Professional Documents
Culture Documents
Immovable property is an immovable object, an item of property that cannot be moved without
destroying or altering it - property that is fixed to the earth, such as land or a house. In the United
States it is also commercially and legally known as real estate and in Britain as property. It is
known by other terms in other countries of the world.
Immovable property includes premises, property rights (for example, inheritable building right),
houses, land and associated goods, and chattels if they are located on, or below, or have a fixed
address. It is delimited by geographic coordinates or by reference to local landmarks, depending
on the jurisdiction.
In much of the world's civil law systems (based as they are on Romano-Germanic law, which is
also known as Civil law or Continental law), immovable property is the equivalent of "real
property"; it is land or any permanent feature or structure above or below the surface.
To describe it in more detail, immovable property includes land, buildings, hereditary
allowances, rights to way, lights, ferries, fisheries or any other benefit which arises out of land,
and things attached to the earth or permanently fastened to anything which is attached to the
earth. It does not include standing timber, growing crops, nor grass. It includes the right to
collect rent, life interest in the income of the immovable property, a right of way, a fishery, or a
lease of land.
Other sources describe immovable property as "any land or any building or part of a building,
and includes, where any land or any building or part of a building is to be transferred together
with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture,
fittings and other things also. Any rights in or with respect to any land or any building or part of
building (whether or not including any machinery, plant, furniture, fittings or other things
therein) which has been constructed or which is to be constructed, accruing or arising from any
transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative
17, 2012), shall be a 'service' and hence subject to service tax. The Government is expected to come out
with ten such exemption notifications including the one cited above. A gist of the proposed exemptions
has been provided in D. O. F. No 334/1/2012-TRU dated March 16, 2012 issued by Department of
Revenue, Ministry of Finance.
The exclusion granted to renting of immovable property to educational institutes imparting skill or
knowledge or lessons on any subject or field (other than commercial training or coaching centre) under
Section 65(90a) of the Finance Act, 1994, does not find mention, either under the 'Negative List' or under
the proposed exemption notifications referred to above.
In fact, what is interesting is that the Government, likely having learned from its previous harrowing
experience in defending the taxability of 'renting of immovable property', has included such services
within the definition of 'declared services' under Section 66E of the FA2012. 'Declared services' are
specifically included within the new all encompassing definition of 'service', to nip in the bud, any
controversies with respect to the taxability of such services.
The only breather likely to be available is the threshold level exemption upto Rs. 10 lacs (which is
anyway available vis--vis most services) and, possibly, deduction of property tax from the gross amount
charged for renting of immovably property.
Consequently, from the effective date of notification of the relevant provisions of the FA2012 relating to
service tax, all not-for-profit organizations such as a trust, society or a section 25 company, running
educational institutions will
have to cough up their share of service tax on leases/licenses/permissions obtained by them from real
estate entities (which are sometimes related parties and/or affiliates) for using immovable property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice
should be sought about your specific circumstances.
INTRODUCTION
Renting of Immovable property has been taxed under the earlier tax regime vide Section 65
(105) (zzzz). Renting of immovable property has been brought into tax net vide Notification No.
23/2007-ST dated 01.06.2007. But After 1.7.2012, the transition involves shift from taxation of
119 service-specific descriptions to a new regime whereby all services will be taxed unless they
are covered by any of the entries in the negative list or are otherwise exempted. Accordingly as
per clause (44) of section 65B of the Act it has also been stated that service includes a declared
service. And Renting of Immovable property is the part of declared service.
2.
(i) Only amount which is received in the nature of rent in respect of immovable property are covered
under declared service and accordingly service tax is applicable on such amount. So that I would like to
discuss that meaning of Renting which has been defined in Section 65B of finance Act, 1994.
(ii) If Security amount is received in respect of immovable property to service provider and such amount
is refundable amount then such amount shall not be treated as the part of service and accordingly service
tax is not applicable on such security amount.
(iii) But if Security amount is adjusted against the amount of rent then in such amount shall be treated as
the part of service and accordingly service tax is applicable on such adjusted amount.
