|COURT:||Delhi High Court|
|CORAM:||S. Muralidhar J, Vibhu Bakhru J|
|CATCH WORDS:||presumptive income|
|DATE:||September 28, 2015 (Date of pronouncement)|
|DATE:||October 9, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 44BB: Service tax & Customs duty collected by assessee from clients is not includible in gross receipt while computing income u/s 44BB|
The High Court had to consider the following important question of law: “Whether the amount of service tax collected by the Assessee from its various clients should have been included in gross receipt while computing its income under the provisions of section 44BB of the Act?” HELD by the High Court:
(i) Section 44BB begins with a non obstante clause that excludes the application of Sections 28 to 41 and Sections 43 and 43A to assessments under Section 44 BB. It introduces the concept of presumptive income and states that 10% credit of the amounts paid or payable or deemed to be received by the Assessee on account of “the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India” shall be deemed to be the profits and gains of the chargeable to tax. The purpose of this provision is to tax what can be legitimately considered as income of the Assessee earned from its business and profession.
(ii) The expression ‘amount paid or payable’ in Section 44 BB (2) (a) and the expression ‘amount received or deemed to be received’ in Section 44 BB (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.’ Therefore, only such amounts which are paid or payable for the services provided by the Assessee can form part of the gross receipts for the purposes of computation of the gross income under Section 44 BB (1) read with Section 44 BB (2).
(iii) It is in this context that the question arises whether the service tax collected by the Assessee and passed on to the Government from the person to whom it has provided the services can legitimately be considered to form part of the gross receipts for the purposes of computation of the Assessee’s ‘presumptive income’ under Section 44BB of the Act?
(iv) The Court concurs with the decision of the High Court of Uttarakhand in DIT v. Schlumberger Asia Services Ltd (2009) 317 ITR 156 which held that the reimbursement received by the Assessee of the customs duty paid on equipment imported by it for rendering services would not form part of the gross receipts for the purposes of Section 44 BB of the Act. The Court accordingly holds that for the purposes of computing the ‘presumptive income’ of the assessee for the purposes of Section 44 BB of the Act, the service tax collected by the Assessee on the amount paid by it for rendering services is not to be included in the gross receipts in terms of Section 44 BB (2) read with Section 44 BB (1). The service tax is not an amount paid or payable, or received or deemed to be received by the Assessee for the services rendered by it. The Assessee is only collecting the service tax for passing it on to the government.
(v) This position has been made explicit by the CBDT itself in two of its circulars. In Circular No. 4/2008 dated 28th 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 sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.’ In Circular No. 1/2014 dated 13th January 2014, it has been clarified that service tax is not to be included in the fees for professional services or technical services and no TDS is required to be made on the service tax component under Section 194J of the Act.
(Chowringhee Sales Bureau Pvt. Ltd. v. Commissioner of Income-tax  87 ITR 542 and George Oakes (P.) Ltd. v. State of Madras  2 SCR 570, DIT v. Schlumberger Asia Services Ltd. (2009) 317 ITR 156, CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) Sedco Forex International Inc. v. CIT 299 ITR 238 (Uttarakhand) and CIT Tax-XI v. M/s DLF Commercial Project Corporation 2015-TIOL-1609-HC-DEL-IT referred).