Service tax – no deduction claimed on account of service tax which is payable to the Government – Section 43B of the Act would have no application – Section 145A(a)(ii) deals with goods and not services- Section 43B rws 145A(a)(ii) of the Act.

CIT -2 vs. Knight Frank (India) Pvt. Ltd. [Income tax Appeal
no. 247 of 2014 with 255 of 2014, dt : 16/08/2016 (Bombay High Court)].

[Knight Frank (India) Pvt. Ltd..   vs. Asst. CIT ,. [ITA No. 2021/MUM/2011,
6286/MUM/2010, 123/MUM/2011, 178/ MUM/2012 ; 
Bench : A ; dated 10/07/2013 ; 
AYs : 2007- 2008 & 2008-2009. Mum. ITAT ]

The
assessee was engaged in the business of real estate consultancy / agency and
property management services. during the course of the assessment proceedings,
the assessing Officer sought to include the service tax billed by it for
rendering services to the service receivers as trading receipts on invocation
of section 145A(ii) of the act. Besides, the assessing Officer also sought to
invoke section 43B of the 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 of income. The assessing Officer also sought to recast the assessee
profit and loss account so as to reflect the receivable service tax as a part
of the consideration for the services rendered. The assessee contended that
section 145A(a)(ii) of the act would have no application to the present facts
as service tax is not mentioned therein. Further,  it was submitted that as the assessee has
claimed no deduction on account of service tax which is payable to the
Government, and therefore, section 43B of the act would have no application.
However, the same was not accepted by the Assessing Officer and he added the
service tax billed by the assessee to its service receivers as a part of its
turnover / consideration received for services rendered. Further,  section 43B of the act was invoked to add the
service tax billed, which has not been paid over to the Government.

In
appeal, the CIT(A) held that section 145A(a)(ii) of the act would apply as it
is not restricted only to manufacturing and trading companies. It was concluded
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. Similarly,
the order of the Assessing Officer with regard to section 43B of the act was
also upheld.

On
further appeal, the tribunal by the impugned order held that section 145A(a)(ii)
of the act would have no application in respect of the service tax billed on
rendering of services. This for the reason the section 145A(a)(ii) deals with
goods and not services. It also held that section 43B of the act would have no
application in the present facts as no liability to pay the same to the
Government arose before the last date of filing of the Returns. Besides, it
held that no deduction had been claimed on the aforesaid amounts while
determining its  income.  Accordingly, 
the  appeal  of 
the  assessee was allowed.

On
further appeal to the high Court, it was held 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 assessee has admittedly not paid or incurred any
liability for the purposes of bringing any goods to the place of its location.
In this case, the 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 explanation to section 145A(a) of the act does
not expand its scope. An explanation normally does not widen the scope of the
main section. It merely helps clarifying an ambiguity. (relied on : Zakiyr
Begam v/s. Shanaz Ali & Ors., 2010 (9) SCC 280). The main part of the
section specifically restricts its ambit only to valuation of purchase and sale
of goods and inventory. Rendering of service is not goods or inventory. The
Explanation in this case clarifies/explains that any tax, duty, cess or fee paid
or incurred will have to be taken into account for valuation of goods even if
such payment results in any benefit/right to the person making the payment. It
does not even remotely deal with the issue of service tax. Thus, it is clear
that the legislature never intended to restrict the applicability of section 145A
of the act only to goods and not extend it to Services. as observed by the apex
Court In State of Bihar vs. S. K. Roy
AIR 1966 (SC) 1995:“ It is well recognised principle in dealing with
construction that a subsequent legislation may be looked at in order to see
what is the proper interpretation to be put upon an earlier Act where the
earlier Act is obscure or capable of more then one interpretation.”

Therefore,
section 145A of the act would have no application in cases where service is
provided by the assessee. The assessee had not claimed any deduction on account
of the service tax payable in order to determine its taxable income. In the
above view, there can be no occasion to invoke section 43B of the act.
Accordingly, both the appeals were dismissed.