(iv) If Electricity Charges is received in respect for supplying electricity in flats/shops (Charged on actual
basis) then such amount shall not be treated as the part of service and accordingly service tax is not
applicable on such electricity amount.
(v)
building/complex then in such case such service is treated as another service and accordingly service tax
is applicable on such service.
4.
Valuation
As Per N/N 29/2012, the taxable service of renting of an immovable property, from so much of the
service tax leviable thereon under section 66B of the said Finance Act, as is in excess of the service tax
calculated on a value which is equivalent to the gross amount charged for renting of such immovable
property less taxes on such property, namely property tax levied and collected by local bodies. Provided
that any amount such as interest, penalty paid to the local authority by the service provider on account of
delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes
of deduction from the gross amount charged. Provided further that wherever the period for which property
tax paid is different from the period for which service tax is paid or payable, property tax proportionate to
the period for which service tax is paid or payable shall be calculated and the amount so calculated shall
be excluded from the gross amount charged for renting of the immovable property for the said period, for
the purposes of levy of service tax.
Analysis
VALUE OF TAXABLE SERVICE= Gross Amount PROPERTY TAXES( On Proportionate
Basis)NOTE- INT AND PENALTY NOT DEDUCTIBLE
Example:Property tax paid for April to September = Rs. 12,000/-Rent received for April = Rs. 1, 00,000/-Service
tax payable for April = Rs. 98,000/- (1, 00,000 -12,000/6) * applicable rate of service tax 5. If Person
Liable to pay service tax has paid excess amount of service tax on account of non-availment of deduction
of Property tax Paid.
In Such Case, as per sub rule (4C) of Rule 6 of service tax rules, 1994 Where the person liable to pay
service tax in respect of services of renting of immovable property has paid to the credit of Central
Government any amount in excess of the amount required to be paid towards service tax liability for a
month or quarter, as the case may be, on account of non-availment of deduction of property tax paid in
terms of notification No. 29/2012 ice Tax , dated the 20th June, 2012, from the gross amount charged for
renting of the immovable property for the said period at the time of payment of service tax, the assessee
may adjust such excess amount paid by him against his service tax liability within one year from the date
of payment of such property tax and the details of such adjustment shall be intimated to the
Superintendent of Central Excise having jurisdiction over the service provider within a period of fifteen
days from the date of such adjustment.
Analysis
SELF- ADJUSTMENT OF S.TAX WITHIN 1 YEAR from the date of payment of such
property tax IF EXCESS S.TAX PAID DUE TO NON DEDUCTION OF PROPERTY TAX. The
details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction
over the service provider within a period of fifteen days from the date of such adjustment.
6.
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve percent. On the
value of all services, other than those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and collected in such manner as may be
prescribed.
7.
6.
Abatement value
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for
40%
providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
8.
(Place of provision of services relating to immovable property).The place of provision of services provided directly in relation to an immovable property, including
services provided in this regard by experts and estate agents, provision of hotel accommodation by a
hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable
property, services for carrying out or co-ordination of construction work, including architects or interior
decorators, shall be the place where the immovable property is located or intended to be located.
(iii) Where any one is (i.e. either organizer or Service receiver) is situated in non-taxable territory
and Renting Service is availed for more than one Immovable Property.
As per Rule 7 of Place of Provision of Service Rules, 2012
(Place
any service referred to in rules 4, 5, or 6 is provided at more than one location, including a location in the
taxable territory, its place of provision shall be the location in the taxable territory where the greatest
Exempted Service
permitting usage of a property for a temporary purpose like conduct of a marriage or any other social
function
Renting of property to an educational body for the purpose of education Service tax is not applicable (As
Per Mega Exemption)
Renting of vacant land for animal husbandry or floriculture Service tax is not applicable (As Per Negative
List).
