2015 (4) TMI 684 - HC - Income Tax

Disallowance of unpaid service tax under section 43B - Tribunal deleted addition - whether liability to pay service tax had not arisen without appreciating the fact that the assessee has shown the said amount as a liability in its Balance Sheet? - Held that - Section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assesee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise. In the facts and circumstances of the case, we are of the view that no substantial question of law arises. Accordingly, the Appeal has no merit and the same is dismissed. - Decided against revenue.

Issues:
1. Disallowance of unpaid service tax under section 43B of the Act.
2. Justification for deletion of disallowance by the Tribunal.
3. Accrual of liability for service tax under section 43B.
4. Interpretation of provisions regarding liability to pay service tax.

Issue 1: Disallowance of unpaid service tax under section 43B of the Act

The High Court of Bombay heard an appeal filed by the revenue challenging the deletion of disallowance of service tax under section 43B of the Income Tax Act. The Assessing Officer had disallowed service tax amounting to a specific sum under section 43B. The Commissioner of Income Tax (Appeals) partly allowed the appeal, deleting the disallowance for the amount already paid before the due date and the amount not payable as of a certain date. The Tribunal rejected the ground related to service tax disallowance while partly allowing the appeal for statistical purposes.

Issue 2: Justification for deletion of disallowance by the Tribunal

The Tribunal's decision to delete the disallowance of service tax under section 43B was based on the fact that a portion of the service tax had been paid before the due date, and the remaining amount was not payable as of the relevant date. The Tribunal held that since the amount on which service tax was payable had not been received from the parties to whom services were rendered, the provisions of section 43B were not applicable. The Commissioner of Income Tax (Appeals) also supported this view, leading to the deletion of the disallowance.

Issue 3: Accrual of liability for service tax under section 43B

The appellant contended that the liability to pay service tax had already accrued, emphasizing that the Tribunal should not have set aside the disallowance. The appellant argued that the unpaid balance of service tax should be disallowed under section 43B since it was unpaid as of a specific date. However, the respondent supported the Tribunal's decision, highlighting that the liability to pay service tax only arises upon actual receipt of funds in the assessee's account, as per the provisions of section 43B.

Issue 4: Interpretation of provisions regarding liability to pay service tax

The High Court analyzed previous decisions and provisions related to the liability to pay service tax. It was observed that section 43B does not require the liability to pay service tax before the actual receipt of funds by the assessee. The court clarified that the liability to pay service tax arises only upon the receipt of funds, not before. Therefore, in the present case, the court concluded that no substantial question of law arose, dismissing the appeal and stating that the liability to pay service tax only arises upon the actual receipt of funds.

In conclusion, the High Court of Bombay dismissed the appeal, emphasizing that the liability to pay service tax under section 43B arises only upon the actual receipt of funds in the assessee's account, not before. The court upheld the Tribunal's decision to delete the disallowance of service tax based on the specific circumstances of the case and the provisions of the Income Tax Act.

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