Axis Bank Ltd. Vs ACIT (ITAT Ahmedabad)
ITAT Ahmedabad held that service tax liability payable paid by Axis Bank not partake the character of service tax liability but is a ‘contractual agreement’ entered into between Max Life Insurance with a view to secure the business of Insurance Auxiliary Services from Max Life. Thus, allowable as expenditure u/s. 37 of the Income Tax Act.
Facts- The assessee acts as a corporate agent for Max Life Insurance Company in respect of marketing it’s insurance policies. The assessee charges commission from Max Life in lieu of rendering such services.
During the course of assessment proceedings, AO observed that on investigation in the case of Max Life Insurance Company Ltd., it was found that Max Life had entered into a corporate agency agreement under which it had shared the service tax liability of Rs. 5,82,60,619/- with Axis Bank Ltd. i.e. the assessee. Normally, 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. However, this service tax liability was not discharged by Max Life. AO 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 u/s. 37 of the Act. Thus, AO was of the view that therefore, the same was not liable to be allowed in view of Explanation 1 to Section 37 of the Act. Accordingly, this amount was added as income of the assessee, while filing the assessment order.