Permitting use of immoveable property for placing vending/dispensing machines Service tax is
Applicable
Allowing erection of a communication tower on a building for consideration. Service tax is Applicable
Renting of land or building for entertainment or sports
Renting of theaters by owners to film distributors (including under a profit-sharing arrangement) Service
tax is Applicable
Hotels/restaurants/convention centers letting out their halls, rooms etc. for social, official or business or
cultural functions Service tax is Applicable
Commercial Property For Commercial Use
I have a query.If a firm has charged rent p.a. Rs.7,00,000/- and taken a security deposit of Rs.70 lakhs.
The firm has given the only one property in rent and hence rent income is below thresold limit. Whether
the firm is liable to charge service tax from the tenant in view of higher amount of interest free security
deposit has taken ?
The applicability of the levy of service tax on renting of immovable property has generated a lot of
discussion and debate. The dispute on the propriety of the levy of such a service tax as contemplated by
the Finance Act, 2007 is sub- judice and is yet to be finally decided by the Supreme Court of India. In the
list of taxable services enumerated in the Bill was included service provided in relation to renting of
immovable property for use in the course or furtherance of business or commerce. Sub-clause (zzzz) of
Section 65 (105) The Finance Act, 2008 had inserted an explanation to the definition of immovable
property to clarify that renting of immovable property shall include allowing or permitting the use of
space in an immovable property, irrespective of the transfer of possession or control of such immovable
property. The explanation states that the amendment is for removal of doubts.
property should be in course of or furtherance of business or commerce. (d) allowing use of space with
or without transfer of possession or control will also be covered
In line with the above definition, the Department of Revenue demanded service tax in the category of
Renting of immovable property service as per section 65(90a) of the Finance Act, in respect of premises
let out by members of the Retailers Association of India (Assessee). The said association on behalf of its
members challenged the said notification dated May 22, 2007 and contested the said demand of service
tax. The Honble Tribunal held that service tax was leviable on the service of renting of immovable
property and confirmed the said demand. The Assessees filed a writ petition in the Bombay High Court.
During the pendency of the writ petition, the Department of Revenue moved the Supreme Court seeking
transfer of all writ petitions pending before different high courts of India. The Honble Bombay High
Court observed while granting an interim order in the matter . . . . considering that the respondents have
moved the Honble Supreme Court of India for transferring these matters to the Honble Supreme Court
for hearing, therefore, we cannot take up these matters for final hearing and that other High Courts have
granted interim relief in relation to said statutory provision, in our opinion, following interim order would
meet the ends of justice. The Honble High Court stated In the event, demand of service tax being made
under the provisions of Section 65(90a), Section 65(105) (zzzz) and section 66 of the Finance Act, 1994
as amended by Finance Act, 2007 in respect of the Petitioner members premises, such members of the
Petitioners shall file undertaking in this Court stating that in the event the challenge is disallowed, they
shall make payment of service tax due and payable in accordance with the aforesaid provisions as may be
directed by this Court. It was further directed by the court that in case such undertaking is given, the
person who is submitting the undertaking shall not be entitled to transfer his interest in the property in
relation to which the demand of service tax is made without first giving two weeks prior notice of his
intention to transfer his interest and the nature of the transfer to the respondents. In case within the period
of two weeks, objection is raised on behalf of the respondents to the proposed creation or transfer of
interest, then no interest will be created or transferred without seeking leave of the Court. It goes without
saying that if the objection is not raised within the period of two weeks, the person shall be free to create
or transfer proposed interest in the property On the undertaking mentioned above, being filed by the
members of the petitioners, the High Court directed that no coercive steps shall be taken by the
respondent for recovery of service tax in respect of the premise of such members of the petitioners.
In the meanwhile, pursuant to the transfer petition filed by the Union of India in the apex court, the
Supreme Court directed all the writ petitions pending before different High Courts in India be transferred
to the Delhi High Court for single window adjudication.
