This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.

Direct Tax Alert - Gross receipts doesn’t include Service Tax for purpose of presumptive taxation under section 44BBA of Income-tax Act, 1961

20 October 2022


As per section 44BBA of the Income-tax Act, 1961 (IT Act), a non-resident taxpayer engaged in the business of operation of aircraft shall be taxed at 5% of the amount received in India or deemed to be received in India by or on behalf of the taxpayer on account of carriage of a passenger, livestock, mail or goods from any place outside India. Under the presumptive taxation regime, no deduction of any expenditure is allowed. Considering that under the presumptive taxation regime certain percentage of the gross receipts is to be treated as income, a question may arise as to whether service tax (being collected along with revenue) should also be considered or not.

Recently, Kolkata Tax Tribunal1 had an occasion to examine this matter. We, at BDO in India, have summarised the ruling of the Kolkata Tax Tribunal and provided our comments on the impact of this decision.  


Taxpayer, a non-resident company, is engaged in the business of airline service for passengers and cargo. For the year under consideration, it has offered tax on a presumptive basis under section 44BBA of the IT Act. During assessment proceedings, the tax officer observed that the taxpayer has excluded service tax (collected by it) from the gross receipts. The Tax Officer opined that the same should also be included for computing the income and accordingly, added the same as part of gross receipts.  Aggrieved, the taxpayer filed an appeal before the First-Appellate Authority which granted the relief. Hence, the Tax Officer filed an appeal before Kolkata Tax Tribunal.


While upholding First Appellate Authority’s order and allowing the exclusion of service tax component from gross receipts for purpose of section 44BBA of the IT Act, Kolkata Tax Tribunal made the following observations:

  • The expression “amount paid or payable” in section 44BBA(2)(a) of the IT Act and the expression “amount received or deemed to be received” in section 44BBA(2)(b) of the IT Act is qualified by the words “on account of the carriage of passengers, livestock material or goods from any place in India/outside India”.  Therefore, only such amounts which are paid/payable for the service provided by the taxpayer can form part of the gross receipts for the purpose of computation of gross total income under section 44BBA(1) of the IT Act
  • Service tax collected by the taxpayer does not have any element of income, it is collected by the taxpayer from its customers for and on behalf of the Central Government on account of a statutory levy, and therefore it does not form part of the receipts of the taxpayer on which income accrues or arises. The taxpayer merely acts as a collection agent for and on behalf of the Central Government and after collection, deposits the service tax so collected into the treasury of the Central Government
  • Affirms reliance placed by First-Appellate Authority on Delhi High Court ruling in the case of Mitchell Drilling2 International Pvt. Ltd. wherein it was held that for the purpose of computing the presumptive income under section 44BB of the IT Act, service tax collected on services rendered is not to be included in the gross receipts. Further notes that provisions of section 44BB of the IT Act are pari materia to the provisions of section 44BBA of the IT Act
  • A similar stand was taken by the Central Board of Direct Taxes Circular No. 1/20143 wherein it was clarified that service tax is not to be included in the fees for professional services or technical services and no withholding tax is required to be made on the service tax component
  • Reliance placed by revenue authorities on the Supreme Court ruling in the case of SEDCO Forex International Inc.4 can be distinguished factually since the issue therein was the inclusion of mobilisation fees arising out of the commercial terms in the gross receipts, whereas the present case pertains to inclusion of service tax in the gross receipts


The receipts that should be considered as part of gross receipts for purpose of presumptive taxation have always been a contentious issue. Where the taxpayer collects certain amounts on behalf of another person, the tax officer tends to treat such collection as part of gross receipts and thereby tries to bring it within the ambit of presumptive taxation. Though there have been a couple of rulings5 with respect to the inclusion of service tax components in gross receipts, they were with not in respect to section 44BBA of the IT Act. However, the Kolkata Tax Tribunal ruling is a welcome ruling for a taxpayer engaged in airline services as it specifically pertains to section 44BBA of the IT Act. The ruling fortifies an important principle that taxes (or any other statutory dues) collected by the taxpayer in his capacity as a collection agent should not be treated as part of gross receipt/turnover for the purpose of presumptive tax.    


1 ACIT vs. M/s Cathay Pacific airways Ltd, ITA No. 2468/Kol/2018 (Kolkata Tax Tribunal)

2 DIT vs. Mitchell Drilling International Pvt. Ltd. [2016] 380 ITR 130 (Delhi High Court)

3 Circular No. 1/2014 dated 13 January 2014

4 SEDCO Forex International Inc. Vs. CIT [2017] 87 29 (Supreme Court)

5 DCIT (IT) Vs. Global Santafe Drilling Company [2021] 127 802 (Mumbai Tax Tribunal);
Eni India Ltd. Vs. JCIT (IT), Dehradun [2020] 116 974 (Delhi Tax Tribunal);