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90 lacs contract + 12.36% service tax: tax audit applicable?

yashsr (CA) (2285 Points)

17 October 2012

Hello,

A labour contractor raised a bill of Rs.90 lacs in October 2012. He charged service tax @ 12.36% and hence the total invoice value exceeded Rs.1 crore. This was the only bill raised in the Financial Year 12-13 i.e. Assessment Year 13-14.

Will he liable to Income Tax Audit?

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5 Replies

(Guest)

Service tax is a Government remittance. It is not a part of turnover.

The entry of booking to is as follows:

Bank A/c Dr 1,01,12,400

To Fee Received A/c 90,00,000

To Service Tax A/c 11,12,400

He willnot be liable for Tax audit as you can't add Service tax to turnover.

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(Guest)

Service tax is a Government remittance. It is not a part of turnover.

The entry of booking to is as follows:

Bank A/c Dr 1,01,12,400

To Fee Received A/c 90,00,000

To Service Tax A/c 11,12,400

He willnot be liable for Tax audit as you can't add Service tax to turnover.

CA Pooja Agarwal (Chartered Accountant) (3228 Points)
Replied 17 October 2012

Originally posted by : Sai Tharun Boppana
	Service tax is a Government remittance. It is not a part of turnover. The entry of booking to is as follows: Bank A/c Dr 1,01,12,400 To Fee Received A/c 90,00,000 To Service Tax A/c 11,12,400 He willnot be liable for Tax audit as you can't add Service tax to turnover.

agreed

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CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 17 October 2012

Considering that the words "Sales", "Turnover" and "Gross receipts" are commercial terms, they should be construed in accordance with the method of accounting regularly employed by the assessee. Section 145(1) provides that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" should be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The method of accounting followed by the assessee is also relevant for the determination of sales, turnover or gross receipts in the light of the above discussion.

Jairam J (CA, B.COM(Hons.)) (382 Points)
Replied 17 October 2012

U never know .

Here is Explanation why Tds on rent doesnt include service tax portion..

Service tax paid by the tenant doesn't partake the nature of income of the landlord."

By this the CBDT has indirectly fixed a relation between Income and TDS whether it has been fixed intentionally or unintentionally,but this clue/wording can be used for other tds provisions by the assessee in his defense while not deducting tds on reimbursement of taxes so we can draw a conclusion that if person is getting mere reimbursement of taxes than tds should not be deducted.
For calculating the amount of 120000 now service tax amount should be excluded ,suppose if a person pay rent of rs 108000 to payee and 12.5% service tax on rent i.e 13500.in this case though total amount paid is 121500 but tds is not deductible after clarification as rent amount is only 108000 and less than 120000 prescribed in the section 194-I

But this exclusion of service tax portion can't be availed in case of contracts , professional services and so on at least for the TDS deduction...

As Sai tharun Boppana says Service tax = Govt. remitance = not income = not included in turnover ..Which is right by the way

But tax authorities does not apply this logic for TDS portion of Labour contractors(since it includes service tax portion)..Then it would sound hypocritish..

This is just my opinion...

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