Renting of Immovable property

Delhi High Court in Home Solutions Retail India Ltd (latest decision post Shubh Steels):

It was argued that Section 65(105)(zzzz) of the Act cannot really cover mere renting of immovable property in the net of service tax. It is averred that in the earlier definition of the said provision words used in relation of renting of immovable property were 'for use in the course or furtherance of business or commerce' and the present provision has only made a different kind of contour but by such an amendment, it cannot be held that mere renting of immovable property without any kind of rider would tantamount to service and thereby would be covered in the ambit and sweep of service tax.

 

Relying upon the observations made by the High Court, it was submitted by the advocate that in the said decision it has been clearly held by the Division Bench that the renting of the immovable property for use in course or furtherance of business or commerce by itself does not entail any value addition and, therefore, cannot be regarded as service. The advocate submits that when such a conclusion has been arrived at while interpreting the concept of service tax in respect of letting simplicitor, by amending the Act with regard to renting of immovable property by Finance Act, 2010 the situation cannot improve.

 

With the following observations, the High Court has ordered to continue the stay and the court to wait for disposal of SLP against Home Solutions case by Supreme Court. In the course of hearing, counsel for the parties fairly stated that they would bring it to the notice of their Lordships of the Apex Court and shall seek expeditious disposal of the SLP filed against the judgment rendered in Home Solution. In view of the submissions raised at the bar, the High Court adjourned these matters to be called on 25th January, 2011 for direction.

 

 

Impact and issues:

Whether government has legislative competence to levy service tax on rental income?

The matter is presently before the Supreme Court to decide on the legislative competency of the Central Government to levy service tax on rental income. 

 

Who are the assessees likely to be affected?

The assessees who are likely to be affected are those who provide/let out commercial buildings on rent and would also impact manufacturers or service providers taking the premises on rent as the recipients would be obligated to pay service tax in addition to the rents.

 

Whether the amendment can have retrospective effect?

There is no doubt that Parliament has plenary powers to amend any law with retrospective effect. There is no restriction on Legislature passing law with retrospective effect. However this would be decided judicially in due course probably in favour of the tax payer.

 

Whether the benefit of service tax paid under rental of immovable property service is available as cenvat credit?

Yes, the benefit of cenvat credit of service tax paid on rental charges is available for set off under rule 3 of Cenvat Credit Rules 2004 provided the same is an eligible input service used for manufacture/ clearance of goods or used for providing a taxable service.

 

Whether the manufacturer (service receiver) is legally bound to pay service tax in addition to the rental charges to the land lord?

The liability to pay service tax is on the service provider, but since service tax is an indirect tax, the same can be collected from the service receiver. It is also expected to be collected from the customers/ consumer of the service. Supreme Court in the case of All India Federation of Tax Practitioners Vs UOI 2007 (7) STR 625 has observed that service tax is destination based consumption tax and service tax is not a charge on business but on consumer. Therefore the recipient of service is bound to pay service tax to the receiver of service.

 

The Latest news:

The High Court was not impressed and granted stay to the petitioners in respect of renting of immovable property. Revenue naturally took the matter to the Supreme Court and the Supreme Court has stayed the operation of the Delhi High Court judgment, till the next date. The next hearing is on 20.01.2011 and there would be many more……. Hopefully the confusion would get resolved in this year!!

Posted By: S Rahul 

Source: CAClubindia