The officer has added the service tax we collected from ONGC to our s.44BB gross receipts. Is that right?
No. Service tax collected by the assessee and passed on to the Government is not to be included in the gross receipts under s.44BB(2) read with s.44BB(1). It is not an amount paid or payable, or received or deemed to be received, for the services rendered — the assessee is only a collecting agency.
Decided by the High Court (Dr. S. Muralidhar J and Vibhu Bakhru J) on 2015-09-28, reported as ITA Nos. 403/2013 and 384/2015 (High Court of Delhi). It bears on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 194-I, section 194J of the Income Tax Act 1961, in Presumptive Taxation & Audit and How Tax Law Is Read matters.
At a ten per cent deemed margin, every rupee of indirect tax swept into the gross receipts is taxed as if it were margin, so this point is worth roughly ten per cent of the tax collected multiplied by the rate. The reasoning is that the words in s.44BB(2)(a) and (b) — amount paid or payable, and amount received or deemed to be received — are qualified by the words on account of the provision of services and facilities, so only amounts paid for the services can enter the computation. That reasoning is about the character of an indirect tax collected for the Government and is not confined to the Finance Act 1994 levy; but this judgment is about service tax, it was decided in 2015, and no court has been shown to me deciding the same point for GST, so a GST argument has to be run on the reasoning rather than on the holding. The Revenue's counter-authorities — Chowringhee Sales Bureau and George Oakes — were held to have been decided in their own specific contexts.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee is a company engaged in the business of providing equipment on hire and manpower for exploration and production of mineral oil and natural gas. For AY 2008-09 it filed a return on 4 October 2008 declaring income of Rs 49,31,260 under s.44BB(3). In computing gross receipts it excluded Rs 2,09,24,553 being service tax received from its customers. By order dated 7 February 2011 the Assessing Officer rejected that and included the service tax in the gross receipts for the s.44BB computation. The CIT(A) allowed the assessee's appeal on 21 October 2011 and the Tribunal dismissed the Revenue's appeal by order dated 31 August 2012 in Appeal No. 698/DEL/2012. On 28 May 2014 the High Court admitted the Revenue's appeal on the question whether the amount of service tax collected by the assessee from its clients should have been included in gross receipts while computing its income under s.44BB.
The question was answered in the negative, in favour of the assessee and against the Revenue, and the appeals were dismissed. For the purposes of computing the presumptive income under s.44BB, the service tax collected by the assessee on the amount paid to it for rendering services is not to be included in the gross receipts in terms of s.44BB(2) read with s.44BB(1) (paragraphs 17, 19 and 20).
Section 44BB opens with a non obstante clause and creates a presumptive income; its purpose is to tax what can legitimately be considered the assessee's income from its business (para 9). The expressions amount paid or payable in s.44BB(2)(a) and amount received or deemed to be received in s.44BB(2)(b) are each qualified by the words on account of the provision of services and facilities in connection with, or supply of plant and machinery, so only amounts paid or payable for the services provided can form part of gross receipts (para 10). The Revenue's reliance on Chowringhee Sales Bureau was misplaced because there the sales tax had been collected and not deposited with the treasury, the assessee having disputed the validity of the levy (para 12); George Oakes concerned the constitutional validity of a statute defining turnover to include sales tax (para 13). Both decisions were rendered in their specific contexts (para 14). The Supreme Court's later decision in CIT v Lakshmi Machine Works, which held excise duty and sales tax not includible in total turnover for s.80HHC and approved the Bombay High Court in Sudarshan Chemical Industries, was held sufficient to answer the question: the service tax collected has no element of income (paras 14 and 15). The Court also concurred with the Uttarakhand High Court in DIT v Schlumberger Asia Services Ltd, which had held reimbursement of customs duty on imported equipment outside s.44BB gross receipts (para 16), and noted that the Board itself had made the position explicit in Circulars No. 4/2008 and No. 1/2014 for s.194-I and s.194J (para 18).
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.
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Handle my notice → Ask a CA on WhatsAppNo. Service tax collected by the assessee and passed on to the Government is not to be included in the gross receipts under s.44BB(2) read with s.44BB(1). It is not an amount paid or payable, or received or deemed to be received, for the services rendered — the assessee is only a collecting agency. This was decided by the High Court (Dr. S. Muralidhar J and Vibhu Bakhru J) and bears on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 194-I, section 194J of the Income Tax Act 1961. It is reported as ITA Nos. 403/2013 and 384/2015 (High Court of Delhi). At a ten per cent deemed margin, every rupee of indirect tax swept into the gross receipts is taxed as if it were margin, so this point is worth roughly ten per cent of the tax collected multiplied by the rate. The reasoning is that the words in s.44BB(2)(a) and (b) — amount paid or payable, and amount received or deemed to be received — are qualified by the words on account of the provision of services and facilities, so only amounts paid for the services can enter the computation. That reasoning is about the character of an indirect tax collected for the Government and is not confined to the Finance Act 1994 levy; but this judgment is about service tax, it was decided in 2015, and no court has been shown to me deciding the same point for GST, so a GST argument has to be run on the reasoning rather than on the holding. The Revenue's counter-authorities — Chowringhee Sales Bureau and George Oakes — were held to have been decided in their own specific contexts. If it applies to you, the first step is this: Take the service tax or GST component out of the s.44BB(2) aggregate in the computation itself, and show the reconciliation between the contract value, the tax charged and the amount offered.
