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October 27, 2022

Service tax is not to be included in gross receipts when calculating presumptive tax under Section 44BBA

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Service tax is not to be included in gross receipts when calculating presumptive tax under Section 44BBA

Facts and Issues of the Case

The only issue raised by the revenue in the present appeal for which as many as seven grounds have been taken relates to, whether service tax amounting to Rs.89,12,89,825/- forms part of the gross receipts of the assessee for the purpose of computing its total income on presumptive basis in terms of section 44BBA of the Act. The facts of the case are that assessee is a non-resident company engaged in the business of airlines service for passengers and cargo. Assessee filed its original return of income on 28.09.2015 reporting total income of Rs.93,83,62,810/- computed on presumptive basis u/s. 44BBA of the Act. In the course of assessment proceedings, a revised computation was furnished showing the gross receipts at Rs.2042,43,00,466/- as against originally reported for an amount of Rs.1876,72,56,148/-. In the course of assessment proceedings, Ld. AO sought explanation in respect of gross receipts as disclosed in the revised computation and the gross receipts disclosed in the service tax return for which necessary details and explanation were furnished by the assessee. On this aspect,  the assessment order, Ld. AO noted that after considering the reply of the assessee it is observed that assessee has been able to substantiate that there is difference between tax base for service tax and that of ITR and thus no adverse inference is being taken on the score of Service Tax Return data.

Aggrieved, assessee went in appeal before the Ld. CIT(A). Before him, detailed and exhaustive submissions were made by the assessee wherein it was contended that service tax collection is not includible in the gross receipts for computing the ‘deemed taxable income’ since there is no profit element embedded in the service tax collection as the same is collected in a fiduciary capacity . It was also contended by the assessee that it is liable to pay tax on the income embedded in only those receipts which are at its disposal. In the present case, it is submitted that the service tax collected by it is not at the disposal of the assessee but is a liability which is to be discharged by way of depositing the same with the exchequer of the Government and, therefore, the service tax collection cannot be included in the gross receipts for computing the deemed taxable income u/s. 44BBA of the Act.

Aggrieved, revenue is in appeal before the Tribunal. Before us, Ld. CIT, DR referred to the statement of facts placed on record. He contended that section 44BBA of the Act opens with a non-obstante clause and thereby overrides the general computation mechanism denying the deduction for expenses otherwise available to the assessee. Thus, in the section, receipts means receipts before allowing any expenditure incidental to earning such income. Ld. CIT, DR referred to the findings given by the Ld. AO that section 44BBA(2) refers to the words “amounts paid and payable on account of carriage of passenger etc.” and “amount received and deemed to be received on account of carriage of passenger etc.” He pointed out that the word ‘amount’ is absolute and defies any qualification. He, thus stated that there is no scope for doing any arithmetic calculation of amounts as per section 44BBA(2) of the Act.

Observation by the Court

The court  have heard the rival submissions and perused the material available on record. Admittedly, it is a fact on record that assessee has collected and deposited service tax component of Rs.89,12,89,825/- as a service provider. The moot point before us for adjudication is whether this service tax component is includible in the gross receipts for computing the deemed taxable income u/s. 44BBA of the Act. In the present case before us, notably, assessee is a non-resident engaged in the business of operation of airlines and is subjected to income tax under the Act on presumptive basis in terms of section 44BBA of the Act.

From perusal of the above provisions, we note that where an assessee who is a non-resident and is engaged in the business of operation of aircraft, a sum equal to 5% of the aggregate of amount paid or payable to the assessee on account of carriage of passengers, live stock material or goods from any place in India and the amount received or deemed to be received in India by or on behalf of the assessee on account of carriage of passengers, live stock material or goods from any place outside India, shall be deemed to be the profit and gains of such business chargeable to tax. The court also note that the expression “amount paid or payable” in section 44BBA(2)(a) and the expression “amount received or deemed to be received” in section 44BBA(2)(b) is qualified by the words “on account of the carriage of passengers, live stock material or goods from any place in India/outside India”. Therefore, in our considered understanding, only such amounts which are paid or payable for the service provided by the assessee can form part of the gross receipts for the purpose of computation of gross total income u/s. 44BBA(1) of the Act.

Ld. CIT, DR had referred to the decision of Hon’ble Supreme Court in the case of Sedco Forex International Inc. . On perusal of the said decision, the court note that Sedco Forex International Inc.  was paid mobilization fees from ONGC which was included by the Ld. AO as part of gross receipts for the purpose of section 44BB. Hon’ble Supreme Court has observed that mobilization fees is a fixed amount that might be less or more than the actual expenses incurred and contract in question being indivisible one, held that amount received by the assessee as mobilization fee was to be included in gross receipts for computing the deemed profits u/s. 44BB of the Act. Thus, the facts of this case are distinguishable from the facts in the present case before us since Hon’ble Supreme Court dealt with the issue of inclusion of mobilization fees arising out of the commercial terms, in the gross receipts whereas in the present case before us, the issue relates to inclusion of service tax component in the gross receipt which is a statutory levy collected for and on behalf of the Central government by the assessee. Further, Ld. CIT, DR has contended that deduction of expenses is not available from the receipts u/s. 44BBA which in our considered understanding is not tenable since assessee has not claimed service tax component as an expenses deduction.

Considering the facts on record, provisions of section 44BBA of the Act, the decision of Hon’ble High Court of Delhi in Mitchell Drilling International Pvt. Ltd.  as well as the position clarified by CBDT in its two circulars cited , the court  do not find any reason to interfere with the finding and decision given by the Ld. CIT(A) and accordingly, dismiss the ground taken by the revenue on the issue under consideration.

Conclusion

The appeal of the revenue is dismissed by the court.

ACIT-Vs-Cathay-Pacific-Airways-Limited-ITAT-Kolkata

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