Top Stories GST cannot be included while computing Deemed Income u/s 44B: ITAT [Read Order] It was contended that if GST is added to amounts paid as taxes, then corresponding deductions for such GST must be allowed under Section 43B of the Income Tax Act By Manu Sharma – On November 20, 2024 9:28 am – 3 mins read The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) held that, Goods and Services Tax should not be added while computing Deemed Income under Section 44AB of the Income Tax Act, 1961. 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 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.

Raise Funds Smarter – Your Guide to SME IPO Success- Click here to enroll In India assessee has filed its return of income for the A.Y 2020-21 declaring total income of Rs. 46,07,99,198/- and offered its income from operation of ships to tax under the deemed provisions of Section 44B of the Act. The AO in his draft assessment order u/s.143(3) r.w.s. 144C(1) proposed that GST should be considered as part of the turnover for the purpose of computing the income u/s.44B and accordingly added 7.5% of GST of Rs. 96,51,49,085/- which worked out to Rs. 7,23,86,182 to the deemed income computed u/s.44B. The AO observed that in the case of the assessee, the partner has been treating the service tax also the part of the turnover for the purpose of u/s.44B of the Act.

The DRP upheld the action of the AO. The majority view of 2:1 held that GST should be considered as part of the amounts paid or payable / amount received or deemed to be received for computing deemed income u/s 44B of the Act in view of provision of Section 44A(ii), whereas minority decision of one of the member was in favour of the assessee. Raise Funds Smarter – Your Guide to SME IPO Success- Click here to enroll Pursuant to the direction of the DRP, AO has passed the final assessment order considering GST at 7.5% as deemed income u/s 44B of Rs.7,23,56,182/-.

The contention raised in the plea was that if GST is added to amounts paid as taxes, then corresponding deductions for such GST must be allowed under Section 43B of the Income Tax Act. It was noted that while Section 44B of the Act overrides Sections 28 to 43A, it does not explicitly override Section 43B. This issue had been addressed by the Uttarakhand High Court in DIT v. Schlumberger Asia Services Ltd. [2019], which held that taxpayers could claim the benefit of Section 43B(a) for tax deductions while computing income under Section 28, given the overriding nature of Section 43B. The argument further elaborated that invoking Section 43B under Section 44B would require assessees to maintain a memorandum account where GST due under Section 145A of the Income Tax Act is credited and adjusted. Raise Funds Smarter – Your Guide to SME IPO Success- Click here to enroll Any GST discharged before the tax return’s due date under Section 139 of the Income Tax Act would then be debited to this account.

However, it was asserted that such a memorandum account is neither mandated under the Act nor does it supersede Section 44B. The Tribunal Bench of Accountant Member Amarjit Singh and Judicial acknowledged merit in the counsel’s argument that if Section 145A applies for computing deemed income under Section 44B, adding GST to specified amounts, then GST paid must be deducted as per Section 43B of the Income Tax Act. It was also highlighted that if GST remains unpaid by the due date, it could be disallowed. Raise Funds Smarter – Your Guide to SME IPO Success- Click here to enroll However, this discussion was deemed academic as the Tribunal concluded that for Section 44B computations, only the specified amounts in Subsection 2 of Section 44B should be considered, excluding the applicability of Section 145A of the Income Tax Act. As a result, it was held that GST could not be included in income computations under Section 44B of the Income Tax Act. The Tribunal upheld the minority view of a DRP member that GST should not form part of deemed income under Section 44B, ruling in favour of the assessee. To Read the full text of the Order