ALLOWABILITY OF SERVICE TAX PAID

[S.C. WADHWA]

SERVICE TAX QUERY ( for allowability of service tax of previous years paid in current year by an individual, in his Income tax return or not.

An individual has given his property on rent from 01/07/06 @ Rs. Twenty lacs alongwith  5 % commission on sale per month inclusive of all taxes at present and in future, if any, as per agreement.

After levy of service tax w.e.f. 01/07/07, we raised bill on tenant for Rs. 2000000/- plus services tax leviable at that time. But he refused to give service tax by quoting the clause mentioned in the agreement i.e. Rent is inclusive of all taxes leviable at present as well as in future if any.

We paid service tax for the period from 01/07/07 to 31/03/08 and claimed the same in our Income tax return as under:

1. Rent inclusive of all taxes recd.                 2000000*9                  18000000

2. 5% commission on sale                                                                    2000000

                                                                                                           

3. Less; Property tax paid                                                                      100000

 4. Service Tax @ 12.36% Paid                                                            2189070

 5. Actual rental income shown in Income tax  return                                   17710930       

From 01/04/08, no service tax was paid in the light of first judgement on service tax received from Delhi high court and we filed our income tax return for the year 01/04/08 to 31/03/09 by taking income of Rs. 2000000X12 (rs. 24000000/-).Plus 5% commission on sale amounting to Rs.3000000/-. Total Rs.27000000/-.

Now our query is :

As per finance budget 2012-13, the govt. has made amendment in Section 80 of the Finance Act, that no penalty to be imposed if service tax payable upto 06/03/12 alongwith interest to be paid within six months from the date of assent from the president on the finance bill.

We paid service tax for the year 2008-09 amounting to Rs.27 lacs without interest amounting of Rs.15 lacs on 24/03/12 and now we want to get benefit in our I.T. return for the A.Y. 2012-13.  Will it be allowable to us? And if yes whether Rs.27 lacs or Rs. 27-15=Rs.12 lacs only.

 Please give your expert opinion on the matter by quoting any notification or judgement etc.

[Surender Gupta]

First of all I would like to say that despite the provision in Finance Act, 2012, that in case of renting of immovable property, if service tax is paid with interest no penalty would be leviable, I am of the opinion that one must study the provisions of section 73 of Service Tax (Chapter V of the Finance Act, 1944. wherein it is stated that in case there is no willful evasion, no demand would be raised beyond one year.

Since your case was related to FY 2008-09, you have  not paid ST in view of decision of honorable High Court, no allegation would succeed to prove malafide intention on your part.

In any case, since you have deposited Service Tax liability in March 2012, a deduction should be allowed under income tax under section 37(1) read with section 43B of the Income Tax Act, 1961, for both the amount i.e service tax as will as interest.

[S.C. WADHWA]

Dear Surinder Gupta,

We are filing I.T.Return of Individual rental income under the head " Income from house property". Hence interest paid on service tax will not qualify as an expence u/s 37(1).

Whether service tax being an indirect tax will be allowable u/s 43B is not known to us. Please clerify this.

S.C.WADHWA

[Surender Gupta]

Oh yes, I have mentioned  Section 43B considering the income is taxable under the head business or profession. Since in this case, you are falling under the head income from house property, you have no option to claim deduction u/s 43B.

However, by revising the return u/s 154 you may get the benefit. But in this regard, you need to discuss your Income Tax Advisor to know whether you are eligible to revise the return u/s 154 or not.

AI Summary

Deductibility of service tax: may be claimed if income treated as business, but not under house property head. If rental income is treated as business, service tax and interest paid may be allowable as deductions under expense and cash-basis principles; however, where income is returned under the head Income from House Property, the cash-basis deduction is not available and interest on service tax will generally not be an allowable expense. The adviser also notes statutory amendments affecting penalty and limitation on demands and recommends consulting a tax advisor about revising the return to claim any entitlement.