Amount Reimbursed by ONGC on Account of Service Tax payable by assessee not added under Section 44BB: Uttarakhand HC [Read Judgment]

The Uttarakhand High Court in the case Director of Income Tax International Taxation v. M/s. Schlumberger Asia Services Ltd. held that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section(2) of Section 44BB of the Income Tax Act.

The assessee-respondent is a non-resident company rendering service to the ONGC in terms of Section 44BB of the Act in connection with exploration and production of mineral oils. An amount towards the freight and transportation charges actually incurred by the assessee was reimbursed by ONGC. This amount was later added by the Assessing officer (AO) to the total income of the assessee.

The issue in the present case is whether or not reimbursement of service tax, by the ONGC to the assessee forms a part of the aggregate amount specified in sub-section (2) of Section 44BB.

It was argued on behalf of the revenue that the phrase used in Section 44BB (2) is “on account of” which is of a wider connotation and includes service tax, reimbursement of service tax along with consideration.

The assessee contended that the service tax collected/received by the assessee from its customers is on account of provision of services to be deposited with the Government of India. Since reimbursement of service tax is not on account of services rendered but is on account of ‘provision of services and facilities’ and is a statutory duty imposed on the assessee, it does not fall within the meaning of “amount” under Section 44BB(1). Also, such an amount is of the nature of ‘pure reimbursement’ without having an income element.

The Bench comprising of Chief Justice Ramesh Ranganathan, Justice Sudhanshu Dhulia and Justice Alok Singh held that on a plain and literal reading of the provision, it is clear that reimbursement of service tax ought not to be included in the aggregate of the amounts specified in clauses (a) and (b) of Section 44BB (2), as it is not an amount received by the assessee on account of services provided by them in the prospecting, extraction or production of mineral oils.

The reference was hence decided in favour of the assessee and against the revenue.