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TMI Blog2025 (2) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... had booked the same as an expenses, we observe that as per the provision of Section 2(1)(d) of the Service Tax Rules, 1994 such service tax liability was that of Max Life and not that of the assessee.
Therefore underlying amount of service tax which was agreed to be borne by the assessee does not partake the character of service tax liability, but is a "contractual arrangement" entered into between Max Life Insurance with a view to secure the business of Insurance Auxiliary Services from Max Life.
Such expenses should be allowed to the assessee u/s 37 - Assessee's appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, in the instant case, the liability of service tax was on Max Life. However, this service tax liability was not discharged by Max Life since the service tax so collected by Max Life was not deposited with the Government and had been kept by Max with itself, which is an offence in terms of Section 73A of the Finance Act, 1994. The Assessing Officer noted that 50% of such service tax liability amounting to Rs. 5,82,60,619/- was shared/borne by the assessee in terms of an agreement with Max Life and the same had been claimed as an expense under Section 37 of the Act. The Assessing Officer was of the view that Axis Bank booked this as an expense, which is neither a tax nor an expense incurred in relation to business or profession of the assessee within the meaning of Section 37 of the Act. The Assessing Officer was of the view that Explanation 1 to Section 37 clearly mandates that any expenditure incurred by the assessee for any purpose which was an offence or which was prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction shall be allowed in respect of such expenditure. The Assessing Officer was of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 994, therefore, collection of such Service Tax from providers of Service i.e. M/s Axis Bank Ltd. is without-authority of law. Further, as per explanation of Section 37 of the Income Tax Act. 1961 which deals with allow ability of business expenditure stipulate that: a) Any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. b) The expenditure should have been incurred wholly or exclusively for the purpose of the business or profession. Section 37 states that the expenses incurred have to be in accordance with the statutory obligation whereas in this ynslant case the assessee is not suppose to pay the service tax on behalf of the recipient and if it does, it's a contravention of Section 2(1)(d) of the Financial Act, 1994 and therefore, S.37 of the Act has to be triggered to disallow the said sum. 7.2 In view of the discussion as above I am of the considered view that the Service Tax Expenses amounting to Rs. 5,82,60,619/- for the F.Y. 2010-11 relevant to A.Y. 2011- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) in their respective orders. 8. We have heard the rival contentions and perused the material on record. 9. On going through the facts of the case, we observe that the assessee earned commission income from Max Life Insurance Company Ltd. (Max Life) during the year under consideration. As per "contractual agreement" between the assessee and Max Life, the assessee was to share 50% of the service tax payable by Max Life on such Insurance Auxiliary Services. Accordingly, Max Life paid "net commission" to the assessee after deducting assessee's 50% share in service tax agreed to be borne by the assessee in view of contractual arrangement between them. Such expenses with respect to 50% of service tax payable by Max Life borne by the assessee was disallowed by the Assessing Officer under Section 37 of the Act. In our considered view, the Ld. CIT(A) failed to appreciate certain vital aspects of the arrangement. Firstly, we observe that what was paid by the assessee was arising out of a "contractual agreement" with Max Life to share the service tax liability, which under law was to be borne by Max Life. It is nobody's case that under law, in respect of the aforesaid services, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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