Service Tax on Rent can it be claimed in Profit & loss account?
can we claim service tax paid on rent ?
one of my client he is paying rent Rs. 10000000/- per year. he is paying service tax on the same @ 12.36% therefore total rent including service tax is Rs. 11236000/-.
But the assessee did not claimed service tax portion with rent in profit & Loss account.
Now the total accumulated amount of service tax is Rs. 3600000/-.
Can he transfer the whole of service tax in profit & loss account for the year ended 31.03.2014?
Service Tax input if availed can not be claimed as an expense. But if Input is not claimed or not not available than same has to be treated as expense.
In your case since the service tax portion on rent is not claimed as input, same should be treated as expense.
You can claim the entire service tax as expense.
But expense related to 2012-13 should be classified as prior period expenses, and only 2013-14 expenses should be claimed as expenses related to current financial year.
Please not that prior period expenses can not be deducted as per income tax laws in country.
I give two proportions in line with what pulkit has discussed.
a. The claim for input on service tax input is not only based on the accounting followed and disclosed by the assesee in Financial statements but also on facts. The service tax input can be availed only to extent of taxable services rendered from the floor space used.( say the floor space relating to utilities like rest room, adminstration area to be distinguished and service tax to be reversed to that exent).
b. As rightly said by Pulkit, Prior period expenses will be disallowed while computing Income taxes, however the error is on result of accounting error or ommission. Your case falls neither falls under error or ommission. Its mere change of fundamental accounting assumption resulting to treat the amount from a current asset to an expense, as a result of events which provide a positive indication of expense rather than a claim of amount from department.
I sincerely opione that, the assumption aspect which were considered in preparation of financial statements, will provide a accurate accounting treatment as to prior period expense or a item of expense resulting out of changed accounting assumption based on events.
CA. S Kamath