Case Law Details

Case Name : The DCIT Vs. M/s. Chadha Builders & Properties (ITAT Delhi)
Appeal Number : ITA. No. 445/Del./2015
Date of Judgement/Order : 13/10/2017
Related Assessment Year : 2010- 2011
Courts : All ITAT (4337) ITAT Delhi (959)

DCIT Vs. M/s. Chadha Builders & Properties (ITAT Delhi)

Service Tax is not an allowable deduction from Income from house property. But it is true that the assessee has paid Service Tax & it was not recovered from tenants and it has also filed the return of service tax. Service tax has been paid into Central Govt Account and it is a genuine expense incurred by the assessee. Assessee’s contention is correct that charging of income tax on Service -tax paid by the assessee will amount to double taxation. There is force in the submissions of the AR as it has paid the Service Tax as an assessee and it is an allowable deduction from Profits & gains rather that income from house property. Assessee’s contention is correct and AO is directed to allow the expenses of Service Tax & Cess amounting to Rs. 10,25,265/ -from Profits & gains of the business.

Assessee submitted before Ld. CIT(A) that A.O. has erred in making the dis allowance of Rs. 10,65,551 as service tax paid by assessee. The assessee submitted before Ld. CIT(A) that assessee has shown gross rent received during the year in credit side of the profit and loss account of Housing Division and payment of service tax, education cess and interest on service tax have been debited to P & L Account separately to depict the transactions under each head. In the computation of total income, the assessee has taken gross rent as gross annual value and claimed deduction of service tax under section 23 of the I.T. Act. There is a procedural mistake in computation of total income under the head “Income from house property” as net of rent i.e., gross rent minus service tax and education cess on it was to be taken as annual value because service tax was not realized by the assessee from the tenants. The assessee entered for lease agreements long back and there was no such clause for payment of service tax by the tenants. They were liable only to deduct income tax at source on the payment of rent as per provisions of Section 194-I of the I.T. Act. Service Tax and education cess in question are paid by the assessee from its income received and it had gone to Central Government Account. Service Tax has been levied by the Act of Parliament. The assessee has shown income from ‘profit and gains‘ also and it has paid the service tax and cess in the capacity of person (firm) i.e., Chadha Builders and Properties. Taxable service liable for service tax was rental income from immovable property and assessee filed return of taxable service in the 0/o. Central Excise Department, Muradabad. Thus, service tax and cess is liable to be adjusted either from house property or may be allowed deduction from income under the head’ profits and gains of business’ as it was paid by the assessee from the gross total income. It was, therefore, requested that proper direction may be issued accordingly. The assessee relied upon the decision of ITAT, Delhi Bench in the case of Remfry and Sagar Consultants Pvt. Ltd., (ITA. No. 5887 / Del. / 2011 dated 22.07.2012) in which it was held that interest paid for the delayed payment of service tax is compensatory in nature and not in the nature of penalty. Therefore, no dis allowance can be made. The Ld. CIT(A) considering the explanation of assessee, deleted the addition. His findings are reproduced as under:

“I have considered the above submissions of the AR of the assessee Service Tax is not an allowable deduction from Income from house property. But it is true that the assessee has paid Service Tax & it was not recovered from tenants and it has also filed the return of service tax. Service tax has been paid into Central Govt Account and it is a genuine expense incurred by the assessee. Assessee’s contention is correct that charging of income tax on Service -tax paid by the assessee will amount to double taxation. There is force in the submissions of the AR as it has paid the Service Tax as an assessee and it is an allowable deduction from Profits & gains rather that income from house property. Assessee’s contention is correct and AO is directed to allow the expenses of Service Tax & Cess amounting to Rs. 10,25,265/ -from Profits & gains of the business. He is further directed to verify the quantum of Service & Cess paid by the assessee.”

After considering the submissions of the Ld. D.R, we are of the view that no interference is called for in the matter. The Ld. CIT(A) found that service tax is not allowable deduction from income from house property. But it is fact that assessee has paid service tax as it was not recovered from the tenant and filed service tax return with the Central Government. Therefore, it is a genuine expense. The same is an allowable deduction from profits and gains. No infirmity have been pointed out in the order of the Ld. CIT(A). We, therefore, do not find any justification to interfere with the order of the Ld. CIT(A). Ground No. 2 of the department is dismissed.

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