9911796707
TMI Blog2025 (2) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... vide orders dated 01.03.2024 passed for A.Ys. 2011-12 and 2012-13. Since common facts and issues are involved for both the years under consideration, both the cases are taken up together. 2. The Assessee has taken the following grounds of appeal:- ITA No. 827/Ahd/2024 (A.Y. 2011-12) "1. Ld. CIT(A) has erred in confirming disallowance of Rs. 5,82,60,619/- under 'section 37' in respect of an 'expense' which has not at all been claimed in the Profit & Loss a/c. 2. Ld. CIT(A) has further erred in not appreciating that such disallowance under 'section 37' was in respect of an 'expense' incurred in order to generate commission income pursuant to 'contractual arrangement' with Max Life Insurance Co. whereby it was mutually agreed upon that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Insurance Auxiliary Services, the liability to pay the service tax is to be borne by the recipient of service (i.e. Max Life Insurance Company Ltd.) as per provision of Section 2(1)(d) of the Finance Act, 1994 under reverse charge mechanism. 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1994 as amended, liability to pay Service Tax rests upon service tax recipient in the case of Insurance Auxiliary Services. Therefore in this case, liability of Service Tax is upon Max Life Insurance Company Limited. Further as per provision of section 73A of the Finance Act 1994 any amount collected as Service is required to be deposited with Govt. exchequer. Further as per the agreement, the M/s. Max Life Insurance Company Limited will first pay the full amount to the statutory authorities and thereafter the Corporate Agent will pay its share of the service tax amount to M/s. Max Life Insurance Company Limited. However in this case, Service Tax so collected by M/ s. Max Life Insurance Company Limited was not deposited the with the Govt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion. 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. 2011-12 was correctly disallowed and added to the total income by the AQ. Accordingly, the disallowance made by the AO is sustained. Hence, the ground of appeal of the assessee is Dismissed. 8. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the assessee. Therefore, the rigour of Explanation to Section 37(1) of the Act cannot be extended to cover such expenditure. Thirdly, the Counsel for the assessee submitted that the purpose behind the sharing of service tax laibility was to facilitate the growth of insurance business of the assessee, which cannot be termed as either unlawful or illegal. Accordingly, in light of the above submissions, the Counsel for the assessee submitted that the Ld. CIT(A) has erred in facts and in law in upholding the order of the Assessing Officer in disallowing such expenditure in the hands of the assessee. 7. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. 8. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government as per law. However, though this may constitute an offence on part of Max Life, but so far as assessee is concerned, this should not have any impact on the expenditure amounting to Rs. 5,82,60,619/- claimed by the assessee under Section 37 of the Act since the same was arising purely out of a contractual arragement between two parties. Further, on perusal of the contract terms, it is apparent that such agreement was entered into purely with a view to generate commission income from Max Life and in absence of such contractual arrangement, such work of providing Insurance Auxiliary Services could not have been secured by the assessee, from Max Life. Therefore, in our considered view, the underlying amount paid by the assessee quali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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