Payment of service tax allowed as deductible under section 37(1) as wholly incurred for the purposes of business
Commissioner of Income Tax-4, Mumbai v. Prime Broking Co. (I) Ltd.
Appeal No.: 847 of 2014
Assessment year: 2009-10
Order by: High Court of Mumbai
Order Date: 14-10-2016
Brief Facts of Case: -
The assessee engaged in business of broking in Government & other securities raised invoices on its clients charging service tax thereon. However, the clients of assessee did not pay service tax for onward payment to the Government so the same was paid by assessee out of own resources and claimed as deduction u/s 37(1). The A.O. disallowed the claim of assessee holding that obligation to pay service tax was on customer/ client and the same could not be shifted to the assessee.
Question before the judiciary: -
Whether the ITAT was justified in allowing the claim made by the assessee stating that the amount paid by it on account of service tax is allowable as business expense?
Observations of judiciary: -
- In terms of Section 68 of the Finance Act, 1994, the obligation to pay the service tax into the treasury is of the service provider i.e. the respondent-assessee. The failure of its client/ customer to pay service tax would not absolve the obligation of the assessee to pay the same to the Government exchequer.
- Non payment of such service tax into the treasury would result in demand and penalty proceedings under the Finance Act, 1994.
- Thus, the deduction of the service tax paid was a business expenditure incurred on account of commercial expediency and deductible u/s 37(1) of the Act.
Decision of the judiciary: -
Since, the obligation to pay service tax was on assessee being service provider, payment of service tax in question was wholly incurred for purposes of business and therefore, deductible under section 37(1).
