No Service Tax on Commercial Rent
Section 65(105)(zzzz) of the Finance Act, 1994 defines taxable service of Renting of immovable property to mean any service provided or to be provided “in relation to” renting of immovable property for use in the course of furtherance of business or commerce.
In an Interesting interpretation of the expression “in relation to”, the Delhi High Court has ruled that mere renting of the immovable property would not by itself constitute a taxable service and that what can be subject to service tax is some service rendered “in relation to” and the renting of immovable property.
The Delhi High Court held the above decision with the following reasons :
1. Renting of the immovable Property by itself does not constitute a service;
2. Service tax is a value added tax and therefore it is levied on the value addition provided by some service provider; renting of the immovable property for use in course or furtherance of business or commerce does not entail any value addition and therefore can not be regarded as service.
As a result, no service tax is payable on commercial rent for immovable property.
From this analysis, it is clear that we have to understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service. There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to service tax. The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service. We have already seen that service tax is a value added tax. It is a tax on the value addition provided by some service provider. Renting of Immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service.
Following the landmark ruling, landlords who have not collected by paid service tax can apply for refund of service tax paid by them in the last one year, subject to such applicant being able to show that he has not collected the tax from the lessee/licensee. Where the tax has been collected from the lessee/licensee, such lessee/licensee can also apply for refund of the service tax paid in the last one year, subject to the lessee/licensee being able to show that he has not passed on the burden of the tax.
This is my understanding about the concerned law and not an opinion or advice.
CA Pankaj Galhotra
P.K. Vasudeva & Co.
9915793-007
CAclubindia
