2016 (11) TMI 371 - HC - Income Tax

Payment on account of service tax - allowable as business expenses - Held that - It is undisputed that the obligation under the Finance Act, 1994 to pay the service tax is on the Respondent-Assessee being the service provider. This obligation has to be fulfilled by the service provider whether or not it receives the service tax from its clients/customers. Non payment of such service tax into the treasury would normally result in demand and penalty proceedings under the Finance Act, 1994. Therefore, as rightly found by the CIT (Appeals) and the Tribunal, the payment is on account of expediency, exclusively and wholly incurred for the purposes of business, therefore, deductible under Section 37(1) of the Act. As the above position, as held by the CIT (Appeals) and the Tribunal, is self evident from the provisions of law. TDS liability - Held that - ITAT was justified in upholding the order of the Ld CIT(A) and deleting the disallowance made by the A.O. as the assessee is required not to deduct TDS on Rent u/s.194I, on salary u/s.192 and watch and ward expenditure u/s.194C as the same is not paid in lieu of contractual agreement between a security agency and the assessee. No substantial question of law.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in allowing the claim made by the assessee regarding service tax as business expenses?
2. Whether the Income Tax Appellate Tribunal was justified in deleting the disallowance made by the Assessing Officer despite the failure of the assessee to deduct TDS on certain expenses?

Analysis:

Regarding Question (A):
The Respondent, engaged in broking services, paid service tax from its own resources when clients did not pay as required. The Assessing Officer disallowed the deduction, stating the obligation is on the customer. The Commissioner of Income Tax (Appeals) allowed the deduction, citing the service provider's obligation to pay service tax. The Tribunal upheld this view, emphasizing the Respondent's legal obligation to pay service tax, regardless of client payments. The payment was deemed a business expenditure incurred for commercial expediency and deductible under Section 37(1) of the Act. The Tribunal's decision was based on the service provider's responsibility to pay service tax, even if not received from clients, making it a deductible business expense.

Regarding Question (B):
The Tribunal's order was consistent with a previous case for the Assessment Year 2008-09, where an appeal to the High Court was dismissed. The High Court found no substantial question of law in that case, leading to the dismissal of the appeal. Similarly, in the current case, the Tribunal's decision on the disallowance made by the Assessing Officer did not give rise to any substantial question of law. Therefore, the High Court did not entertain this question, resulting in the dismissal of the appeal.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal with no order as to costs.