GST Not Part of Gross Receipts for Calculating Presumptive Income Under Section 44B: Mumbai ITAT - 2025-06-25

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GST Cannot Be Included in Gross Receipts for Presumptive Tax Under Section 44B, Rules Mumbai ITAT

Mumbai, June 25, 2025 – In a significant ruling upholding judicial consistency, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that Goods and Services Tax (GST) collected by a non-resident shipping company cannot be included in the gross receipts for calculating presumptive income under Section 44B of the Income Tax Act, 1961. The bench, comprising Judicial Member Shri Rahul Chaudhary and Accountant Member Shri Omkareshwar Chidara , deleted an addition of ₹4.49 crore made by the tax authorities against Orient Overseas Container Line Limited.

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Case Overview

The case, Orient Overseas Container Line Limited vs. DCIT (International Taxation) , pertained to the Assessment Year 2022-2023. The assessee, a Hong Kong-based company engaged in international shipping, had filed its return under the presumptive taxation scheme of Section 44B, which deems 7.5% of specified receipts as business profits for non-resident shipping companies. The company also availed benefits under the India-Hong Kong tax treaty.

The central dispute arose when the Assessing Officer (AO) included the GST amount of nearly ₹120 crore, collected by the company, into the total receipts for calculating the presumptive income. This led to an additional tax demand of ₹4.49 crore. The Dispute Resolution Panel (DRP) upheld the AO's order, noting that the Revenue department had challenged similar past rulings in the High Court.

Arguments from Both Sides

The Revenue's Position: The tax department argued that the GST collected was part of the total amount received and should be included in the "aggregate of the amounts" specified in Section 44B(2) for computing presumptive profit. The DRP justified its stance by stating that since previous ITAT decisions in favour of the assessee were under appeal by the department, the issue was not yet final.

The Assessee's Arguments: Represented by Shri Rajan Vora , the assessee contended that GST is a statutory levy collected on behalf of the government in a fiduciary capacity. It does not possess the character of income or revenue from the business of shipping. The assessee highlighted that the ITAT had consistently ruled in its favour on this very issue in eight previous assessment years, and the principle of judicial discipline demanded that the DRP and AO follow these binding precedents.

Tribunal's Analysis and Precedents

The ITAT heavily relied on its own coordinate bench's detailed order in the assessee's case for the Assessment Year 2020-21. In its judgment, the Tribunal systematically dismantled the department's arguments, establishing several key principles:

GST is a Statutory Levy, Not Revenue: The Tribunal reiterated that GST is a mandatory statutory levy and cannot be considered 'charges' for carriage as envisaged under Section 44B. Including it in the taxable base would amount to levying "tax on tax."

Inapplicability of Section 145A: The department's reliance on Section 145A (method of accounting) was dismissed. The ITAT clarified that Section 44B is a special provision with a non-obstante clause overriding sections 28 to 43A, and therefore, the general provisions of Section 145A do not apply to it.

Judicial Consistency: The bench observed that the DRP had erred by not following the binding precedents set by the Tribunal in the assessee's own case over multiple years, merely because the department had filed an appeal.

A pivotal excerpt from the relied-upon order states:

"GST being a mandatory ’statutory levy’ cannot be said to be in the nature of ’charges’ by the shipping Company towards the carriage. The incidence of GST is on account of taxability of services under the relevant parliamentary statute... not on account of the business activities... Otherwise, including GST in gross receipts for purpose of section 44B would be akin to charging income tax on GST i.e., tax on tax, which would promote cascading effect which cannot be the intent of legislation."

Final Decision and Other Directions

Based on this reasoning, the Tribunal allowed the assessee's primary ground of appeal and deleted the addition of ₹4,49,79,547.

The ITAT also provided relief on other grounds:

* MAT Provisions (Section 115JB): The Tribunal ruled that Minimum Alternate Tax (MAT) provisions under Section 115JB are not applicable to a foreign company whose entire income is from shipping business taxed under Section 44B, citing Explanation 4A to Section 115JB(1).

* TDS and Advance Tax Credit: The AO was directed to verify records and grant the correct credit for TDS and advance tax as claimed by the assessee.

* Interest and Penalty: The levy of interest was deemed consequential and directed for re-computation, while the ground challenging the initiation of penalty proceedings under Section 270A was dismissed as premature.

The final verdict allows the assessee's appeal, providing significant clarity on the tax treatment of indirect taxes under the presumptive taxation regime for shipping companies.