The High Court of Karnataka has ruled that income from the legal profession is not subject to service tax, setting aside a demand order issued against an advocate.
The petitioner, S. Muniramaiah, an advocate by profession, had challenged the order issued by the Assistant Commissioner of Central Tax, NWD-3, Bengaluru North West Commissionerate, raising a demand regarding taxable services other than those specified in the negative list under the Finance Act, 1994, for the financial years 2016-17 and 2017-18.
The petitioner, represented by Bhaskar Gowda N. M., contended that, as an advocate by profession, his income from legal services should not be subjected to service tax. He cited the court’s earlier ruling in W.P.No. 26096/2022, which held that income from the profession of advocacy cannot be the subject matter of service tax.
The respondents, represented by Aravind V. Chavan, did not dispute the legal position established in W.P.No. 26096/2022. However, they argued that the petitioner’s income and expenditure accounts for the relevant years indicated certain agricultural receipts. They asserted that these receipts necessitated consideration by the adjudicating authority.
The court extensively referred to its observations in W.P.No. 26096/2022, which clarified the non-taxability of legal services provided by individual advocates or firms of advocates.
The bench of Justice S. Sunil Dutt Yadav noted that legal services rendered by individual advocates or firms of advocates are exempt from service tax under Notification No. 25/2012-ST dated 20.06.2012. Even if an advocate or firm of advocates falls outside the exemption, the liability to pay service tax lies with the recipient of the service, as per Notification No. 30/2012-ST dated 20.06.2012. For Senior Advocates, the obligation to pay service tax is on the recipient of such services, not the advocates themselves.
The court set aside the impugned order and relegated the matter to the stage of hearing after show cause notice. The petitioner was granted the liberty to submit a fresh reply concerning receipts other than from the practice of advocacy. The court reiterated that income from the legal profession must be excluded in light of its earlier observations.
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