Whether service tax collected shall form part of receipts for calculating income u/s 44BBA in case of business operations of airlines by Non-resident – ITAT

Facts of the Case:

• M/s. Cathay Pacific airways Limited (hereinafter referred as “the Assessee”) is a non-resident (NR), engaged in the business of airlines service for passengers and cargo thereby reporting income on presumptive basis u/s 44BBA of the Income Tax Act “the Act”.
• Ld. Assessing Officer (AO) contends that the service tax which has been collected by the Assessee from its customers as a service provider, should also form part of the Turnover and accordingly income of the Assessee was reassessed by him.
• Aggrieved by AO’s order, Assessee went in appeal before the Ld. CIT(A), wherein it was contended that service tax collection should not be includible in the gross receipts for computing the ‘deemed taxable income’ since there was no profit element embedded in the service tax collection
• Assessee also contented that service tax is a statutory levy and the same was collected in a fiduciary capacity as collecting agent on behalf of Central Government (CG) and after collection, deposits the service tax into the treasury of CG.
• It was further contended by the Assessee that it is liable to pay tax on the income embedded in only those receipts which are at its disposal. However, in the present case, the service tax collected by it was not at the disposal of the Assessee but was a liability which has to be discharged by way of depositing the same to CG.
• Hence, by placing reliance on the decision of the Hon’ble High Court of Delhi in the case of Mitchell Drilling International Pvt. Ltd. (supra), Ld. CIT(A) that service tax so collected by the assessee would not fall within the meaning of turnover to be considered for deemed income under the presumptive tax u/s 44BBA of the Act.
• Aggrieved by the Ld. CIT(A)’s order, revenue appealed before ITAT wherein it was contented that section 44BBA starts with a non-obstante clause and thereby overrides the all-other provisions of the Act, denying the deduction for expenses otherwise available to the assessee. Thus, in the section, receipts mean receipt before allowing any expenditure incidental to earning such income.
• Further, AO relied upon the judgement of Hon’ble Supreme Court in the case of SEDCO Forex International Inc. Vs. CIT (2017) 87 taxmann.com 29 (SC) wherein Hon’ble Court held that “once we apply this special provision for computation of profits and gains, provisions for computation of such profits as contained in section 28 to 41 and section 43 and 43A of the Act stand excluded.”
• Hence, the question before ITAT for adjudication was whether the service tax component was includible in the gross receipts for computing the deemed taxable income u/s 44BBA of the Act or not.

Observation And Conclusion:

Hon’ble ITAT held that:

• The expression “amount paid or payable” is persuaded by the expression “on account of the carriage of passengers, live-stock material or goods from any place in India/outside India”. Therefore, 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 total income u/s 44BBA(1) of the Act.
• Further, the service tax so collected by the Assessee does not have any element of income, it is collected by the assessee from its customers for and on behalf of the CG on account of a statutory levy and, therefore, it does not form part of the receipts of the assessee on which income accrues or arises to it.
• Reliance was also placed on the decision of Hon’ble High Court of Delhi in the case of DCIT Vs. Mitchell Drilling International Pvt. Ltd. (supra), wherein Hon’ble High Court also held that 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 Assessee is only collecting the service tax for passing it on to the Government account.
• Further, the decision of Hon’ble Supreme Court in the case of SEDCO Forex International Inc. Vs. CIT (2017) 87 taxmann.com 29 (SC) which was relied by the department was distinguished on the facts as it deals with the issue of inclusion of mobilization fees arising out of the commercial terms, in the gross receipts whereas in the present case, the issue relates to inclusion of service tax component in the gross receipt which is a statutory levy.
• Hence, as a result appeal of revenue was dismissed and order was passed in the favour of the Assessee by allowing the exclusion of service tax from the gross receipt u/s 44BBA of the Act.

SW Point of View:

The provision of section 44BBA deals with computation of income of a NR who is engaged in operations of aircrafts. It provides for presumptive basis for computing income and provides that such income will be computed as percentage (%) of gross receipts from carriage of passengers etc. Since the provisions restricts inclusion of any other amount of receipts therefore service tax shall not be included. However, the inclusions of reimbursements amount, if any, may have some ambiguity and help of SEDCO decision of Supreme Court can come as handy to the aid of department, it needs to be seen.

Lakshay Prakash Jonwal, Direct Tax Associate, SW India