Top Stories GST paid shall not be Included while Computing Total Income u/s 44BB: ITAT [Read Order] Only receipts considered as income should be taxed, while GST/service tax, being collected on behalf of the government, must be excluded By Navasree A.M – On November 11, 2024 1:18 pm – 4 mins read The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) has ruled that the Goods and Services Tax ( GST ) paid by the assessee should not be included while computing the gross receipts under Section 44BB of the Income Tax Act, 1961. The income tax appeal was filed by the assessee, Servicos De Petroleo Constellation SA India Project Office is a a non-resident company incorporated under the law of Brazil and is engaged in providing onshore and offshore oil well drilling services and had entered into a contract with Oil and Natural Gas Corporation Limited (ONGC) for charter hire of Anchor Moored Drilling Rig “Olinda Star” for drilling operations to be carried out in offshore waters of India. It challenged the final assessment order of the Assistant Commissioner of Income Tax ( ACIT/ AO ) under Section 143(3) r.w.s. 144C(13) of the Act dated 31.10.2023, passed in pursuance of the direction of the Dispute Resolution Panel vide order dated 22.09.2023, pertaining to the Assessment Year (AY) 2021-22.

During the assessment, the AO 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 under Section 44BB of the Act. Get a Copy of Methods of Investigations of Books of Accounts and Other Documents, Click here The AO, further passed the draft assessment order 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/-.  The assessee submitted its objection before the DRP.

However, the DRP 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 under Section 44BB(1) of the Act. Citing the cases of DIT (IT) & others vs. Schlumberger Asia Services Limited of Uttarakhand HC and DIT vs. Mitchell Drilling International (P) Ltd of Delhi HC, the counsel of the assessee submitted that the service tax paid by the assessee after duly collecting from the customers to the government would not form part of the aggregate income as per clauses (a) and (b) of sub section (2) of section 44BB of the Act. However, the department representative submitted that  the GST amount has been paid by the customers to the assessee for the services and facilities, pertaining to the assessee’s business and, therefore, the said  amount has direct nexus to the service rendered by the assessee. Get a Copy of Methods of Investigations of Books of Accounts and Other Documents, Click here The department counsel relied on clause (2)(b) of section 44BB of the Act, which says that the ‘amount received’ or ‘deemed to be received’ in India for computation of the profit of the assessee.

It contended that the amendment to section 145A of the Act was not there before the High Court while deciding the issue which is extensively relied upon by the Assessee’s Representative. The bench considered submissions from both sides and observed that the Revenue’s argument centres on Section 44BB of the Income Tax Act. According to the Revenue, Section 44BB, being a special provision with a non obstante clause, overrides the general charging section (Section 28) and subsequent computation provisions of the Act. This section specifically applies to the income computation of non-residents involved in providing services, facilities, or supplying plant and machinery for hire in connection with extracting or producing mineral oil. As such, the Revenue contended that Section 44BB serves as a self-contained code for determining the profits and gains for such undertakings. The bench clarified that CBDT Circular No. 1/2014, dated January 13, 2014, and Circular No. 4/2008 were issued to address the exclusion of the service tax component when computing the income of a resident assessee. These circulars exclude service tax while deducting TDS on rent payments, guiding the accurate computation of income.

In this case, the ITAT bench of Renu Jauhri (Accountant Member) and Kavitha Rajagopal (Judicial Member) stated that a similar principle applies to non-resident assessees under Section 44BB of the Act.  Get a Copy of Methods of Investigations of Books of Accounts and Other Documents, Click here This section, which pertains to taxation at a special rate of 10% on ‘amounts’ paid or payable to non-residents engaged in providing services or facilities for mineral oil exploration, focuses on the taxable income from business activities. The “amount” referred to in this context does not include GST/service tax collected and paid to the government, as per the CBDT’s explicit guidance.

The tribunal reinforced that Section 44BB is a special provision for computing profits and gains from exploration activities. Only receipts considered as income should be taxed, while GST/service tax, being collected on behalf of the government, must be excluded. This interpretation was supported by the High Court of Uttarakhand’s ruling in CIT vs. M/s. Vantage International Management Co., which adhered to the Full Bench decision in the case of Schlumberger Asia Services Ltd., a position that was upheld by the Supreme Court’s dismissal of the Special Leave Petition against it. Get a Copy of Methods of Investigations of Books of Accounts and Other Documents, Click here In the case of Schlumberger Asia Services Ltd, the key issue was whether the service tax collected by the assessee should be included in the total amount paid or payable for computing presumptive tax under Section 44BB(1) and (2) of the Income Tax Act. The ruling clarified that service tax reimbursement is not to be included in the aggregate amount when calculating profits and gains under Section 44BB. Thus, considering and following the precedents by the High Court decided to concur with the observation of the assessee and thus grounds of the appeal was allowed. To Read the full text of the Order