No TDS u/s 194-I is required to be deducting for Service tax paid by the tenant since the landlord only acts as a collecting agency for Government for collection of Service Tax.
It is held that the receipts on account of reimbursements of expenses incurred on supply of materials and provision of fuel were includible in the gross receipts for the purpose of determination of income under section 44BB of the Income Tax Act 1961
IN THE ITAT DELHI BENCH
G. D. AGRAWAL, PRESIDENT & SUCHITRA KAMBLE, J.M.
Transocean Offshore Deepwater Drilling Inc. v. Addl. CIT
ITA No. 2072/DEL/2016
30 January, 2018
Appellant by: Amit Arora & Vishal Mishra, CA
Respondent by: G. K. Dhal, CIT DR
ORDER
Suchitra Kamble, J.M.
This appeal is by the assessee against the order dated 10-2-2016 passed by Commissioner (Appeals)-2, Noida for assessment year 2011-12.
2. The grounds of appeal are as under:– Based on the facts and circumstances of the case, your appellant respectfully submits the following grounds:–
Ground No.1
That the learned Commissioner (Appeals) has erred on facts and in law in affirming the action of the assessing officer in holding that the receipts on account of reimbursements of expenses incurred on supply of materials, amounting to INR 118,655,056 were includible in the gross receipts for the purpose of determination of income under section 44BB of the Income Tax Act 1961 (‘the Act’).
Ground No. 2
That the learned Commissioner (Appeals) has erred on facts and in law in affirming the action of the A.O in holding that the receipts on account of reimbursements of expenses incurred on provision of fuel, amounting to INR 692,665,431 were includible in the gross receipts for the purpose of determination of income under section 44BB of the Act.
Ground No. 3
That the learned Commissioner (Appeals) has erred on facts and in law in affirming the action of the assessing officer in holding that the receipts on account of reimbursements of service tax, amounting to INR 486,455,033 were includible in the gross receipts for the purpose of determination of income under section 44BB of the Act.
Ground No. 4
That the learned Commissioner (Appeals) has erred on facts and in law in affirming the action of the assessing officer in holding that the receipts on account of reimbursements of interest on service tax, amounting to INR 7,254,268 were includible in the gross receipts for the purpose of determination of income under section 44BB of the Act.
Your appellant prays that the erroneous order be cancelled and appropriate relief may be granted to the appellant.
Your appellant craves leave to add to, alter, amend, vary, omit, substitute or delete any of the aforementioned grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal.
3. The assessee is a non resident company and during the year under consideration it has offered its Revenues on account of one contract entered as the consortium of Transocean Offshore Deepwater Drilling Inc (TODDI) USA and Schlumberger Asia Serves Ltd. (SALS) Hong Kong when Oil & Natural Gas Corporation Ltd. During the year under consideration, the assessee offered its revenue to the extent of Rs. 50,64,35,355 on account of the assessee contract entered with M/s Oil & Natural Gas Corporation Ltd vide contract dated 6-11-2003 which was amended on 19-4-2006 for the charter hire of Deep Water Drilling Unit Rig-Discoverer Seven Seas along with its Consortium Member M/s Schlumberger Asia Services Ltd. Since, the revenues of Rs. 50,64,35,355 are earned on account of charter higher of deepwater Drilling Unit, the same are brought to tax under section 44BB(1) of the Act at 10% deemed profit rate protectively by the assessing officer. The assessing officer in draft assessment order proposed to complete the assessment on a total income of Rs. 63,73,82,419 under protective assessment. The assessee did not file any objection against the said draft order before the Dispute Resolution Panel. The final assessment order was passed on 15-5-2014 whereby finalizing the draft assessment order thereby on a total income of Rs. 64,13,82,486.
4. Being aggrieved by the assessment order the assessee filed appeal before the. The Commissioner (Appeals) held that the Consortium between assessee and Schlumberger Asia Services Ltd. (SALS) did not constitute AOP. Thus, it is not proper on part of the Assessing Officer to pass protective assessment in the case of Schlumberger Asia Services Ltd. (SALS). Thus, the same ground was allowed by the Commissioner (Appeals). As related to the issue of reimbursement receipts on account of material recharge and fuel reimbursement included in the revenues as taxable under section 44BB of the Income Tax Act was upheld by the Commissioner (Appeals).
5. The learned. AR submitted that Ground No. 1 & 2 are held against the assessee as per the decision in case of CIT v. Halliburton Offshore Services Inc. (2008) 300 ITR 265 (Uttarakhand). As related to Ground No. 3 & 4 which is relating to reimbursement of service tax and interest on service tax, the learned. AR submitted that the same is in favour of the assessee in case of DIT v. Mitchell Drilling International Pvt. Ltd. (2016) 380 ITR 130 (Del) wherein the Jurisdictional Delhi High Court decided the issue in favour of the assessee.
6. The learned. DR relied upon the order of the assessing officer and Commissioner (Appeals) as well as the Jurisdictional High Court decision which is in favour of Revenue.
