of the earlier decision of the Tribunal. We had opined that, having conceded before the Tribunal that the issue should be held against them, the assessee could not, thereafter, question the order by way of an appeal under Section 260A of the Income Tax Act. While dismissing ITA No.41 of 2009, we heard the other appeals which were directed to be listed before the Full Bench along with ITA No. 41 of 2009. 6. The assessees, in the appeals before us, are all companies incorporated outside India, and are non-residents within the meaning of Section 6 of the Income Tax Act, 1961 (hereinafter referred to as the Act ). They execute contracts all over the world, including in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the phrase used in Section 44BB(2) is on account of ; this phrase has a much wider connotation as it includes, within its ambit, any amount received by the assessee by reason of, or as a consequence of, the services rendered by them; if the intention of the legislature was to confine its meaning purely to the consideration received for the services part only, the word for , or any such word, would have been used instead of on account of ; sub-section (1) of Section 44BB does not refer to Section 43B of the Income Tax Act; clause(a) of Section 43-B refers to tax, which would include service tax ; and, consequently, reimbursement of service tax must be included in the aggregate sum, 10 per cent of which is liable to tax under the head profits and gains of business or profession. 9. On the other hand Sri Poras Kaka, learned Senior Counsel appearing on behalf of the assessees, would submit that service tax collected/ received by the assessee from its customers is not on account of the provision of services and facilities; it is a tax, levied on the value of taxable services, collected by the assessee from its customer, and deposited with the Government of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains of business or profession . Section 29 stipulates that the income referred to in Section 28, (i.e. income from profits and gains of business or profession), shall be computed in accordance with the provisions contained in Sections 30 to 43D. 12. Chapter IV of the Act also contains provisions for presumptive taxation of business income in certain cases as prescribed in Sections 44B, 44BB, 44BBA and 44BBB of the Act. In the scheme of presumptive taxation, the assessee is presumed to have earned income at the rate of a certain percentage of his total turnover or gross receipts. If the assessee agrees to be taxed on presumed income, he is not required to maintain books of accounts. If, however, he claims that his income is less than the presumed figure, he is required to support his claim by producing books of accounts. (Hyundai Heavy Industries Co. Ltd. (2007) 7 SCC 422 ) . Where the assessee is a nonresident, and is engaged in the business of exploration etc. of mineral oil, a special mechanism is provided in Section 44BB of the Act for computation of profits and gains, on which the tax is charged. It however gives a choice to such non-resident assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation .-For the purposes of this section,- (i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) mineral oil includes petroleum and natural gas. 14. While, ordinarily, income chargeable to tax under the head profits and gains of business or profession , must be computed in accordance with Sections 28 to 43-D, Section 44BB carves out an exception thereto. Section 44BB is a special provision for computing profits and gains in connection with the business of exploration of mineral oils. Its purpose was explained (by the Department vide its Circular No. 495 dated September 22, 1987), to be to simplify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2017) 399 ITR 1 (SC) . 17. Section 44BB starts with a non-obstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act. (Sedco Forex International Inc. (2017) 399 ITR 1 (SC) . A non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found in the same enactment, that is to say, to avoid the operation and effect of all contrary provisions. (Laxmi Devi (2015) 10 SCC 241 ; G.M. Kokil (1984) Supp SCC 196 ) . It is equivalent to saying that, inspite of the provisions mentioned in the non-obstante clause, the provision following it will have full operation, or the provisions embraced in the nonobstante clause will not be an impediment for the operation of the enactment or the provision in which the non-obstante clause occurs. (Bihar Rajya M.S.E.S.K.K. Mahasangh (2005) 9 SCC 129 ; Secretary, Board of Revenue, Trivandrum AIR 1964 SC 207 ) . Use of such an expression is another way of saying that the provision, in which the non-obstante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the putative state of affairs had, in fact, existed must inevitably have flowed from or accompanied it and having done so, you must not cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. (East End Dwellings Co. Ltd. v. Finsbury Borough Council 1951 (2) All ER 587 (HL) . When the law creates a legal fiction, such fiction should be carried to its logical end. ( Builders Assn. of India AIR 1989 SC1371 ). In interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. But in so construing the fiction, it is not to be extended beyond the purpose for which it is created, or beyond the language of the Section by which it is created. ( Mancheri Puthusseri Ahmed (1996) 6 SCC 185 ; CIT v. Shakuntala AIR 1966 SC 719 ; CIT v. Moon Mills Ltd. AIR 1966 SC 870 ; Sadan K. Bormal 2004 (5) Supreme 29 ). 