The division bench of the Bombay High Court, in a recent decision held that the income earned from service tax billed on rendering of service is not subject to income tax since the same does not constitute “trading receipts” within the meaning of section 145A(a)(ii) of the Income Tax Act, 1961.
Earlier, the Income Tax Appellate Tribunal had held that the same is not “trading receipt” as per the said section.
The assessee, in the instant case is engaged in the business of real estate consultancy / agency and property management services, filed its return for the relevant assessment years. The Assessing Officer completed assessment by including the service tax billed by the assessee for rendering services to the service receivers. According the Assessing Officer, the same amounts to trading receipts as per the provisions of Section 145A(ii) of the Act. The Assessing officer also invoked Section 43B of the Income Tax Act on the ground that the billed amount of service tax had not been paid over to the Government till the due date of filing the return. Further, the officer treated the receivable service tax as a part of the consideration for the services rendered.
On appeal, the Commissioner of Income Tax (Appeals) confirmed the said order by holding that Section 145A(a)(ii) of the Act would apply in the instant case as it is not restricted only to manufacturing and trading companies. It was further held that the service tax stands on the same footing as excise duties, sales tax and other taxes, which are collected to be paid over to the Government and therefore, invoking section 43B of the Income Tax Act was also held as sustainable.
The Tribunal, on appeal, set aside the orders by observing that Section 145A(a)(ii) of the Act would have no application in respect of the service tax billed on rendering of services since it deals with goods, not services. The Tribunal also rejected the application of section 43B on ground that, in the instant case, no liability to pay the same to the Government arose before the last date of filing of the Returns and further, the assessee had not claimed deduction in respect of the said amount while filing returns. Being aggrieved by the said order, the Revenue preferred an appeal before the High Court.
Regarding the issue of applicability of section 145A, the Court observed that “it is very clear from the reading of Section 145A(a)(ii) of the Act that it only covers cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.In this case, the respondent-assessee is rendering services. Thus, on the plain reading of Section145A(a)(ii) of the Act, it is self evident that the same would not apply to the service tax billed on rendering of services. This is so as the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location”.
The division bench comprising of Justice M S Sanklecha and Justice A K Menon while confirming the orders of the Appellate Tribunal, the Court further held that section 43B is not applicable to the instant case since the assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income.
Read the full text of the Judgment below.