The assessee is a company engaged in the business of providing equipment on hire and manpower for exploration and production of mineral oil and natural gas. For AY 2008-09 it filed a return on 4 October 2008 declaring income of Rs 49,31,260 under s.44BB(3). In computing gross receipts it excluded Rs 2,09,24,553 being service tax received from its customers. By order dated 7 February 2011 the Assessing Officer rejected that and included the service tax in the gross receipts for the s.44BB computation. The CIT(A) allowed the assessee's appeal on 21 October 2011 and the Tribunal dismissed the Revenue's appeal by order dated 31 August 2012 in Appeal No. 698/DEL/2012. On 28 May 2014 the High Court admitted the Revenue's appeal on the question whether the amount of service tax collected by the assessee from its clients should have been included in gross receipts while computing its income under s.44BB. The matter was decided on 2015-09-28 by the High Court (Dr. S. Muralidhar J and Vibhu Bakhru J). On those facts the High Court held as follows. The question was answered in the negative, in favour of the assessee and against the Revenue, and the appeals were dismissed. For the purposes of computing the presumptive income under s.44BB, the service tax collected by the assessee on the amount paid to it for rendering services is not to be included in the gross receipts in terms of s.44BB(2) read with s.44BB(1) (paragraphs 17, 19 and 20).
Section 44BB opens with a non obstante clause and creates a presumptive income; its purpose is to tax what can legitimately be considered the assessee's income from its business (para 9). The expressions amount paid or payable in s.44BB(2)(a) and amount received or deemed to be received in s.44BB(2)(b) are each qualified by the words on account of the provision of services and facilities in connection with, or supply of plant and machinery, so only amounts paid or payable for the services provided can form part of gross receipts (para 10). The Revenue's reliance on Chowringhee Sales Bureau was misplaced because there the sales tax had been collected and not deposited with the treasury, the assessee having disputed the validity of the levy (para 12); George Oakes concerned the constitutional validity of a statute defining turnover to include sales tax (para 13). Both decisions were rendered in their specific contexts (para 14). The Supreme Court's later decision in CIT v Lakshmi Machine Works, which held excise duty and sales tax not includible in total turnover for s.80HHC and approved the Bombay High Court in Sudarshan Chemical Industries, was held sufficient to answer the question: the service tax collected has no element of income (paras 14 and 15). The Court also concurred with the Uttarakhand High Court in DIT v Schlumberger Asia Services Ltd, which had held reimbursement of customs duty on imported equipment outside s.44BB gross receipts (para 16), and noted that the Board itself had made the position explicit in Circulars No. 4/2008 and No. 1/2014 for s.194-I and s.194J (para 18). In the words reproduced by the source cited on this page: "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 decision followed or applied CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) — applied; CIT v. Sudarshan Chemical Industries Ltd. 245 ITR 769 (Bom) — approved in Lakshmi Machine Works and relied on; DIT v. Schlumberger Asia Services Ltd. (2009) 317 ITR 156 (Uttarakhand) — concurred with; Chowringhee Sales Bureau Pvt. Ltd. v. CIT [1973] 87 ITR 542 and George Oakes (P.) Ltd. v. State of Madras [1962] 2 SCR 570 — distinguished as context-specific.
It was decided by the High Court on 2015-09-28 and is reported as ITA Nos. 403/2013 and 384/2015 (High Court of Delhi). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 194-I, section 194J, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The question was answered in the negative, in favour of the assessee and against the Revenue, and the appeals were dismissed. For the purposes of computing the presumptive income under s.44BB, the service tax collected by the assessee on the amount paid to it for rendering services is not to be included in the gross receipts in terms of s.44BB(2) read with s.44BB(1) (paragraphs 17, 19 and 20). It arises in Presumptive Taxation & Audit and How Tax Law Is Read matters, on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 194-I, section 194J of the Income Tax Act 1961, and was decided by Dr. S. Muralidhar J and Vibhu Bakhru J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the tax collected was actually deposited with the Government — Chowringhee Sales Bureau was distinguished precisely because the sales tax there was collected and not deposited. Rely on CBDT Circular No. 4/2008 dated 28 April 2008 and Circular No. 1/2014 dated 13 January 2014, which the Court used: the Board itself accepts that service tax is not income of the recipient and is excluded from the s.194-I and s.194J bases. If the Assessing Officer relies on the width of the words on account of, meet it with paragraph 10: the expression is qualified by the provision of services and facilities. For a GST year, run the same reasoning expressly and flag that you are extending it, rather than presenting this case as direct authority on GST.
Still good law. The Full Bench of the Uttarakhand High Court in DIT v. M/s Schlumberger Asia Services Ltd. (12 April 2019), which was read in full for this entry, recorded at paragraph 61 that no appeal had been preferred by the Revenue to the Supreme Court against this judgment, and at paragraph 62 declined to differ from it. Beyond that Full Bench, later treatment has not been checked. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The full judgment was transcribed from the plain /doc/ URL and runs to twenty numbered paragraphs, ending with the disposal; the numbering is continuous. The transcription preserves the report's own typographical slips (for example 'the amount paid t it' in paragraph 17 and 'Section 44 B (2) (b)' for s.44BB(2)(b) in paragraph 6), which is one indication that the text was not rewritten. Paragraph 7 records the assessee's counsel citing CBDT 'Circular No. 1/2004, dated 13th January 2014'; paragraph 18 gives the same circular as No. 1/2014 dated 13 January 2014, which is the correct reference and is what has been used here. The cause title carries two appeals — ITA 403/2013 in the name of the Director of Income Tax and ITA 384/2015 in the name of the Principal Commissioner. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered in the negative, in favour of the assessee and against the Revenue, and the appeals were dismissed. For the purposes of computing the presumptive income under s.44BB, the service tax collected by the assessee on the amount paid to it for rendering services is not to be included in the gross receipts in terms of s.44BB(2) read with s.44BB(1) (paragraphs 17, 19 and 20).
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