19. The fiction in Section 44-BB(1) operates to deem what is merely a receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil Co. Ltd v. R 1945 (2) ALL ER 499 ; IRC v. Ross Coulter (Bladnock Distillery Co. Ltd.) 1948 (1) ALL ER 616 and M/s Gouri Shankar Modern Rice Mill Judgment in TRC No.153 of 2004 Batch dated 05.10.2005 ) . If the language of a statute be plain, admitting of only one meaning, the legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should lead to mischievous results. (Cooke v. Charles A. Vogeler Co. 1901 AC 102 and M/s Gouri Shankar Modern Rice Mill Judgment in TRC No.153 of 2004 Batch dated 05.10.2005 ) . 22. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by trying to probe into the intention of the legislature and by considering what was the substance of the matter. (Diwan Bros. (1976) 3 SCC 800 ; A.V. Fernandez 1957 SCR 837 ). The principle of all fiscal legislation is this: If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat imposes a burden on him. (Central India Spg., Wvg. Mfg. Co. Ltd. AIR 1958 SC 341 ) . 24. Bearing these principles in mind, let us now examine the scope of sub-section (2) of Section 44BB. While clause (a) thereof mentions the amount which is paid or payable, clause (b) deals with the amounts which are received or deemed to be received in India. In respect of the amount paid or payable under clause (a) of Sub-section (2), it is immaterial whether these are paid in India or outside India. On the other hand, amount received or deemed to be received should be in India. (Sedco Forex International Inc. (2017) 399 ITR 1 (SC) . Section 44BB(2) requires certain receipts to be deemed as income for the purposes of taxation. Aid of this provision should be taken to determine whether a particular amount will be income within the meaning of Section 5 of the Act. Section 44BB(2) also acts as a guide in determining whether a particular income is attributed as income in India. While Section 44BB of the Act is a special provision, that does not mean that, in computing the income under this provision, Sections 4, 5 and 9 of the Act should be given a go-by or be side tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and facilities provided by the assessee, in connection with the prospecting, extraction and production of mineral oils in India, would it then fall within the ambit of sub-section (2) of Section 44BB. 28. As the expression 'amount paid or payable' in Section 44BB(2)(a), and the expression 'amount received or deemed to be received' in Section 44BB(2)(b), is qualified by the words 'on account of the provision of services and facilities in connection with, or supply of plant and machinery , it is only such amounts, paid or payable for the services provided by the assessee, which can form part of the gross receipts for the purposes of computation of gross income under Section 44BB(1) read with Section 44BB(2). (Mitchell Drilling International Pvt. Ltd. (2016) 380 ITR 130 (Delhi) . On its literal construction, Section 44BB(2) would only be the amount paid by the ONGC to the assessee on account of (i) provision of services in connection with or (ii) supply of plant and machinery on hire used in, the prospecting, extraction and production of mineral oils. As the amount reimbursed by the ONGC, towards the service tax paid by asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of clause (a), as in force at all material times, any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. 31. In terms of clause (a) of Section 43B, an assessee can claim deduction, towards tax or duty, only in the previous year in which it is actually paid. The assessee can claim deduction, under Section 43B(a), only on actual payment of tax and duty, in computing its income under Section 28. As noted hereinabove, Section 44BB would prevail notwithstanding anything to the contrary contained in, among others, Section 28 which refers to income chargeable to tax under the head profits and gains of business or profession . In view of the legal fiction created by Section 44BB(1), ten percent of the aggregate of the amounts referred in Section 44BB(2) should be deemed to be the income chargeable to tax under the head profits and gains of business or profession , without resorting to the mode of computation prescribed under Sections 28 to 41 and Section 43A of the Act. Section 29 stipulates that the income, referred to in Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO THE SERVICE RECEPIENT : 33. Sri H.M. Bhatia, learned Senior Standing Counsel for Income Tax, would submit that service-tax is a duty levied on the services rendered, and on the service provider; payment of service-tax is linked to the provision of services; if there is no service, there would be no service-tax; a service provider is required to pay service tax, to the Central Government, on the gross value of the services provided by him; the service tax paid by him to the government is a statutory