23 March 2009
Usually service tax is collected from clients and paid to government and the service provider shows these transcation balance in the balance sheet. If that be the situation, section 43B will not attract at all for service tax transactions since it is not debited in p&l a/c. Citation:- ACIT V Real Image Technologies P ltd 9 DTR 261(ITAT Chennai)
24 March 2009
It is to be noted that section 145A of the Income Tax Act provides that the valuation of purchase, sale of goods and inventory in respect of the income chargeable under this head should include the tax, duty, cess or fee paid or incurred by the assessee to bring the goods to the place of delivery as per condition as on the date of valuation to be included in the valuation. This, however, would not apply to a professional/ service provider as the income in this case is through consultancy, which does not include purchase and sale of goods. Therefore, service tax may be treated as part of income by crediting it to the profit and loss account and as expense by debiting it in your profit and loss account.
The service tax may be shown as a balance sheet item without routing it through the profit and loss account.
In any case, it is noteable that the provisions of section 43B would be applicable to the service tax as well. Section 43B provides that any tax, duty, cess or fee will be allowed in the year in which it is payable only if it is paid in the previous year or before the due date of filing the return of income for that year. If it is paid beyond the due date for filing the return, it will be allowed as a deduction only in the year of payment.
In other words and keeping in view the provisions of Section 145A of the Act, the service tax collected is your income on one hand and the amount payable is a liability created by booking the expense in the P&L Account.
Now, the expense may be disallowed u/s 43B while Income is there in the P&L A/c as it is.
24 March 2009
I agree with the view of Mr warrier. the wording of sec 43B read as follows: notwithstanding any thing contained in other provisions of this act a deduction otherwise allowable under this act in respect of....... here the issue of otherwise allowable arises only if it is an eligible expenditure to be claimed in p& l and is claimed as deduction. so the disallowance arises only if the service tax is debited in p& l and not in any other cases
24 March 2009
I agree with the view of Mr warrier. the wording of sec 43B read as follows: notwithstanding any thing contained in other provisions of this act a deduction otherwise allowable under this act in respect of....... here the issue of otherwise allowable arises only if it is an eligible expenditure to be claimed in p& l and is claimed as deduction. so the disallowance arises only if the service tax is debited in p& l and not in any other cases
24 March 2009
Even if the amount is not debited in the P&L, the amt. will be disallowed otherwise it will defeat the very nature of the section. People would go on and route such instances through balance sheet. Therefore, the amt. should be disallowed.
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