Delhi High Court vide its order dated April 18, 2009, while disposing a bunch of over 20 writ petitions
referred to it by Supreme Court, in Home Solutions Retail India Ltd. v Union of India & Others, has held
that the levy of service tax on the renting of immovable property itself, in terms of the relevant
notification issued consequent to the introduction of the taxable service, was ultra vires the provision of
the Finance Act. Accordingly, the Courtstruck down the levy of service tax on renting of immovable
property as "unconstitutional", by a combined order and held that renting of immovable property for
furtherance of business or commerce, per se, is not a taxable service falling within the scope of section
65(105) (zzzz)of Finance Act, 1994. Aggrieved by the above order, the Union of India filed Special
Leave Petition No. 13850/2009 in the Supreme Court challenging the aforesaid judgment dated 18th
April, 2009 rendered by the Delhi High Court. In the Special Leave Petition the Supreme Court did not
grant any stay on the operation of that judgment.
The Update:
The Finance Act, 2010 has made the following important amendments relating to
Renting of Immovable Property Service: (Section 65 (105) (zzzz)) Renting activity itself regarded as
taxable service (Retrospectively amended from June 1, 2007). Renting of vacant land for construction of
building /temporary structure at later stage for furtherance of business or commerce regarded as taxable
service. Home Solutions Retailer of India and ors v. Union of India and Ors. (pending) [DELHI], again
challenged the validity of Section 65(105) (zzzz) of the Finance Act, 1994 which purports to levy service
tax on mere renting of immovable property for building or construction usage. This particular amendment
inserted by Finance Act, 2010 gave retrospective effect from June 1, 2007. It received the President
Assent on May 11, 2010.
The High Court upheld its earlier judgment regarding the same and provided an interim relief holding that
there shall be no recovery of service tax from the petitioner for renting of immovable property alone. The
case is still pending before this Honble High Court for final hearing. In the meanwhile, on January 13,
2011, the Supreme Court stayed an order of the Delhi High Court, which stopped the Centre from
recovering service tax on renting of immovable property for commercial use, including shops and malls,
from some firms. A Supreme Court bench comprising Justices Mukundam Sharma and A R Dave stayed
the interim order passed by the Delhi High Court on May 18, 2010. The Centre has challenged the order.
"There shall be an interim stay of the operation of the impugned judgment till the next date," said the apex
court, directing that the matter be listed for next hearing on January 20, 2011. Subsequently, on February
11, 2011, the Supreme Court maintained its stay on the Delhi High Court order .A bench comprising
Justices Mukundam Sharma and A R Dave said that the apex courts interim order of January 13, 2011
will continue until further orders. The bench said the order would continue till the High Court takes a
final decision on the matter.
Conclusion:
From the foregoing discussion, it is quite evident that the issue whether renting of immovable property
alone is taxable or not, is far from settled. Pursuant to the amendments inserted by the Finance Act, 2010,
a second round of litigation has commenced. Now one has to wait and watch how this act unfolds.
collected from the tenant as security or rental deposit. However, non-refundable deposit is
subject to service tax.
2. Reimbursement of actual Electricity Charges are not subject to tax provided the exact/actual
amount is collected as a pure agent. In case any markup (extra amount) is done on the bill or a
lump sum amount is collected towards electricity charges, it is subject to ST.
3. Maintenance Charges towards the building is subject to service tax.
4. Renting of Vacant Land say, for parking or for temporary shed for marriage or for social
function is subject to service tax except if the land is used for agriculture or agriculture related
activities such as horticulture or floriculture or animal husbandry.
5. Renting of Residential House if used for residential purpose is exempt from service tax.
However, renting of residential house for commercial purpose is subject to ST.
6. Renting of Hotel, Inn, Guest House, Club, campsite or other commercial places meant for
residential or lodging purposes having declared tariff of a room below Rs.1000 per day or
equivalent is exempt from Service tax.
7. Rent from space provided to Mobile Towers Service tax is applicable.
8. Rent from space provided for Vending Machines in a shop or complex service tax is
applicable.
9. Renting of Convention Center Service tax is applicable.
10. Service Tax Rate at 12.36% on the gross rent. The land owner can raise an invoice every
month mentioning the rent plus service tax.
11. Deduction from Rental Income No expense such as security charges, electricity charges are
allowed to be deducted from the gross rent, except property (municipal taxes) paid.
12. Liability of payment of tax Service recipient / tenant is liable to pay service tax. It is the
responsibility of the land owner to collect it from the tenant and remit it to the department.