payment; he is allowed to recover the same from his customers; the amount paid by the customer to the service provider, against service tax, is however not a statutory payment; it is purely contractual; if the service provider does not receive or charge service tax from his customer, he cannot say that he would not pay service tax to the Government; he is obligated to pay service tax irrespective of whether or not he charges it from his customers; the Finance Act, 1994 fastens liability to pay service tax on the service provider; and the service provider is not discharged of his obligation to pay the tax, merely because the service receiver does not pay it to him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eighty-eighth Amendment) Act, 2003 which stated that tax on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. (All India Federation of Tax Practitioners (2007) 7 SCC 527 . 36. Tax falls on the activity which is the subject-matter of service tax. Under the Act, the taxable event is each exercise undertaken by the service-provider. The principle of equivalence equates 'service tax' to Central Excise Duty, one taxes the provision of services, and the other production of goods. (All India Federation of Tax Practitioners (2007) 7 SCC 527 . Just as excise duty is a tax on the value addition on goods, service tax is on the value addition by rendition of services. Broadly 'services' fall into two categories, namely, property based services and performance based services. (All India Federation of Tax Practitioners (2007) 7 SCC 527 . Service tax is an indirect tax levied on certain services provided by certain categories of persons including companies, associations, firms, body of indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn in such form and in such manner and at such frequency as may be prescribed. 39. Section 73A(1) stipulates that any person who is liable to pay service tax, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service, from the recipient of taxable service as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. Section 73A(2) stipulates that where any person, who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. Section 73A(3) stipulates that where any amount is required to be paid to the credit of the Central Government under subsection (1) or sub-section (2), and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government. Section 83 makes certain provisions of the Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents relating to assessment, sales invoice, and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold. Section 12-B provides that every person who has paid the duty of excise on any goods under the Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. Although there is no explicit provision to that effect, enabling the service provider to pass on the service tax component, there is sufficient internal indication in the Act, through Section 83 of the Finance Act read with Section 12A and Section 12B of the Central Excise Act, suggesting that the levy is an indirect tax, which can be collected from the user. (Pearey Lal Bhawan Association (2011) 23 STR 213 (Delhi) . 43. The provider of the service, i.e. the assessee, can collect service tax from the users of the service as contemplated under Sections 12A and 12B of the Central Excise Act, 1944. (All India Tax Payers Welfare Association (2006) 4 STR 14 (Madras) ; Pearey Lal Bhawan Association (2011) 23 STR 213 (Delhi) . Like excise duty and sales tax, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service provider, representing the amount of tax already paid by the service provider to the Government, would not constitute a part of the amount received for the services rendered by the service provider-assessee to the service recipient-ONGC, much less a part of the amount received for services rendered by the assessee in the prospecting for or the extraction or production of mineral oils. (III) SECTION 44BB(3) : ITS SCOPE : 46. Sri H.M. Bhatia, learned Senior Standing Counsel for Income Tax, would submit that, assuming that there was no provision like Section 44BB in the Statute, the assessee would have shown reimbursement of service-tax as receipt in its financials, and would have claimed payment of service tax as expenses; the same option has been provided by Section 44BB(3) of the Act which specifies that, if the assessee claims an income less than 10% of the gross receipts, it should maintain books of accounts, and get it audited; and reimbursement of service-tax, received by the contractor, is includible in the gross receipts for the purposes of Section 44BB(1) of the Act. 47. On the other hand Sri Poras Kaka, learned Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by it to the Government, and add the amount received as reimbursement of service tax in its receipts. It is unnecessary for us to examine whether or not receipt of such an amount would constitute income as, in any event, it cannot be deemed to be the presumptive income of the assessee under Section 44BB, as the said amount has not been paid by the ONGC to the assessee for providing services in connection with the prospecting, extraction or production of mineral oils. (IV) CIRCULARS ISSUED BY THE CBDT: ITS EFFECT : 50. Sri Poras Kaka, learned Senior Counsel appearing on behalf of the assessee, would submit that the Delhi High Court in Mitchell Drilling International (P) Ltd. (2016) 380 ITR 130 (Delhi) , has noted that, qua service tax obligations and provisions, the position has been made explicit by the CBDT itself in two of its circulars i.e. Circular No. 4/2008 dated 28th April 2008, and Circular No. 1/2014 dated 13th January 2014 ; and Circulars issued by CBDT are binding on the tax authorities, and should be followed and respected by the tax department. 