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TMI Blog2024 (9) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 44BB of the Act where the intention of the legislature is only to tax the assessee @ 10% on the amount paid or payable to the assessee, received on account of the business activity of the assessee. The word amount here cannot be interpreted to mean the GST/service tax which is collected by the assessee from its customers and paid to the Government. CBDT Circular mentioned above has categorically excluded the service tax component, while computing the income of the assessee and the same could not be interpreted differently to include GST/service tax while computing the profit and gains of a non resident, engaged in the business of exploration, etc. of mineral oils. Furthermore, it is to be noted that section 44BB is a special provision for computing the profits and gains in connection with the business of exploration, etc. of mineral oils which evidences that for the purpose of computing the profit and gains of the assessee, the natural corollary would be from the receipts which are in the nature of income that has to be considered for the said purpose and not the service tax that the assessee was duty bound to collect from its customers in addition to the charges for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by it for the work of extraction or production of mineral oils. 4. During the assessment proceedings, the ld. A.O. observed that the assessee had excluded the impugned amount of Rs. 27,28,69,105/- which was received as reimbursement of service tax from the total receipts while computing the deemed profit u/s. 44BB of the Act. After duly considering the assessee s submission, the ld. A.O. passed the draft assessment order dated 05.12.2022 u/s. 144C(1) of the Act, proposing the impugned amount @ 10% to be added to the income as per section 44BB of the Act on the GST/service tax component, aggregating to Rs. 27.28 crores and determined the total income at Rs. 25,15,71,604/-. 5. The assessee filed its objection before the Hon ble DRP which vide order dated 29.09.2023, disposed of the objection raised by the assessee and passed direction that the sum received on account of GST by the assessee from its customers with regard to the shipping business are to be included while computing the total income u/s. 44BB(1) of the Act. The ld. A.O. then passed the final assessment order dated 31.10.2023. 6. The assessee is in appeal before us, challenging the final assessment order, passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the subsequent sections, is a special provision inclusive of the charging provision and the computation of income for non residence engaged in the business of providing services or facilities in connection with or supplying plant and machinery for hire used for extraction or production of mineral oil. This implies that the provision itself is a complete code for determination of the profit and gains for such undertaking. The said provision is reproduced hereunder for ease of reference: Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. 96 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee 99 [, being a non-resident,] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production 1 of, mineral oils 1 , a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rview of the said provision which is an undisputed fact, except to the extent that the service tax collected by the assessee from its customers for the services provided by it on account of activities pertaining to exploration of mineral oils ought not to have been excluded from the aggregate amount while computing the profit and gains as per sub section 2 of section 44BB of the Act. Further, the Revenue s contention is that whether or not there is a profit element in such receipt is immaterial for determination of the aggregate amount as per sub section 2 of section 44BB of the Act and stated that the service tax must be included in the total receipts while computing profit under the said provision. The Revenue further contended that it is immaterial whether the liability of service tax is on the assessee or on its client, but the only issue is the said service tax component has to be included in the total receipts for computation of profits u/s. 44BB of the Act. The ld. A.O. reiterated that whether or not there is a profit element embedded in the said receipt, is irrelevant so far as the receipt pertains to the business of exploration and mineral oil activities of the assessee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarification whether such principle can be extended to other provisions of the Act also. 2. Attention of CBDT has also been drawn to the judgement of the Hon'ble Rajasthan High Court dated 1-7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act. 3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component. 4. This circular may be brought to the notice of all officer for compliance. Clarification on deduction of tax at source (TDS) on service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the computation sections are applicable for determining the profits and gains of business and profession and the same does not apply in case of a non resident tax payers when there is a special provision exclusively for this purpose. We do not find force in the argument of the Revenue on this aspect for the reason that the Hon'ble Delhi High Court in the case of DIT vs. Mitchell Drilling International (P) Ltd. (supra) has also dealt with this issue and has decided in favour of the assessee as herein under: 15. In CIT v. Lakshmi Machine Works (supra), the Supreme Court approved the decision of the Bombay High Court in CIT v. Sudarshan Chemicals Industries Ltd. (supra) which in turn considered the decision of the Supreme Court in George Oakes (P) Ltd. (supra). In the considered view of the Court, the decision of the Supreme Court in Lakshmi Machines Works (supra) is sufficient to answer the question framed in the present appeal in favour of the Assessee. The service tax collected by the Assessee does not have any element of income and therefore cannot form part of the gross receipts for the purposes of computing the 'presumptive income' of the Assessee under Section 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee @ 10% on the amount paid or payable to the assessee, received on account of the business activity of the assessee. The word amount here cannot be interpreted to mean the GST/service tax which is collected by the assessee from its customers and paid to the Government. The CBDT Circular mentioned above has categorically excluded the service tax component, while computing the income of the assessee and the same could not be interpreted differently to include GST/service tax while computing the profit and gains of a non resident, engaged in the business of exploration, etc. of mineral oils. Furthermore, it is to be noted that section 44BB of the Act is a special provision for computing the profits and gains in connection with the business of exploration, etc. of mineral oils which evidences that for the purpose of computing the profit and gains of the assessee, the natural corollary would be from the receipts which are in the nature of income that has to be considered for the said purpose and not the service tax that the assessee was duty bound to collect from its customers in addition to the charges for the services rendered by it. 15. With regard to the reliance placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is difficult, therefore, to accept the submission of the revenue that the amount reimbursed by the ONGC, towards service tax paid earlier by the assessee to the Government, should be included in the amount paid to the assessee on account of provision of services and facilities. Even otherwise, it is not every amount paid on account of provision of services and facilities which must be deemed to be the income of the assessee under Section 44BB. It is only such amounts, which are paid to the assessee on account of the services and facilities provided by them, in the prospecting for or extraction or production of mineral oils, which alone must be deemed to be the income of the assessee. On a plain and literal reading of clauses (a) and (b) of Section 44BB of the Act, it is clear that reimbursement of service tax ought not to be included in the aggregate of the amounts specified in clauses (a) and (b) of Section 44BB(2), as it is not an amount received by the assessee on account of services provided by them in the prospecting, extraction or production of mineral oils. 16. It is observed that the Revenue has challenged the above said decision on the ground that it could not be appeale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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