13. Payment of Tax the tax so collected has to be remitted to the department within due date
[5th of the subsequent month/quarter depending upon the nature of the assessee; 6th of the
subsequent month/quarter, if the payment is made electronically through internet banking].
Delayed/ non-payment attracts hefty interest and penalty.
GIFT OF IMMOVABLE PROPERTY
As per Regulation 6 of the Foreign Exchange Management (Export and Import of Currency)
Regulations, 2000, you are permitted to send foreign exchange to India without any limit in any
form other than currency notes, bank notes and travellers cheques. From a tax perspective, where
any individual receives money in excess of Rs.50,000 in any financial year without any
consideration, it will be taxed as income from other sources in the hands of the recipient. But
this rule does not apply to money received by a relative (which includes spouse, brother, sister,
brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or
descendant of yourself or your spouse). Accordingly, money sent as gift to your family being
relatives as defined above, would not be taxable in India. I have inherited a flat from my great
aunt through a Will in the UK. Now I want to sell it. What would be the tax implications in India
considering I have not paid or invested any money. I am an Indian resident. What type of tax will
be applicable and on what amount, from the day the property was transferred to me or from the
day that my great aunt acquired it? Sahil Duggal Gains arising from the sale of capital asset
(house property) located in India or abroad by a tax resident of India would be subject to tax in
India. Depending on the period of holding the same would be taxed either as long-term capital
gain (LTCG), or as short-term capital gain (STCG). Taxable gain from sale of a building is
computed by deducting the cost of acquisition and cost of improvement, expenditure incurred
wholly and exclusively in connection with the transfer from the sale consideration. In your case,
since the apartment was received through inheritance, the cost of acquisition of the asset shall be
deemed to be the cost at which your aunt acquired it as increased by the cost of any improvement
incurred either by you or your aunt. If the building has been held for more than 36 months prior
to its sale, the capital gain arising would be taxable as LTCG at the rate of 20% (plus applicable
surcharge and education cess). If it is held for less than 36 months, the capital gains would be
taxable as STCG at the rate of 30% (plus surcharge and education cess). You will not be liable to
pay tax on receipt of the property from your great aunt as any immovable property received
without consideration from a relative is not treated as income. Relative has been defined to
include brother or sister of either of the parent of the individual receiving the immovable
property.
Taxation of transactions in immovable property without consideration or for an inadequate
consideration, if registration not done within 30th September, 2009
:
The newly inserted provisions of section 56(2)(vii) have been made applicable from 1st October,
2009 in case the property is received by any individual or a HUF.
These provide
a) Where immovable property or any other property is received without any consideration and
the stamp duty value (in case of immovable property)/ fair market value (in case of any other
property) of such property exceeds Rs.50,000, the entire stamp duty value or fair market value
(as the case maybe) of such property would be taxable as income from other sources.
b) Where immovable property or any other property is received for a consideration and such
consideration is less than the stamp duty value (in case of immovable property)/ fair market
value (in case of any other property) of the property by an amount exceeding Rs.50,000, the
stamp duty value/ fair market value reduced by the consideration received, would be taxable as
income from other sources.
2. Cases in which provisions will not be applicable -
The above provisions will not be applicable where property is received from a relative or on
occasion of marriage of the individual or under a will or inheritance or contemplation of death of
the donor or from local authority, approved fund or trust.
The above provisions will also not be applicable where property is received by a company,
partnership firm or any person other than an individual or HUF. That means the provisions are
applicable only if the property is received by an individual or HUF.
The above amendment will take effect from 1 October 2009, so these will not hit to the cases in
which the immovable property has been received on or before 30th September, 2009.
3.
Situations where property was purchased prior to 1st October, 2009 but not registered :
In such cases, there is a possibility that some officials of the department may try to take a plea
which is favourable to revenue and may say that in case of immovable property transfer takes
place when it is registered.
