2018 (9) TMI 799 - HC - Income Tax

Addition u/s 43B - whether service tax though debited to the profit and loss account but not credited to the Central Government cannot be disallowed u/s 43B - Held that - When these appeals were argued before us, our attention was invited by Mr. Jasani to a Division Bench Judgment of this Court in Commissioner of Income Tax v. Ovira Logistics P. Ltd. 2015 (4) TMI 684 - BOMBAY HIGH COURT . Mr. Jasani submits that earlier this very controversy was dealt with and the Revenue's appeal was dismissed. With the assistance of both sides, we have perused this Judgment and we find that it dealt with an identical issue. This Court held that Section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise. Thus the consideration has to be actually received and thereupon the liability will arise. No conclusion contravening the above has been brought to our notice by the Revenue. In fact, Mr. Pinto was fair enough to bring to our notice this Judgment. No substantial question of law.

Summary

Issues:
Challenge to orders of the Income Tax Appellate Tribunal regarding disallowance of service tax under Section 43B of the Income Tax Act, 1961.

Analysis:
The Revenue's appeals contested the decisions of the Income Tax Appellate Tribunal, Mumbai Bench, related to the disallowance of service tax under Section 43B of the Income Tax Act, 1961. The common substantial question of law proposed by the Revenue in these appeals was whether the Tribunal was justified in holding that service tax, though debited to the profit and loss account but not credited to the Central Government, cannot be disallowed under Section 43B. The key issue revolved around the timing of recognizing the liability to pay service tax and whether it should be allowed as a deduction only upon actual receipt of funds by the assessee.

For the Assessment Year 2006-07, the respondent/assessee declared income and claimed to be engaged in providing detection and security services to clients. The Assessing Officer noted that the company had claimed unpaid service tax as a liability, which was not allowed as a deduction by the respondent. The Assessing Officer contended that under Section 43B, service tax could only be allowed when paid, and since the tax was not actually collected from customers, it was not liable as a deduction. Additionally, certain client details were not provided, leading to their inclusion as income.

Upon appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Tribunal, it was held that the liability to pay service tax arises only upon actual receipt of funds by the assessee, not just on raising the bill to customers. The Tribunal, consistent with its earlier findings, dismissed the Revenue's appeal, emphasizing that tax becomes payable only when collected from customers. This decision was supported by a Division Bench Judgment of the Court, which clarified that the liability to pay service tax arises upon actual receipt of funds by the assessee, aligning with Section 43B's provisions.

Given the precedent set by the Division Bench Judgment and the absence of any contradictory conclusion brought to light by the Revenue, the High Court concluded that the appeals raised no substantial question of law. The appeals were thus dismissed, with reference to the existing legal clarity provided by the Division Bench, and no costs were awarded in the matter.