51. Section 119 of the Act empowers the CBDT to issue such order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee, and the fiscal laws may be correctly applied. (UCO Bank (1999) 237 ITR 889 ; Keshavji Ravji and Co. (1990) 2 SCC 231 ; Azadi Bachao Andolan (2003) 263 ITR 706 ; and Ellerman Lines Ltd. (1971) 82 ITR 913 (SC) . Bearing these aspects in mind let us now examine the effect of Circulars dated 28.04.2008 and 13.01.2014 issued by the CBDT in the context of deduction of tax at source under Sections 194-I and 194-J of the Act respectively. 54. Section 194-I of the Act relates to rent, and thereunder any person, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, deduct income-tax thereon at the specified rate. In its Circular No.04 of 2008 dated 28.04.2008, the CBDT noted that representations had been received seeking clarification as to whether the TDS provisions, under Section 194-I of the Act, would be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax). The CBDT then referred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able without including such service tax component. 56. Tax is required to be deducted at source, under Section 194-I of the Act, with respect to income paid by way of rent. Likewise tax is required to be deducted at source under Section 194-J by the service recipient when fees are paid towards professional or technical services rendered by the service provider. It is only because service tax, on such payment, was not income has the CBDT, in its Circulars dated 28.04.2008 and 13.01.2014, directed that tax should be deducted at source only on the net amount, paid towards rent or as fees for services rendered by the service provider, i.e. the total amount paid less service tax. The Circulars issues by the CBDT reflect its understanding that service tax paid by the assessee is not income . While it is true that, unlike income computed in terms of Sections 28 to 43D under Chapter IV of the Act, Section 44BB(2) is a special provision and requires ten percent of the gross receipts to be treated as income, the amount so determined is nonetheless the presumptive income of the assessee and should be deemed to be its income in terms of Sections 4, 5 and 9 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Charitable Trust (2009) 308 ITR 161 (SC) ; and C.K. Gangadharan (2008) 304 ITR 61 (SC) . There may be cases where, because of the small amount of revenue involved, no appeal is filed. Likewise policy decisions are taken not to prefer appeals where the revenue involved is below a certain amount. Similarly, where the effect of the decision is revenue neutral, there may not be any need for preferring an appeal. All these certainly provide the foundation for making a departure. (J.K. Charitable Trust (2009) 308 ITR 161 (SC) . Where different High Courts have taken different views, and some of the High Courts have decided in favour of the revenue, the same is a just cause for the revenue to prefer an appeal. (C.K. Gangadharan (2008) 304 ITR 61 (SC) ; J.K. Charitable Trust (2009) 308 ITR 161 (SC) . If the fact situation changes then the revenue can certainly prefer an appeal notwithstanding that, for some years, no appeal was preferred. However if the fact situation is the same, then no appeal can be preferred. (C.K. Gangadharan (2008) 304 ITR 61 (SC) . 60. In Kaumudini Narayan Dalai (2001) 249 ITR 219 (SC) , the Supreme Court held that, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or received or deemed to be received by the assessee for the services rendered by it; and the assessee was only collecting service tax for passing it on to the government. No appeal has, admittedly, been preferred by the Revenue to the Supreme Court against the Division Bench judgment of the Delhi High Court in Mitchell Drilling International Pvt. Ltd. (2016) 380 ITR 130 (Delhi) . 62. Except to state that the said judgment needs re-consideration, no justifiable cause has been shown as to why this Court should take a view different from that of the Delhi High Court, in Mitchell Drilling International Pvt. Ltd. (2016) 380 ITR 130 (Delhi) , more so when the Division Bench of the Delhi High Court has taken a view similar to that of a Division Bench of this Court in M/s Schlumberger Asia Services Ltd. (2009) 317 ITR 156 . As the revenue has not been able to show just cause for this Court to take a different view, we see no reason to differ with the Division Bench judgment of the Delhi High Court that reimbursement of service tax is not an amount paid to the assessee on account of providing services and facilities in connection with the prospecting for, or e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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