Income Tax Appellate Tribunal - Mumbai
China Shipping Container Lines ( Hong ... vs Ddit (It) Rg 1(2), Mumbai on 20 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri Jason P. Boaz, Accountant Member
and Shri Ram Lal Negi , Judicial Member
ITA No. 7653/Mum/2014
(Assessment Year: 2011-12)
M/s. China Shipping Container Dy. Director of Income Tax
Lines (Hong Kong) Co. Ltd. (Intl. Taxation) Range-1(2)
Dynasty Business Park Room No. 119, 1st Floor
Vs.
Unit Nos. 608-611, Andheri- Scindia House, Ballard Pier
Kurla Road, Andheri (E) Mumbai 400038
Mumbai 400059
PAN - AACCC5161B
Appellant Respondent
Appellant by: None
Respondent by: Shri Subchan Ram
Date of Hearing: 18.01.2017
Date of Pronouncement: 20.01.2017
ORDER
Per Jason P. Boaz, A.M.
This appeal by the assessee is directed against the order assessment for A.Y. 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act'), dated 20.10.2014 pursuant of the directions of the Dispute Resolution Panel-III, (DRP), Mumbai issued under section 144C(5) of the Act vide order dated 22.09.2014.
2.1 In this appeal, the assessee has raised the following grounds: -
"1. GROUND I : Inclusion of service tax for the purpose of presumptive income under Section 44B of the Income Tax Act, 1961 ('the Act') 1.1 On the facts and in the circumstances of the case and in law, the learned DDIT erred in including the amount of service tax collected of Rs 4,598,540, as part of gross receipts for determining the taxable income of the appellant. 1.2 The learned DDIT failed to appreciate the fact that service tax collected by the Appellant is not includible in computing the total income under Section 44B of the Act since service tax is a 2 ITA No. 7653/Mum/2014 M/s. China Shipping Container Lines statutory levy and the appellant only acts as agent on behalf of Government for collection and deposit of service tax into the treasury and therefore, the amount so collected should not form part of gross freight for computing the taxable income; 1.3 The learned DDIT failed to appreciate the fact that service tax is neither a collection on account of carriage of goods 'nor in nature of 'demurrage charges or handling charges or any other amount of similar nature 'to fall within the purview of section 44B of the IT Act;
1.4 The learned DDIT erred in not following the decision of the Hon'ble jurisdictional Income Tax Appellate Tribunal in the case of Islamic Republic of Iran Shipping Lines v DDIT (46 SOT 101); 1.5 The learned DD1T failed to appreciate that the amount of service tax collected by the Appellant and subsequently deposited with the government treasury does not entail any profit element, as such it should not form part of total income under Section 44B of the Act.
The Appellant humbly prays that the learned DDIT be directed not to include service tax collected and paid for the purpose of computing presumptive income under 44B of the Act. 2 GROUND 2: Initiation of penalty proceeding for the levy of penalty under Section 271(1)(c) 2.1 The learned DDIT erred in initiating penalty proceeding under section 271(1)(c) of the Act.
The Appellant humbly prays that the DDIT be directed to drop the penalty proceedings."
2.2 Hearings were fixed on a number of occasions, but neither did anyone appear on behalf of the assessee nor was any adjournment sought on its behalf. Even notices issued by RPAD did not elicit any response from the assessee. The learned D.R. for Revenue was, however, present and ready to argue the case. Even today when the case was called for hearing none was present for the assessee. In these circumstances, we are of the view that the assessee is not interested on pursuing this appeal and therefore proceed to dispose off the same with the assistance of the learned D.R. and the material on record.
3. Ground No. 1 (1.1 to 1.4) - Inclusion of service tax for the purpose of presumptive income under Section 44B of the Act. 3.1 At the outset of the hearing, the learned D.R. for Revenue submitted that the issue raised by the assessee in this ground, i.e. inclusion of 3 ITA No. 7653/Mum/2014 M/s. China Shipping Container Lines service tax in gross receipts for the purpose of determining presumptive income under section 44B of the Act is covered against the assessee and in favour of Revenue by the decision of the Coordinate Bench of the Tribunal in the assessee's own case for A.Y. 2007-08 in ITA No. 8561/Mum/2010 dated 23.08.2013. A copy of the cited order (supra) was placed on record. It is submitted by the learned D.R. that the AO has followed the aforesaid order of the Coordinate Bench while passing the impugned order. It is prayed that in view of the above, the assessee's appeal for this year be dismissed.
