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TMI Blog2024 (11) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and credit of income were considered. Interpretation of Section 145A inserted by the Finance Act 2018 with retrospective effect from 01/04/2017 on the issue of applicability of income computation and disclosure standards - Ergo, amendment to Section 145A was to include taxes of cost of sales / services for valuation of inventory to align with ICDS-2 and nowhere it can be inferred that it tantamount to change the computation mechanism on presumptive basis of taxation. Earlier Section 145A was inserted to bring clarity with the method of accounting for valuation of purchase and sale of goods and inventory, to determine business income. Section 145A of the Act takes into consideration valuation of sale or purchase of goods/services and of inventory , whereas Section 44B (2) considers specified amounts i.e. amount paid or payable on account of the carriage of goods shipped at any port in India and amount received or deemed to be received on account of the carriage of goods shipped at any port outside India. The terms amount paid or payable' and 'amount received or deemed to be received mentioned under Section 44B cannot be replaced with the term 'valuation' in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax/GST on the behalf of exchequer and the same is ultimately deposited with the exchequer, hence there cannot be any iota of doubt that the impugned GST is not in the nature of specified income under Section 44B. As argued amendment in the provisions of Section 145A of the Act brought by Finance Act 2018, since it includes services within its code therefore, income has to be computed in accordance with Section 145A and any taxes levied under services is included - If it is held that Section 145A are applicable for computing deemed income u/s.44B and GST is added to the specified amounts and provisions of Section 29 are invoked, then deduction of GST paid should be allowed while computing income under the head profits and gains of business or profession as per Section 43B. Even otherwise also Section 44B over rights Section 28-43A and 43B and therefore, in case if department seeks to add GST on the turnover for the purpose of calculating the profit u/s.44B, then, deduction u/s.43B has to be allowed if it is paid on or before the due date and similarly it can be disallowed once GST has not been paid within the due date. However, this is purely academic, contention which has been ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0- 11, 2011-12, 2013-14, 2015-16 and 2016-17 wherein it has been held that service tax is not includible for the purpose of computing presumptive income under Section 44B of the Act. 3.3. On the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP have breached the principle of consistency and principle of judicial discipline by not following the aforesaid decisions and directions. 3.4. Without prejudice to the fact that addition of Rs. 7,23,86,182 relating to inclusion of GST in gross receipts is bad in law, Ld. AO has erred in not providing eligible treaty benefit as per Article 8 of the India-Hong Kong DTAA. 3. The brief facts are that assessee, Orient Overseas Container Line Limited is a company incorporated under the Companies Ordinance of Hong Kong. It is engaged in the business of operation of ships in international traffic and its revenue comprises of freight income and ancillary charges from import transportation (i.e. carriage inward) and export transportation (i.e. carriage outward). Since assessee is a tax resident of Hong Kong and therefore, it has claimed the beneficial provisions of the India-Hong Kong Tax Treaty under Article 8. In India assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court. The Department has also filed appeal for AY 2013-14 arising from the ITA no. 2420/M/2017 dated 20.11 2018 and AY 2015-16 arising from the ITA no 6796/Mum/2018 dated 15.01.2020 The Hon'ble DRP has also upheld the addition on this issue for AY 2015-16 and 2016-17 3.4 The various decisions quoted by the assessee in support of its argument are distinguishable on facts circumstances of the case The service tax / GST is the liability of service provider Whether the assessee collects service tax / GST from service recipient or not is totally irrelevant. Even without collection of service tax / GST from the service recipient assessee will still be liable to pay service tax / GST Section 68 of the Service Tax Act read with Rule 2(1)(d) of Service Tax Rules has been judicially interpreted to mean that if the payer is entitled to realize or recover the same from the recipient, then it can be done only on the basis of a contractual understanding between the parties There is no statutory basis for recovering this amount and whether or not a provider is able to recover the tax from the recipient makes no difference in so far as the tax authorities are concerned Non-recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipally on account of interpretation of Section 145A. The directions issued by ld. DRP in A.Y.2018-19, the key observations are summarized in the following manner:- i. The critical word/expression is on account of in section 44B(2)(1) and (ii) of the Act, which would decide the issue. Incidence of service tax/ GST arises 'on account of creation of taxability of the service under the relevant Parliamentary statute and not on account of the business activities mentioned in 448(2)(1) and (1) of the Act. ii. If it is considered that GST collected by the assessee is directly in connection with services provided and revenue earned in relation to operation of ships as provided under Section 44B then it would amount to charging 'Income Tax on Service Tax/GST' because, the assessee would never get an opportunity to claim it as deduction as its 'profits and gains' have been charged to tax on deeming basis. This incongruous operation of Section 44B could never have been intended by the legislature. iii. Reliance was placed on CBDT's Circular No. 04/2008 dated 28 April 2008 wherein CBDT clarified that service tax paid by the tenant doesn't partake the nature of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x International Inc. v. CIT [2017] 87 taxmann.com 29 (SC) to hold that GST is to be included for computing deemed income u/s. 44B. The observation and the reasoning given by the DRP is