Disallowance u/s 43B if Liability to pay service tax not existed
When assessee did not receive any amount from its clients, on which services tax was payable, then, the amount claimed by the assessee being unpaid service tax as its liability could not be disallowed under section 43B, as liability to pay service tax in respect of consideration would arise only upon the assessee receiving funds and not otherwise.
Assessee did not receive any amount from its clients in respect of providing detection and security services, on which service tax was payable. Therefore, the assessee claimed the amount being unpaid service tax as its liability. AO disallowed the same by virtue of section 43B on the ground that service tax could be allowed only when paid. Therefore, the amount was not liable for deduction. CIT(A) allowed the claim of the assessee on the ground that tax became payable only when it was collected from customer, which was confirmed by Tribunal.
It was Held that Section 43B does not contemplate liability to pay service tax before actual receipt of funds in account of the assessee. Since services were rendered, liability to pay service tax in respect of consideration would arise only upon the assessee receiving funds and not otherwise. The consideration had to be actually received and thereupon the liability would arise. Hence, the liability claimed by the assessee was rightly allowed by the Tribunal.
Decision: In assessee’s favour.
Referred: CIT v. Ovira Logistics (P.) Ltd. (2015) 377 ITR 129 (Bom.) : 2015 TaxPub(DT) 1942 (Bom-HC).
IN THE BOMBAY HIGH COURT
S.C. DHARAMADHIKARI & B.P. COLABAWALLA, JJ.
Pr. CIT v. Tops Security Ltd.
IT Appeal Nos. 733, 734, 879 of 2015 and 70 and 123 of 2016
10 September, 2018
Appellant by: Arvind Pinto
Respondent by: Atul K. Jasani
The Revenue’s appeals challenge the orders of the Income Tax Appellate Tribunal, Bench at Mumbai.
2. In all these appeals, the Revenue proposes a common question and terms it to be a substantial question of law. The common question reads as under :–
“Whether, in law and on the facts and in the circumstances of the case, the Hon’ble ITAT was justified in holding that the service tax though debited to the profit and loss account but not credited to the Central Government cannot be disallowed under section 43B of the Income Tax Act, 1961?”
3. The facts and circumstances in Income Tax Appeal No. 733 of 2015 are sufficient for the purposes of the final order that we propose to pass in these appeals.
4. This appeal is for the assessment year 2006-07.
5. The respondent/assessee before this Court filed a return of income for assessment year 2006-07 on 29-3-2007 declaring income of Rs. 6,48,57,187. The assessee claimed that it is engaged in the business of providing detection and security services to its clients. During the examination of the Balance Sheet, the assessing officer, inter alia, noted that the Company had claimed Rs. 5,12,22,734 being unpaid service tax as its liability. Additionally, a sum of Rs. 3,47,03,462 was also shown under the same head, but the respondent had disallowed a sum of Rs. 95,94,128. It is stated that the gross receipts include the service tax but whenever it is due and payable, namely, when the amount for the services is realised, it would be remitted. That is how the above sum was shown as liability in the Balance Sheet.
6. The assessing officer was of the view that by virtue of section 43B of the Income Tax Act, 1961, service tax can be allowed only when paid and therefore the amount is not liable as deduction. Further, certain details of the clients were also not provided. Hence, the same was added as income.
7. Being aggrieved by this order, the assessee preferred an appeal to the Commissioner (Appeals) and he held in favour of the assessee.
8. Then, the matter was carried in appeal to the Tribunal and the Tribunal, relying upon its finding in the earlier assessment years, came to the conclusion that though the service tax was included in the bill raised on the customers but it was not actually collected from them. The First Appellate Authority held that, tax becomes payable only when it is collected from the customer. It is in these circumstances that following its earlier view, the Tribunal agreed with the First Appellate Authority and dismissed the Revenue’s appeal.
9. When these appeals were argued before us, our attention was invited by Mr. Jasani to a Division Bench Judgment of this Court CIT v. Ovira Logistics (P.) Ltd. (2015) 377 ITR 129 (Bom.) : 2015 TaxPub(DT) 1942 (Bom-HC). Mr. Jasani submits that earlier this very controversy was dealt with and the Revenue’s appeal was dismissed.
10. 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.
11. No conclusion contravening the above has been brought to our notice by the Revenue.
12. In fact, Mr. Pinto was fair enough to bring to our notice this Judgment.
13. In the circumstances, each of these appeals raise no substantial question of law. They are dismissed accordingly. The issue being covered by a Division Bench and to which one of us (Shri S.C. Dharmadhikari, J.) was a party, the appeals are disposed of but without any order as to costs.