3.2.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record; including the judicial pronouncements cited by both the learned D.R. for Revenue (supra) and by the assessee in the grounds of appeal (supra). We find that, as contended by the learned D.R. for Revenue, the issue of inclusion of service tax in gross receipts for the purpose of determining presumptive income under section 44B of the Act has been affirmed in favour of Revenue and against the assessee by the decision of the Coordinate Bench in the assessee's own case for A.Y. 2007-08 in ITA No. 8516/Mum/2010 dated 23.08.2013; considering the issue and holding as under at paras 8 to 12 thereof: -
8. We have considered the rival submissions and carefully gone through the relevant material on record as well as the various decisions relied upon by either of the parties. With a view to simplify and rationalise the assessment and computation of profit and gain of shipping business in the case of non-resident the Finance Act 1975 has made special provision in section 44B of the Income Tax Act.
Under this provision, profits and gain of non-resident from the business of operation of ships will not be calculated in accordance with the provisions of section 28 to 43A of the Income Tax Act but the same will be taken as 7.5% of the aggregate of the amounts paid or payable to the assessee or to any persons on his behalf on account of carriage of passengers, livestock, mail or goods, shipped at any port in India as well the amount received or deemed to be received in India on account of carriage of passengers, livestock etc. at any port outside India. Thus, for the purpose ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd.) of determination of the income u/s 44B it is the gross amount which is aggregate of the amount paid or payable within or outside India on account of carriage or shipped at any port in India plus any amount received or deemed to received in India on account of carriage or shipped at any port outside India.
4 ITA No. 7653/Mum/2014M/s. China Shipping Container Lines There are two components of the amounts one which is paid or payable to the assessee in respect of the carriage or shipped at port in India and another the amount received or deemed to receive in India in respect of carriage or shipped at any port outside India. It is pertinent to note that section 44B over rides the provisions of section 28 to 43A, however, the other provisions of the Act are applicable apart from the provision of section 44B for computation of income of non-resident engaged in the business of shipping. It is pertinent to note that the salestax receipt by any assessee is treated as trading or business receipt though the sales tax is collected by the assessee on behalf of the Government as held by Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra) in para 9 as under:
"9. The fact that the appellant credited the amount received as sales-tax under the head "sales-tax collection account" would not, in our opinion, make any material difference. It is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt. We may in this context refer to the case of Punjab Distilling Industries Ltd. vs. CIT (1959) 35 ITR 519 (SC). In that case certain amounts received by the assessee were described as security deposits. This Court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessee's trading receipt. In dealing with the ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd.
contention that those amounts were entered in a separate ledger termed "empty bottles return security deposit account", this Court observed."
9. It is clear from the decision of Hon'ble Supreme Court that this issue of the amount received as Sales Tax is treated as trading receipt of the assessee is settled. A similar view has been taken by the Hon'ble Supreme Court in case of ACIT Vs T. Naggi Reddy (supra) as well as in case of Mcdowell & CO. Ltd. Vs CTO (supra). The assessee has heavily relied upon the decision of this Tribunal in case of Islamic Republic of Iran Shipping Lines Vs DCIT (supra) wherein this Tribunal has relied upon the decision of Hon'ble High Court in case of CIT Vs Sudarshan Chemicals Industries Ltd. (supra) and held that service tax is statutory liability and would not involved any element of profit and accordingly the same cannot be included in the total receipt for determining the presumptive income. On the other hand, the Ld. DR has relied upon the decision of this Tribunal in case of DDIT Vs Technip of Sources Contracting B.V (Supra) wherein the Tribunal has relied upon the decision of Hon'ble Uttarakhand High Court in case of Sedko Forex Inc. (supra) and held that service tax collected by the assessee in connection with the services specified u/s 44BB of the 5 ITA No. 7653/Mum/2014 M/s. China Shipping Container Lines Act will be included in the total receipt for the purpose of determining the presumptive profit u/s 44BB. There are other similar decisions of Hon'ble Uttarakhand High Court wherein it has been held that the handling charges received by the assessee will be included in the total receipt for the purpose of determination of presumptive profits u/s 44BB. Thus, it is clear that there are decisions of this Tribunal ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd.) taking divergent view. The decision in case of Sudarshan Chemicals Industries Ltd. is in respect of turnover for the purpose of section 80HHC. It is pertinent to note that section 80HHC of Income Tax Act itself has provided the definition of export turnover as well as total turnover and the Hon'ble High Court has held that the Excise Duty and sales tax cannot be taken into account into turnover as they do not have any element of profit. This view has been taken by the Hon'ble High Court by drawing analogy from the definition of turnover provided u/s 80HHC itself wherein as per the clause (b) of explanation of section 80HHC export turnover is define by excluding freight and insurance charges. Therefore, on the similar analogy the Hon'ble High Court has held that the Excise Duty and Sales Tax also have no element of profit similar to that of freight and insurance. However no such exclusion from the aggregate of amounts provided under sub-section 2 of section 44B has been permitted while computing the profits and gains of the shipping business in case of non-resident as per section 44B. We quote section 44B as under:
"Special provision for computing profits and gains of shipping business in the case of non-residents.
44B. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A in the case of an assessee, being a nonresident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub- section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
(i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd.)
(ii) (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.
