Unpaid Service Tax is not disallowable U/s. 43B of Income Tax

Unpaid Service Tax is not disallowable U/s. 43B of Income Tax

♣ Section -43B of the Income tax states that Tax and duties which is not paid before the due date of filing of the Income tax return as per section -139(1) is disallowed under provisions of Section -43B which is reproduced below:

“43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]”

Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.”

♣ Service tax is not disallowable:

Service tax is not covered under the provisions of the section -43B of the Income tax 1961 and should not be disallowed because provisions of the section -43B is applicable to any item which is allowable as deduction and failure to make such payment is disallowed but service tax is not allowed as deduction under the provisions of the Income Tax . So, Provisions of section -43B is not applicable to unpaid Service tax .

Same is supported by various judgement of Various Honorable High court and Tribunals . Some of Judgments which are reproduced below:

 ♣ CIT vs. Noble And Hewitt (I) P. Ltd. [2008] 305 ITR 324 (Delhi)

“The Hon’ble Delhi High Court in the case has held that since the assessee did not debit the amount to the profit & loss account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee was following mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.”

 ♣  ACIT vs. Real Image Media Technologies (P) Ltd. (ITAT Chennai)

“The Tribunal in the abovesaid came to the conclusion that since the Service Tax was not payable by the assessee, the rigour of the provision of Section 43B could not be applied. The relevant observations of the Tribunal are extracted hereunder:

“The rigour of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failure to make payment, such deduction would not be allowed. The rigour of section 43B might be applicable to the case of sales- tax or excise duty but the same could not be said to be the position in case of service-tax:

The assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account, accordingly. Therefore, a service provider is merely acting as an agent of the Government, and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition under section 43B could not have been made, and the same had been correctly deleted by the Commissioner (Appeals).”

 ♣ Nafe Singh Gahlawat vs. ACIT

The Tribunal has taken a consistent view that the rigour of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failure to make payment, such deduction would not be allowed and the rigour of section 43B might be applicable to the case of sales-tax or excise duty but the same could not be said to be the position in case of service-tax.

 ♣ DCIT Vs. Ovira Logistics (P.) Ltd. (ITAT Mumbai)

Assessee has paid the amount of service tax of Rs. 41,97,663/- before the due date of filing of return, therefore, the ld. CIT(A) has rightly deleted the said disallowance. As regards other disallowance of service tax payable Rs. 48,10,998/- we find merit in the plea of the ld. counsel for the assessee that the issue is covered in favour of the assessee by the decision of the Tribunal in Pharma Search (supra) wherein the Tribunal after considering the decision of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1977] 110 ITR 385 (Cal.), Real Image Media Technologies (P.) Ltd.(supra) and other decisions held as under:-

“……….as far as Service Tax is concerned, as per the law prevailing during the previous year, the liability to pay the same arises only on receipt by the Assessee. Since the liability to pay service tax does not exist in the present case, the service tax cannot be said to be “payable” and therefore provisions of Sec.43-B of the Act could not also be invoked”.