Tough to use tax rulings to your advantage

HC or tribunal verdicts aren't the final word in disputes, but you can use them to persuade the assessing officer

The Delhi high court’s recent ruling that buyers need not pay service tax in case of under-construction properties whose agreements include the cost of land must have been music to buyers’ ears. After all, saving 3.75 per cent to four per cent of property costs implies huge savings.

But, there is a catch. The income tax department proposes to challenge it in the Supreme Court. Till the Supreme Court settles the matter, builders will continue to charge service tax from buyers.

“The government is likely to appeal against this order in the Supreme Court. This means the jury is still out on the issue,” says Abhishek Jain, tax partner, EY India.

Since builders will not be able to go back to buyers if the Supreme Court rules that service tax has to be paid a few years later, they will continue to charge buyers and keep the kitty ready. Jain points to a similar case in which the Delhi high court ruled that tenants need not to pay service tax on renting of immovable property. The Supreme Court overturned the judgment.

There are a number of similar cases in which initial judgments have come in  favour of the consumer, to be overruled by higher courts or authorities. Another example is the recent decision by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), which held a taxpayer can’t be denied investment-related tax benefits if he does not get timely possession of a house in which the reinvestment was made due to the builder’s fault.

Such rulings can really help hapless buyers who lose tax benefits because the builder is delaying the project. But, when it comes to tribunals, the verdicts are binding only for a particular jurisdiction.

What can you do in such circumstances? First, before you use the judgment in your favour, check whether the tax department (direct or indirect) has filed an appeal in a higher court challenging the verdict. If it has, the next thing to look at is whether the higher court has admitted the appeal or dismissed it. If it has been admitted, you might as well pay the taxes to ensure there is no penal interest in the future. The latter, obviously, is in your favour.

The confusion comes when two different courts give different judgments. This means the dispute is still alive and only the Supreme Court will deliver the final resolution. Even in this case, pay the tax and later claim refund if the apex court’s verdict favours your situation. “Assessing officers can also take a view that because the verdict has been delivered by a high court in a particular state, it does not apply to others,” says Suresh Surana, founder, RSM Astute Consulting.



Things are different at the tribunal level, as they are bound by jurisdiction. If there’s a ruling in a particular jurisdiction, it applies subsequently to all cases in it. Taxpayers can, therefore, benefit from the Mumbai bench of the ITAT’s recent ruling,  where it held that tax relief cannot be denied to assessees if a builder delays flat delivery. “But, if the jurisdiction changes, the taxpayer can only use the verdict to persuade the assessing officer to consider his case in line with the ruling,” says Surana.

Tax experts say that before you use any of the judgments, do evaluate that the facts of your case are similar to the one that you have referred. In case of deviations, the authorities may look at your case differently.