No disallowance of service tax just because it is paid by service provider out of its own pocket

Facts:

a) Assessee was engaged in business of broking in Government and other securities. As clients of assessee did not pay service tax to it, assessee paid service tax out of its own resources and claimed deduction of same under section 37(1).

b) The Assessing Officer disallowed claim for deduction holding that obligation to pay service tax was on customer/client and same could not be shifted to assessee. The High Court held as under:

1) It is undisputed that the obligation under the Finance Act, 1994 to pay the service tax is on the 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.

2) Non-payment of such service tax into the treasury would normally result in demand and penalty proceedings under the Finance Act, 1994. Therefore, the payment is on account of expediency, exclusively and wholly incurred for the purposes of business, therefore, deductible under section 37(1). - [2016] 76 taxmann.com 211 (Bombay)