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TMI Blog2021 (11) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... use the equipment supplied and services rendered are for the purposes of extraction or production of mineral oils. Thirdly, treating of supply of skilled personnel to operate equipment supplied by the assessee cannot be viewed in isolation since the activity of supplying such manpower is part and parcel of the supply of equipment to be used for extraction or production of mineral oils. For this reason also, the income has to be assessed u/s 44BB of the Act only. We also find that preferring appeal by the Revenue against the decision of the Hon ble High Court in the case of M/s BJ Services Co. (ME) Ltd.[ 2007 (10) TMI 219 - UTTARAKHAND HIGH COURT] cannot be a ground for confirming the appeal. Till the decision is reversed, the order of the Hon ble High Court stands legally binding. Profits Attributable on revenues 5.08% or 2% - While arriving at 5.08%, the ld. CIT(A) has rejected KOA Tools Limited as a comparable company on account that it incurred losses - HELD THAT:- The assessee relied on the ruling of the Special Bench of Chandigarh ITAT in the case of DCIT vs. M/s Quark Systems Private Limited [ 2009 (10) TMI 591 - ITAT, CHANDIGARH] wherein it was held that merely b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various drilling offshore contractees along with ONGC. The revenue s of Rs.27.62 crores has been offered to tax u/s 44BB as taxable receipts and applied DPR of 10% by the assessee. Further, during the year the assessee has entered into a new contract with ONGC Ltd. which along with revenues covered u/s 44BB also includes reimbursements, service tax reimbursement and supply component in respect of supply of drilling bits for execution of contract. These revenues were also offered to tax u/s 44BB. 4. Looking at the nature of the activities and scope of work of the contracts, the AO held that the contracts receipts are to be treated as Fee for Technical Services (FTS) in respect of equipment rental hire and claim of Section 44BB was denied and taxed the amount u/s 44DA of the I.T. Act. 5. We have gone through the provisions of Section 44BB and Section 44DA. 6. Section 44BB reads as under: 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a nonresident (not being a company) or a foreign company with Govern-ment or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign compa-ny carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effec-tively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head Profits and gains of business or profession in accordance with the provisions of this Act: Provided that no deduction shall be allowed,- (i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such perma-nent establishment or fixed place of profession in India; or (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent estab- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act more so because the equipment supplied and services rendered are for the purposes of extraction or production of mineral oils. Thirdly, treating of supply of skilled personnel to operate equipment supplied by the assessee cannot be viewed in isolation since the activity of supplying such manpower is part and parcel of the supply of equipment to be used for extraction or production of mineral oils. For this reason also, the income has to be assessed u/s 44BB of the Act only. 11. Further, we also find that preferring appeal by the Revenue against the decision of the Hon ble High Court in the case of M/s BJ Services Co. (ME) Ltd. cannot be a ground for confirming the appeal. Till the decision is reversed, the order of the Hon ble High Court stands legally binding. 12. Since, the order of the ld. CIT(A) is on cogent reasoning, keeping in view the provisions of the Act which have been mentioned above, we decline to interfere with the order of the ld. CIT(A) on this issue. Profits Attributable on revenues 5.08% or 2%: 13. The ld. CIT(A) determined the profits attributable to India operations at 5.08% of the revenues received by the assessee from ONGC on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The AO treated service tax collected by the assessee as a part of its gross receipts. The assessee submitted that the service tax should not be treated as part of gross receipt as there is/there wouldn t be any element of profit in it. 21. The order of the ld. CIT(A) is as under: 6.5 According to the Appellant the quantum of Service Tax collected by it should not be treated as part of its gross receipts because there is no element of profit in it. This argument is hard to subscribe to since under section 44BB of the Act profit is determined not transaction-wise but with reference to the gross value of transactions done by the assessee during a particular period. The Service Tax has to be treated as part of the turnover following the logic of the decision in the case of Chowringhee Sales Bureau (P) Ltd. (87 ITR 542). Also the scheme of presumptive determination u/s 44BB of the Act was considered by Hon ble Uttarakhand High Court in the case of CIT vs. Halliburton Offshore Services Inc. (300 ITR 265) it was held that this section is a complete code in itself and provides for taxation of all receipts whether arising in India or outside. Based on that decision the ITAT D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits from exports should not be taxed. For this purpose, a formula has been introduced whereby if the business is of composite nature then the proportionate profit relatable to the export business is to be found out by multiplying the profits of a business by export turnover and dividing the product by total turnover. This formula finds place in section 80HHC(3) as it stood at the relevant time. Under clause (b) to the Explanation of section 80HHC, export turnover is defined to mean sale proceeds received in India by the assessee in foreign exchange. Under the said definition, export turnover is defined to mean the sale proceeds of any goods which are exported out of India but which will not include freight or insurance. Clause (ba) defines total turnover to exclude freight or insurance. This clause (ba) explains the turnover in a negative manner so as to exclude freight or insurance. Therefore, a combined reading of the above two clauses shows that they include anything which has nexus with the sale proceeds. Correspondingly, they show that they exclude everything which has no nexus with the sale proceeds. Further, the meaning of export turnover in clause (b) of the Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax obligation has to be considered as part of the receipt If the Appellant felt that the profit determined in this manner was excessive and that its profit was actually lower it had the option to produce its books of account and tax audit report so that its income could be determined under the regular provisions of the Income Tax Act. In view of the foregoing discussion, the amount is treated as part of its receipts. 6.7 This Appellate Authority is also conscious of the fact that a different view is being taken than the case of Sedco Forex (supra). This may give rise to a feeling that the principles of Judicial Discipline are being violated. However, it needs to be reiterated that for the present Appeal reliance has been placed on 2 decisions of the ITAT as also the fact that judicial precedents are not supposed to be mechanically followed. This point may also be discussed. 6.8 The judicial precedents should not be followed mechanically as held in Deena alias Deen Dayal vs. Union of India: ..Any case, even a locus classicus is an authority for what it decides. It is permissible to extend the ratio of a decision to cases involving identical situations, factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to be received by the Assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. Service tax collected/ received by SII from its customers is not on account of provision of services and facilities; but is a tax levied on value of taxable services, collected by SII from its customer and deposited with the Government of India. 24. The issue under consideration has been recently adjudicated by the Uttarakhand High Court (Full Bench) in assessee s own case and Others (414 ITR 1) wherein the Uttarakhand High Court on similar facts has held that amount reimbursed to the assessee by ONGC representing service tax paid earlier by assessee to the Government of India and not on account of provision of services in connection with exploration and production of mineral oil , would not form part of aggregate taxable amount as referred under section 44BB. 25. Key observations by the Division Bench in the said ruling are as under: Section 44BB specifically states that any amount paid or payable (in or outside India) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and where excess service tax has been collected, such excess is also bound to be payable to the Government. Accordingly, there is no benefit obtained by the assessee by collecting the service tax from the customer. Since service tax, an indirect tax, can be passed on by a service provider to the service recipient, reimbursement thereof, by the service recipient to the service provider, cannot be treated as the presumptive income of the service provider under section 44BB of the Act. Further, the CBDT itself in two of its circulars viz., Circular No 4/2008 dated 28 April 2008 and Circular No 1/2014 dated 13 January 2014 in context of deduction of tax at source under section 194-I and section 194J respectively has supported that service tax does not form a part of the income and thus, taxes on service tax collected should not be withheld. In Circular No.4/2008 dated 28 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 section194-I of the Act wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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