(iii) Explanation- For the purposes of this sub-section, the amount referred to in clause (i) or clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature."6 ITA No. 7653/Mum/2014
M/s. China Shipping Container Lines
10. As we have already mentioned that the provisions of section 44B has been brought into statute to simplify the determination of taxable income of the non-resident who are in the business of shipping. The presumptive profits and gain of such business chargeable to tax under the provisions of section 44B are determined as a sum equal to 7.5% of the aggregate amounts paid or payable to the assessee on account of carriage of passengers etc. or goods shipped at any port in India as well as amount received or deemed to be received in India on account of carriage of passengers or goods shipped at any port outside India. There is no dispute that the service tax received/collected by the assessee is in respect of the services provided on account of carriage of passengers or goods shipped either any port in India or any port outside India. Therefore, the said amount of service tax is a part of the invoices/bills raised in respect of shipping business. The exclusion of the said amount only on the ground that it has no element of profit in our view is not consistent with the intention of the legislature when the amount received or deemed to be received by way of demurrage charges or handling charges or any other amount of similar nature has to be included to the aggregate amount as per sub-section 2 of section 44B. The legislature ITA No. 8516/M/2010 China Shipping Container Lines (Hong Kong Co. Ltd. has made it clear by inserting the explanation that the demurrage charges or handling charges or any other similar amount would be part of the aggregate amount for the purpose of determining the presumptive profits @ 7.5% of such amount. It is pertinent to note that if the element of profit is the only criteria for inclusion or exclusion of any amount then the demurrage charges or handling charges should not have been included in the aggregate amount for the purpose of determining the presumptive income because the demurrage charges and handling charges also not having any element of profit. Since the service tax Act has been came into force subsequent to the insertion of the explanation therefore, there was no reason/occasion for including the service tax along with the demurrage charges and handling charges in the explanation however when any other amount of similar nature is required to be included then the service tax as far as on the aspect of having no element of profit is similar in nature to that of demurrege charges or handling charges.
11. Further the term turnover is not relevant for estimation of profit and gain u/s 44B and therefore, when the demurrege charges and handling charges are specifically included in the aggregate amount as prescribed under sub-section 2 then whatever amount received or receivable/paid or payable to the assessee on account of carriage of passengers etc. or goods shipped would be part of such amount for computation of profit and gains u/s 44B. Thus, the theory of element of profit would not apply to the aggregate amount as specified in sub-
ITA No. 8516/M/2010 China Shipping Container Lines (Hong KongCo. Ltd. 13 section 2 of section 44B. Moreover service tax is incidental to the transactions of carriage of passengers etc. and goods shipped and the amount paid or payable to and received or receivable by the 7 ITA No. 7653/Mum/2014 M/s. China Shipping Container Lines assessee on account of service tax is very much part of the amount received on account of the business of shipping. According to the normal commercial practice, levy of tax on sale of goods or service is reflected in the bills either as merged in the price or being shown separately. Therefore, the amount received on account of service tax as part of the price of carriage/shipped service is very much a trading/business receipt and would be part of the aggregate amount for presumptive profit and gain to be determined u/s 44B.
12. In view of the above discussion we hold that the service tax collected by the assessee would form part and partial of the aggregate amount as specified under sub-section 2 of section 44B for the purpose of determining the profit and gain under this section. Accordingly, we upheld the orders of the authorities below qua this issue." 3.2.2 Following the aforesaid decision of the Coordinate Bench in the assessee's own case for A.Y. 2007-08 (supra), we hold that service tax collected by the assessee would form part and parcel of the aggregate amount as specified under sub section (2) of section 44B of the Act for the purpose of determining the income/profit and gain thereunder. We, therefore, uphold the impugned order and consequently dismiss ground No. 1 (1.1 to 1.4) raised by the assessee.
4. GROUND 2 - Initiation of penalty proceeding for the levy of penalty under Section 271(1)(c) of the Act 4.1 In this ground, the assessee has challenged the action of the Assessing Officer in initiating penalty proceedings under section 271(1)(c) of the Act. We find that since no penalty under section 271(1)(c) of the Act has been levied on the assessee for A.Y. 2011-12 in the impugned order, no cause of grievance arises to the assessee by mere initiation of these penalty proceedings. This ground, being premature, is not maintainable and is accordingly dismissed as infructuous.
5. In the result, the assessee's appeal for A.Y. 2011-12 is dismissed.
Order pronounced in the open court on 20th January, 2017.
Sd/- Sd/-
(Ram Lal Negi) (Jason P. Boaz)
Judicial Member Accountant Member
Mumbai, Dated: 20th January, 2017
8 ITA No. 7653/Mum/2014
M/s. China Shipping Container Lines
Copy to:
1. The Appellant
2. The Respondent
3. The DRP-III, Mumbai
4. The CIT concerned
5. The DR, "C" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.