summarized in the following manner:- a. GST is on account of provision of relevant services (i.e. carriage of cargo). Had there been no provision of relevant services, the case of payment of GST by the assessee and indirect charge on the customer would not have arisen. b. Coinciding with the introduction of GST, the term 'Services' has been introduced vide Finance Act, 2018 with retrospective effect from 1 April 2017. Hence, the introduction of GST and amendment of section 145A to include 'Services' indicate the legislative intention of inclusion of GST in the receipts of services under the Act. c. The service receipts and sales in the instant case are to be valued inclusive of taxes, as per ICDS guidelines. CBDT vide Circular No. 10/2017 dated March 23, 2017, has clarified that ICDS will be applicable on determination of turnover by non- corporate taxpayers covered under presumptive taxation like Sections 44AD, 44AE, 44ADA, 44B, 44B, 44BA, etc. d. In view of the binding ratio of judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the respective laws and paid to the central govt. Rather, the decision/ ratio laid down in the Sedco case (supra) supports the objection by the assessee. 8. We have heard both the parties at length, perused the relevant materials referred to before us. The controversy before is whether GST is to be included while computing the deemed profit u/s 44B. Section 44B is a special provision for computing profits and gains of shipping business in the case of non-residents. Prior to insertion of Section 44B, taxable profits of foreign shipping enterprises were determined by suitably apportioning their global profits between their Indian business and foreign business or on the basis of voyage accounts which led to difficult and complicated issues in assessments. With a view to simplifying and rationalizing the assessments in such cases, Section 44B was inserted for computing profits and gains of shipping business in the case of non- residents at 7.5% of specified amounts. Insertion of Section 44B substituted computation as per normal provisions in which both debit of expenses and credit of income were considered. At this point, it will be relevant to incorporate the relevant provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at any port in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. 38. .. 39. Section 172 makes a special provision for the levy and recovery of tax in the case of any ship, belonging. to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. Under this provision an ad hoc assessment is made before the ship is allowed to leave the Indian port unless the non-resident shipping concern has an agent in India from whom the tax would be recoverable. For this purpose, one-sixth of the amount paid or payable for the carriage of passengers, livestock, mail or goods shipped at an Indian port is regarded as taxable income which is subjected to tax at the rate applicable in the case of foreign companies. The assessee has, however, the option to file subsequently a return of income and ask for a regular assessment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; (iii)... (iv) Explanation 1. for the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any righty arising as a consequence to such payment. 11. CBDT Circular No.8 dated 26/12/2018 had explained amendment in the following manner:- Amendments in relation to notified Income Computation and Disclosure Standards 39.1 Section 145 of the Income-tax Act empowers the Central government to notify Income Computation and Disclosure Standards (ICDS). In pursuance to the above, the Central Government has notified ten such Standards effective from 1st April, 2017 relating to Assessment Year 2017-18 These are applicable to all assesses (other than an individual or a Hindu undivided family who are not subject to tax audit under section 44AB of the Income-tax Act) for the purposes of computation of income chargeable to income-tax under the head Profits and gains of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of purchase, sole and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tars, duty, cess or fee (by whatever name called, actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation 52.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999- 2000 and subsequent years. 13. Now by the Finance Act 2018, Section 145 of the amendment was given to ICDS and Section 145(2) empowered the Central Government to notify ICDS by this amendment, services were also brought into the scope of Section 145A. Now as per Section 145A(ii), the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation. Thus, Section 145A(ii) suggests inclusive method of accounting for computing 'prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision which enables replacement of consideration with 'fair market value' where the amount of consideration is less than the fair market value determined in a prescribed manner. 16. Thus, in our view adding GST component to the deemed income which has to be computed directly on specified amounts i.e. amount paid or payable on account of carriage of goods shipped which is revenue element only. For the earlier regime of service tax prior to GST, there were various judicial precedents which upheld exclusion of service tax while computing the provision u/s. 44B or other similar provisions. For instance, following judgments have been brought to our notice before us wherein the Hon ble Courts has approved the exclusion of service tax. i. M/s Deepwater Pacific I Inc SLP (Civil) Dairy No(s). 47374/2023) ii. Vantage International Management Co. [2023] 156 taxmann.com 23 iii. Transocean Offshore International Ventures Lad. [2023] 157 taxmann.com 203 (SC) iv. Schlumberger Asia Services Ltd. [2024] 158 taxmann.com 267 (SC) Further, Hon ble Bombay High Court in the case of Pr. CIT(IT) v. Boskalis International Dredging International CV (Income Tax Appeal No. 55 OF 2017 dated 25 March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal is dismissed. 