By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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22 114 ITD 573 (Mad.)
ACIT v. Real Image Media Technologies (P.) Ltd.
A.Y. : 2002-03. Dated : 31-12-2007
S. 43B of Income-tax Act — Business disallowance — Certain
deductions to be made only on actual payment — A service provider acts as an
agent of the Government and is not entitled to claim deduction on account of
service tax. — For applicability of S. 43B, claim should be first preferred by
assessee, and the same should be disallowed for reason of failure to make
payment — in the instant case, assessee had not even preferred a claim towards
service tax — Whether on this account alone, addition u/s.43B could not have
been made, and CIT(A) had correctly deleted addition so made — Held, Yes.
Facts :
The assessee company was engaged in the business of running a
recording and dubbing studio, production of advertisement films, software
development, etc. During the assessment proceedings, the AO noticed that service
tax was not being routed through the Profit & Loss Account, and the assessee had
shown a liability towards service tax of Rs. 5,72,374 as on 31-3-2002 in its
balance sheet. The AO made additions to the assessee’s income contending that
the service tax had been collected, but had not been paid to the Government.
In its appeal before the CIT, the assessee made two-fold
submission, stating that for the applicability of S. 43B, claim should be
preferred by the assessee, and disallowance could be made only on account of
failure to make actual payment, and secondly with reference to Rule 6 of Service
Tax Rules, service tax is required to be paid only on the value of taxable
service received in a month or quarter and not on the gross amount charged or
billed. The CIT(A) having found force in the assessee’s submissions deleted the
addition.
On Revenue’s appeal before the Tribunal, it was held as under
:
1. S. 43B starts with the non-obstante clause and specifies
that the deduction ‘otherwise allowable’ under the Act shall not be allowed
unless it is actually paid. The rigour of S. 43B might be applicable to excise
or sales tax, but the same could not be applicable in the case of service tax
due to two reasons :
(i) The assessee merely acts as an agent of the
Government in collection of service tax, and is not entitled to claim
deduction on account of service tax.
(ii) S. 43B(c) uses the expression ‘any sum payable’. For
making any disallowance, it has to be established that such sum is payable.
A reading of Rule 6 of the Service Tax Rules states that the liability to
pay such service tax arises on receipt of payments towards the value of
taxable service. If there is no liability to make the payment to the
Government, because of non-receipt of payments from the receiver of
services, then it cannot be said that such service tax had become payable in
terms of S. 43B(a).
2. S. 145A includes sales tax, excise duty, etc. in the
turnover of purchases and sales of goods, but it does not apply to services
and hence service tax cannot be included in the turnover.
3. In the given case, the assessee had not preferred a
claim for the amount of service tax. Further, there was no liability on the
assessee to make payments to the credit of Central Government because of
non-receipt of payments from the receiver of services. Therefore, the rigour
of S. 43B is not attracted and the CIT(A) was right in deleting the additions
made on account of disallowance u/s.43B.
Case referred to :
(i) Srikaollu Subbarao & Co. v. Union of India,
(1988) 173 ITR 708 (AP)
Case distinguished :
(i) Chowranghee Sales Bureau Ltd. v. CIT, (1977) 110
ITR 385 (Cal.)
