Bombay High Court: While disposing of an appeal under Section 260-A of the Income Tax Act, 1961 the Division Bench of M.S. Sanklecha, A.K. Menon, JJ. held that the provisions of Section 145-A of the Act are applicable to manufacturing and trading companies and not to a service provider company. For the assessment of a real estate consultancy, the Assessing Officer included the service tax billed by it for rendering services as trading receipts on invocation of Section 145-A(ii) of the Act (prescribes ‘method of accounting in certain cases’). Besides, the Assessing Officer also invoked Section 43-B of the Act (allows ‘certain deductions only on actual payment’) stating that the service tax billed had not been paid over to the Government till the due date of filing the return. Later, the Commissioner of Income Tax (Appeals) also upheld the Assessing Officer’s order. On further appeal, the Tribunal however held that Section 145-A(a)(ii) of the Act would have no application in respect of the service tax billed on rendering of services.
The High Court noted that Section 145-A(a)(ii) of the Act only covers cases where the amount of tax, duty, cess or fee is actually paid by the assessee to bring the goods to the place of its location and condition as on the date of valuation. In the instant case, the assessee was rendering services and had not incurred any liability for bringing any goods to the place of its location. Since, the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location, Section 145-A(a)(ii) of the Act would not apply to the service tax billed on rendering of services. The Court also observed that since the assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income, there could be no occasion to invoke Section 43-B of the Act. Therefore, the appeal was found to involve no substantial questions of law, and was accordingly dismissed. [Commissioner of Income Tax v. Knight Frank (India) Pvt. Ltd., Income Tax Appeal No. 247 of 2014, decided on August 16, 2016]