17. Full Bench of Hon ble High Court of Uttarakhand in case of DIT v. Schlumberger Asia Services Ltd. [2019] 414 ITR 1 (Uttarakhand) (FB) held that service tax paid earlier by the assessee to Government of India is not on account of provision of services in connection with exploration and production of mineral oil, hence would not form part of aggregate taxable amount referred to in clauses (a) and (b) of sub-section(2) of section 44BB Relevant extract of the ruling is as under:- 27. The word 'on account of has been defined in the Random House Dictionary of the English Language to mean by reason of; because of, for the sake of. In the Reader's Digest Great Encyclopaedic Dictionary, On account of is defined to mean on consideration of, because of. In Collins English Dictionary On account of is defined to mean as 'because of, by reason of. D. Ramanatha Aiyer: The Law Lexicon defines on account of to mean because of, by reason of, towards payment of (1) concerning (2) because of . It is only if the service tax reimbursed to them by the ONGC, which was paid by the assessee to the Government earlier, is held to be a payment in consideration of the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate specified in section 66B of Finance Act 2012 in such manner, and within such period, as may be prescribed. Notwithstanding anything contained in sub-section (1), in respect of [such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section [66B] and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider. CGST Act, 2017 (1) Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or NEFT or RTGS or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainer Line Ltd 25 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. or court or in any other provisions of this Act or the rules made thereunder or any other law for the time being in force, every person who has collected from any other person any amount as representing the tax under this Act, and has not paid the said amount to the Government, shall forthwith pay the said amount to the Government, irrespective of whether the supplies in respect of which such amount was collected are taxable or not. (2) Where any amount is required to be paid to the Government under sub-section (1), and which has not been so paid, the proper officer may serve on the person liable to pay such amount a notice requiring him to show cause as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2) Article 269A of Constitution of India The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both the value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act (i.e. GST) Taxable value and GST to be mentioned separately on invoice Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India 20. On perusal of the comparison of the relevant provision of service tax law and GST law it can be seen that both are indirect taxes and is recovered by the service provider on behalf of assessee and as an agent of the Government as such rates are specified and thus, the provision under the service tax law are similar to provision of GST law and therefore, in our opinion the judicial precedents delivered in respect of erstwhile tax law would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for purpose of section 44B would be akin to charging income tax on GST i.e., tax on tax, which would promote cascading effect which cannot be the intent of legislation. 24. Further, a service provider acts in a fiduciary capacity out of statutory obligation casted upon it, while collecting service tax/GST on the behalf of exchequer and the same is ultimately deposited with the exchequer, hence there cannot be any iota of doubt that the impugned GST is not in the nature of specified income under Section 44B. 25. Thus, reliance placed by the Hon ble DRP members in the case of Sedco Forex International Inc. (supra) to treat 'GST similar as 'reimbursement of mobilization charges is misplaced and incorrect. In the case of Sedco Forex International Inc. fixed mobilization charges were agreed between the parties, which could be more or less than the actual expenditure. Thus, 'reimbursement of mobilization charges' cannot be equated with pure reimbursement which has no element of income. 26. The core argument of the department before us and by the ld. DRP is that amendment in the provisions of Section 145A of the Act brought by Finance Act 2018, since it includes service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers covered under presumptive taxation like Sections 44AD, 44AE, 44ADA, 44B, 44BB, 44BBA, etc. and stated that the service receipts and sales in the instant case are to be valued inclusive of taxes, as per ICDS guidelines. Relevant extract of Circular is hereunder:- Question 3: Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account and/or those who are covered by presumptive scheme of taxation like sections 44AD, 44AE, 44ADA, 44B, 44BB, 44BBA, etc. of the Act? Answer: ICDS is applicable to specified persons having income chargeable under the head Profits and gains of business or profession' or 'Income from other sources. Therefore, the relevant provisions of ICDS shall also apply to the persons computing income under the relevant presumptive taxation scheme. For example, for computing presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining he receipts or turnover, as the case may be. 29. Thus, reliance placed by the DRP on the aforesaid Circular is not valid since Delhi High Court in the case of Chamber of Tax Consultants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on or before the due date and similarly it can be disallowed once GST has not been paid within the due date. However, this is purely academic, contention which has been raised because we have already held that for the purpose of Section 44B only specified amount mentioned in the sub-Section 2 of Section 44B alone is the subject matter of computation of profit @7.5% and Section 145A has no applicability. Thus we hold that while computing income u/s.44B, GST cannot be included and all the judgments relied upon by the assessee by the Hon ble High Court and Hon ble Supreme Court and the Tribunal will apply in this year also. Thus, in our opinion, the minority view of the single member of the DRP is to be upheld that GST cannot be included while computing deemed income u/s.44B, accordingly, this issue is decided in favour of the assessee. 31. In the result, ground No.3 is allowed. 32. Ground No.4 relates to computing of book profit u/s.115JB. Since assessee has offered income of operation of ships to tax under the deemed provisions of Section 44B r.w.s.90(2) and Article 8 of India-Hong Kong Tax Treaty. Thus, in view of the Explanation 4A to Section 115JB(1), the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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