However there are some provisions, which may be of help to the taxpayers. These are given
below :
a) Section 2(47)(v) of the Income Tax Act states "Transfer in relation to capital assets, include " any transaction involving the possession of any immovable property to be taken or retained in
part performance of a contract of the nature referred to in section 53A of the Transfer of Property
Act"
b) Section 53A of the Transfer of Property Act Where any person contracts to transfer for consideration any imovable property by writing
signed by him or on his behalf from which the terms necessary to constitute the transfer can be
ascertained with reasobale certainty, and the transferee has, in part performance of the contract,
taken possession of the property or any part thereof, or the transferee, being already in
possession, continues in possession in part performance of the contract and has done some act in
furtherance of the contract; and the transferee has performed or is willing to perform his part of
the contract, then notwithstanding that where there is an instrument of transfer, that the transfer
has not been completed in the manner prescribed therefor by the law for the time being in force,
the transferor or any person claiming under him shall be debarred from enforcing against the
transferee and persons claiming under him any right in respect of the property of which the
transferee has taken or continued in possession, other than a right expressly provided by the
terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration who
has no notice of the contract or of the part performance thereof.
4. Conclusion :
It is important to note that the new provisions are applicable to properties received by Individuals
or HUFs on or after 1st October 2009. This suggests that whatever property is received
(purchased or possession received) before 1st October 2009 will not come under the purview of
new provisions. This view is supported by the definition of transfer contained in section 2(47)
read with section 53A of the Transfer of the Property Act if the necessary stipulations are
fulfilled.
Receive in lay-mans language means signing the agreement, paying the consideration and
taking the possession.
The existing provision and also the new provision does not state that the date of receipt of
immovable property means date of its registration.
Under the above circumstances, I am of the opinion, that if one fulfills the stipulations of section
2(47) of the Income Tax Act, 1961 read withSection 53A of the Transfer of Property Act , then
there is good ground to defend in case of property purchased before 1.10.2009.
So we can conclude that property which is received/ purchased before 1st October 2009 though
not registered will not be hit by the provisions of section 56(2)(vii), provided the stipulations as
mentioned above are fulfilled.
However in view of the prevailing confusion, I suggest that the Central Board of Direct Taxes
may also kindly issue a clarification on this issue to help the taxpayers.
Govt has also issued a press release regarding above issue which is reproduced hereunder
Provision regarding taxability of any Gift-in-kind, value of which exceeds Rupees Fifty
Thousand
The Income Tax Act 1961 (the Act) has been amended with effect from 1st October 2009 to
provide that any gift-in-kind, being an immovable property or any other property, the value of
which exceeds Rs.50,000 (rupees fifty thousand), will become taxable in the hands of the donee,
being an individual or a Hindu Undivided Family (HUF), as income from other sources under
clause (vii) of sub-section 2 of section 56 of the Act. Therefore, any such person who receives a
gift of any such property on or after 1st October 2009 must pay the income tax due on the value
of the gift and disclose the taxable value of such property in the return of income for assessment
year 2010-11 and subsequent years.
The following types of gifts will, however, not be subject to tax, i.e. gifts (a) from a person who
is a relative; (b) on the occasion of marriage of the individual; (c) under a will or by way of
inheritance; (d) in contemplation of death of the donor; (e) from any local authority as defined in
the Explanation to section 10(20) of the Act; (f) from any fund or trust established under section
10(23C) of the Act; (g) from any trust or institution registered under section 12AA of the Act.
Relative is defined in the Act as (i) spouse; (ii) brother or sister; (iii) brother or sister of the
spouse; (iv) brother or sister of either of the parents; (v) any lineal ascendant or descendant; (vi)
spouse of any of the relative at clauses (ii) to (v); of the individual. Gifts received from these
relatives will not be subject to tax.
Earlier cash gifts exceeding Rs.25,000 were subject to tax with effect from 1st April 2004. Later
the Act was amended with effect from 1st April 2006 to tax all cash gifts having aggregate value
exceeding Rs.50,000. Cash gifts also enjoy exemptions as is available for gifts-in-kind.
10,000 crore in the last three years, the Bombay high court on Thursday upheld the constitutional
validity of service tax on commercial real estate transactions on renting of property.