7. We have heard both the parties and perused the material available on record. As relates to ground No. 1 and 2, he issue is squarely covered by the Jurisdictional High Court in case of Halliburton Offshore Services against the assessee. The Hon’ble Uttarakhand High Court in the case of CIT v. Halliburton Offshore Services Ltd. has held as under:
“Section 44BB of the Income Tax Act, 1961 is a complete code in itself. It provides by a legal fiction the profits and gains of a non-resident assessee engaged in the business of oil exploration at 10 per cent of the aggregate amount specified in sub-section (2) Clause(a) of sub-section(2) refers to the amounts, (a) paid to the assessee (whether in or out of India) 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, and (b) payable to the assessee (whether in or out of India) 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. Clause (b) of sub-section (2) refers to the amounts, (a) received by assessee in India 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 outside India. Thus, it is clear from a perusal of section 44BB that all the amounts either paid or payable (whether in or out of India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee at 10 per cent. The amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined under section 2(24) of the Income Tax Act and section 5 and 9 deal with the income and accrued income and deemed income.”
It was not in dispute that the amount had been received by the assessee. Therefore the assessing officer added the said amount which was received by the nonresident company rendering services under the provisions of section 44 BB to the ONGC and imposed the income tax thereon. He was justified in doing so.
Therefore, we dismissed ground Nos. 1 and 2 of assessee’s appeal.
8. As relates to Ground Nos. 3 and 4, we find that now this issue stands covered by the judgment of the Hon’ble Delhi High Court in the case of DIT v. Mitchell Drilling International Pvt. Ltd.(supra) wherein the Hon’ble High Court, after analyzing various judgments of Hon’ble Uttarakhand High Court and the judgment in the case of Chowringhee Sales Bureau Pvt. Ltd. v. CIT (1973) 87 ITR 542, observed and held as under :–
“9. 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 ultimately considered as income of the assessee earned. From its business and profession..
10. The expression ‘amount paid or payable’ in section 44BB (2) (a) and the expression ‘amount received or deemed to be received’ in section 44BB(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 sendees provided by the assesses can form part of the gross receipts for the purposes of computation of the gross income under section 44BB(1) read with section 44BB(2).
11. It is in this context that the question arises whether the service tax collected by the assesses 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?
12. In Chowringhee Sales Bureau (supra) sales tax in the sum of Rs. 32,986 was collected and kept by the assessee in a separate ‘sales tax collection account’. The question considered by the Supreme Court was:
‘Whether on the facts and in the circumstances of the case the sum of Rs. 32,986 had been validly excluded from the assessee’s business income for the relevant assessment year?”. However, there the assessee did not deposit the amount collected by it as sales tax in the State exchequer since it took the stand that the statutory provision creating that liability upon it was not valid. In the circumstances, the Supreme Court held that the sales tax collected, and not deposited with the treasury, would form part of the assessee’s trading receipt.
The decision in George Oakes (P) Ltd. (supra) was concerned with the constitutional validity of the Madras General Sales (Definition of Turnover and Validation of Assessments)) Act, 1954 on the ground that the word turnover was defined to include sales tax collected by the dealer on interstate sales, Upholding the validity of the said statute the Supreme Court held that “the expression ‘turnover’ means the aggregate amount for which goods are bought or sold, whether for cash or for deferred payment or other valuable consideration, and when a sale attracts purchase tax and the tax is passed on to the consumer, what the buyer has to pay for the goods includes the tax as well and the aggregate amount so paid would fall within the definition of turnover.” Since the tax collected by the selling dealer from the purchaser was part of the price for which the goods were sold, the legislature was not incompetent to enact a statute pursuant to Entry 54 in List II make the tax so paid a part of the turnover of the dealer.
14. In the considered view of the Court, both the aforementioned decisions were rendered in the specific contexts in which the questions arose before the Court. In other words the interpretation placed by the Court on the expression “trading receipt’ or ‘turnover’ in the said decisions was determined by the context. The later decision of the Supreme Court in CIT v. Lakshmi Machine Works (supra) which sought to interpret the expression ‘turnover’ was also in another specific context. There the question before the Supreme Court was “whether excise duty and sales tax were includible in the ‘total turnover’ which was the denominator in the formula contained in section 80BBC(3) as it stood in the material time?” The Supreme Court considered its earlier decision in Chowringhee Sales Bureau (supra) and answered the question in the negative. The Supreme Court noted that for the purposes of computing the ‘total turnover’ for the purpose of section 80BBC(3) brokerage, commission, lid not form part of the business profits because they did not involve any element of export turnover. It was observed: “Just as commission received by an assessee is taxable to exports and yet it cannot form part of the turnover’ excise duty and Sales Tax also cannot form part of the ‘turnover’.” The object of the legislature in enacting section 80 HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, “turnover” was the requirement. “Commission, rent, interest etc. did not involve any turnover.” It was concluded that ’sales tax and excise duty1 like the aforementioned tools like interest, tent etc. ‘also do not have any element of ‘turn over”.
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 44BB of the Act.
16. The Court concurs with the decision of the High Court of Uttarakhand in on v. Schlumberger Asia Services Ltd. (supra) 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.
17. The Court accordingly holds that for the purposes of computing the ‘presumptive income’ of the assessee for the purposes of section 44BB of the Act, the service tax collected by the assessee on the amount paid is for rendering services is not to be included in the gross receipts in terms of section 44B(2) read with section 44BB (1). The service tax is not and amount paid or payable, or received or deemed to be received by the assessee for the services rendered by it. The only collecting the service tax for passing it on to the Government.
18. The Court further notes that the position has been made explicit by the CBDT itself in two of its circulars. In Circular No. 4/2008, dt. 28-4-2008 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 toot. In Circular No. 1/2014, dt. 13-1-2014, 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.”
Thus, Ground No.1 & 2 of the assessee’s appeal are dismissed and Ground No. 3 & 4 of the assessee’s appeal are allowed.
9. In the result, the appeal of the assessee is partly allowed.