Ultimate Fashion Maker Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that rent including service tax on rent paid for the purpose of business is allowable under section 30 of the Income Tax Act.
Facts- The assessee is a lessee of the premises in Okhla Industrial Area, wherein the assessee is carrying the business of manufacturing of readymade garments, the assessee had been tenant of the said premises right from 05.03.2011 and paying the rent and the same was being allowed as deduction. Further submitted that, the said ‘expense for the purpose of business of assessee’ is covered by section 30 of the Act.
The ld. Assessing Officer has disallowed the amount of service tax paid on the rent on the ground that the reply of the assessee found to be not satisfactory’. In appeal before the CIT (Appeals) the said addition has been sustained.
Conclusion- Even the levy on the renting of immovable property wherein the service tax has to be borne by the lessee but the same has to be collected by the landlord who is under obligation to perform the function of facilities or wherein he collect the tax and deposits the same with the Revenue authorities. Thus, the liability of service tax on the rent is always passed on the recipient of the service.
Held that the reasoning given by the Revenue authorities in the present case are grossly erroneous. The allow-ability of rent paid for the purpose of business of assessee is covered under section 30 of the act. As regards service tax of rent, the same takes the character of the rent itself, as a result, the same should be allowed under section 30 of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order, dated 31.10.2018 of the ld. Commissioner of Income Tax (Appeals)-9 [(hereinafter referred to CIT (Appeals)] New Delhi, for assessment year 2014-15.
The assessee has raised the following grounds of appeal :-
“1. Under the facts and circumstances of the case, the ld. First Appellate Authority has grossly erred in affirming the action of Id. Assessing Officer disallowing expenditure on account of accumulated service tax on rent amounting to Rs.26,53, 750/- paid by the assessee which is grossly injudicious, unwarranted, against the facts of the case and untenable at law.
Tax Effect relating to above mentioned ground of appeal is Rs. 8,61,009/-
2. Under the facts and circumstances of the case, the ld. First Appellate Authority has grossly erred in affirming the action of ld. Assessing Officer disallowing rent paid amounting to 6,64,000 which is grossly injudicious, unwarranted, against the facts of the case and untenable at law.
Tax Effect relating to above mentioned ground of appeal is Rs.2, 15,435/-
3. The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal.
Total Tax Effect relating to all the above mentioned grounds of appeal is Rs.10,76,444/-.”
3. The assessee filed return of income declaring total income of Rs. 1,06,38,650.-. The case was selected for scrutiny and the notice under section 143(2) of the Income Tax Act, 1961 (the Act) was issued. The assessment order came to be passed under section 143(3) of the Act by making the following additions:-