A 12% service tax was introduced in the amended Finance Act, 2007. Dictating and delivering
the judgment in the open court, Justice D Y Chandrachud held that the renting of land and
building did comprise a "service" and that the Centre was entitled to levy a tax on it.
The judgment, viewed as landmark in legal circles, has recognized wide powers with the Centre
to levy a service tax on transactions which have an element of service. The judgment thus
resolved the power of the Centre to bring under the service tax umbrella un-enumerated services
too.
The ruling will boost tax revenue for the government and will translate into higher rentals in the
already high-priced corporate property markets of bigger metros like Mumbai, Delhi, Bangalore
and Chennai.
The Retailers' Association of India along with the Confederation of Real Estate Developers'
Association of India and Multiplex Association of India had moved the Bombay high court
against the service tax on renting of commercial property. Advocate Ameet Naik, lawyer for the
retailers' association, later said, "We will study the judgment once we get a copy and then decide
the next course of action."
The service tax provision had resulted in proceedings being filed in the Delhi high court even in
2008, after the first amendment to the law in 2007, which spoke of only "services in relation to
renting of immovable property". The Delhi HC in 2009 held that service tax was not payable on
renting as it was not a value-added service. The Centre quickly brought out an amendment in
2010 to clarify that the tax was on renting of commercial property. The 2010 amendment was
under challenge as it would also have retrospective effect since 2007.
The main argument that the developers made was that tax department was misinterpreting the
entry of taxable service "in relation to renting of immovable property" under Section 65 (105)
(zzzz) of the Finance Act. They argued that there was "no service involved in renting premises".
But the HC held that service was involved and upheld the power of Parliament to levy the
service tax.
The HC rejected the retailers' and developers' arguments that only state governments could make
laws governing "immovable property". The judges, after tracing laws on land taxes since 1949,
said taxes on land and buildings were directly imposed on ownership but significantly delineated
the concept of service. It held that what was being taxed was not land but a service invoked in
renting of the land and constructed premises.
The HC also upheld arguments by additional solicitor-general Darius Khambata that Parliament
could add taxable transactions.
The judgment thus sets at rest the conflict between the power of the Union government and state
to levy service tax, particularly on transactions relating to land.
PROVISION
The place of provision of service bprovided directly in relation to an immovable
property ,including service provided in this regards nby experts and estate agents,
provision of hotel accommodation by a holtel , inn ,guest house club or campsite ,
by whatever name called grant of right to use immovable porperty , service for
carrying out or c-ordinaation of construction dwoek, including architect interior
decorators shall be the place where the immovable prooperty .
COMMENTS
1. SUMMARY
In case of a service that is directly in relation to immovable plroperty the place of provision is
ehere the immovalbe4 property(land and building) is located irrespective of dwhere the provider
or receiver is located
'' IMMOVABLE PROPERTY'' Immovable property has been defined in the finance act
1994 however in terms of section 4 of the general clauses act 1897 the defination of
immovable property provided in sub -section 3(26) of the general clauses act.
DEFINATION
"Immovable property' shall include land, benefits to arise out of land , and thing attached to
the earth , or permanently fastened to anything attached to the earth.
SERVICE DIRECTLY IN RELATION TO IMMOVABLE PROPERTY
This rule applies if the service is directly in relation to immovable property located in
taxable territory
Physical
Object : The direct object of the service is the immovable porperty in the sense that
the service ebnhance the value of property affects the nature of the property for
development.
(a)
CONCLUSION
From the foregoing discussion, it is quite evident that the issue whether renting of immovable property
alone is taxable or not, is far from settled. Pursuant to the amendments inserted by the Finance Act, 2010,
a second round of litigation has commenced. Now one has to wait and watch how this act unfolds.
It is important to note that the new provisions are applicable to properties received by Individuals
or HUFs on or after 1st October 2009. This suggests that whatever property is received
(purchased or possession received) before 1st October 2009 will not come under the purview of
new provisions. This view is supported by the definition of transfer contained in section 2(47)
read with section 53A of the Transfer of the Property Act if the necessary stipulations are
fulfilled.