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Defination of Rental Income

This query is : Resolved 

Dear All

is the person subletting the assets is comes under the preview of the service tax under rental income or not. wheathe rental income comes only the owner or the other person also.

kindly explain the same


explain it please

Raj (Expert)
In my opinion it should come under this purview of service tax because some body is taking service & providing same in simultaneously .


According to Section 65(90a) the term "renting of immovable property" has been defined as under:--

"renting of immovable property" includes renting, letting, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce .


Your attention is also invited to follwing:

Meaning of `Rent'/`Renting'

The Legislature has taken care to cover all shades of renting of immovable property. Rent, lease, or licence are invariably used in the context of immovable property, the use of which is given to another person by the owner or person having right therefor, for a consideration. In olden days renting of land was very popular. The land revenue legislations used to define rent. Even the Housing Boards set up by various State Governments have defined the word "rent" in the relevant Housing Board Acts. Accordingly, rent in relation to any public premises means consideration paid periodically for occupation of such premises including for water and any other services in connection with the occupation of the premises and any tax/levy payable in respect of the premises where such tax or levy was payable by the Central Government or Corporate Authorities. Even Airports Authority of India Act defines `rent' almost in a similar fashion. According to Ramanatha Aiyar Advanced Law Lexicon - 3rd Edition - 2005, the following shades of meaning of word `Rent' have been given:--

"It is defined to be a certain profit issuing yearly out of lands and tenements corporeal. It must be a profit; yet there is no occasion for it to be, as is usually is, a sum of money; for spurs, capons horses, corn, and other matters may be rendered, and frequently are rendered by way of rent. (Co. Lit. 142; Tomlin)

Money paid for the occupation or use of something for a period of time (e.g. a building, office, factory, car or television set). (Insurance; Business)

Rent is a right to profit, usually, though not necessarily, money; for it frequently consists of a part of the products of the land, labor, etc. It is the compensation, either in money, provisions, chattels, or labor, which is received by the owner of the soil, or the person entitled to the possession of the premises leased, for the use and occupation thereof.

An agreed sum of money or other thing payable by the tenant for use and occupation of some property to the landlord; hire of any movable.

Rent is whatever is lawfully payable by a tenant. (142 IC 43 : 13 Pal LT 648 : 1933 Pat 36). The expression "rent" must be regarded as having reference only to something that is payable not as compensation or damages but under or by virtue of a contract. (111 IC 743 : 1928 Mad 340). A return in money or kind for the enjoyment of specific property held by one person from or under another. (22 Mad 149, Foll; 158 PR 1884, Dist.) AIR 1925 Lah 196. Profit issuing yearly out of lands and tenements.

Rent is a profit in money, goods, or labour, issuing out of lands and tenements, as compensating for their use.

A rent is a compensation paid for the use of land. It need not be money. Any chattels or products of the soil would serve the purpose equally as well.

"The word rent, in powers of leasing, is construed to mean not money merely, but any return or equivalent adapted to the nature of the subject demised; therefore, upon a lease of mines, a due proportion of the produce may be reserved in lieu of money, although the power requires a "rent" generally to be reserved." (Sug. Pow. 791, citing Campbell v. Leach, 2 Amb. 740)."

Meaning of `Lease'

The term "lease" has been defined in the Indian Stamp Act, 1899 the Registration Act, 1908 and laws concerning sale of goods by various State Governments. Even the Transfer of Property Act, 1882 defines this term. Simply stated, lease is a conveyance by the owner of an estate to another of a portion of his interest therein for a term less than his own in consideration of certain annual or stated or other recompense. Under the Indian Stamp Act, the lease of an immovable property should include also a patta, a kabuliyat, or other undertaking in writing, not being a counter part of a lease, to cultivate, occupy or pay or deliver rent for immovable property, any instrument by which tolls of any description or let and any writing on an application for a lease intended to signify that the application is granted. In Puran Singh Sahni v. Sundari Shagwandas Kripalani 1991 (2) SCC 180 in the context of Transfer of Property Act, 1882 - Essential elements of the lease were stated as under:--

(a) the parties

(b) the subject matter or immovable property

(c) the demise, or partial transfer

(d) the term, or period

(e) the consideration, or rent

The relationship of lessor and lessee is one of contract. When the agreement vests in the lessee a right of possession for a certain time it operates as a conveyance or transfer and is a lease. Thus lease is a partial transfer, i.e. a transfer of a right of enjoyment for a certain time for some consideration. Leasing is also `letting' of immovable property.

Meaning of `Letting'

The term `letting' is also used in the sense of an owner allowing another person the right to use the land or any immovable property. In Advanced Law Lexicon by Shri P. Ramanatha Aiyar (3rd Edition) 2005, the term "let" has been explained as under:--

"LET: as used in a lease by which the owner lets the premises, etc., is synonymous with "demise".

To lease or grant the use and possession of a thing for hire [Section 25, ill(a), TP Act (4 of 1882)]

The word "let" in the Calcutta Municipal Act means "granting the use of the land for rent". Where a house owned by a firm is occupied by one of its partners who neither pays any cash rent nor renders any service to the firm in lieu thereof, his occupation, in the absence of any evidence to the contrary, is that of one of the co-owners of the house and not that of a tenant. 46 CWN 978.

From the above series of meaning the term `letting' refers to renting out or leasing out of immovable property in the context of a land which is an immovable property which equally applies for building also.

Meaning of `Licencing'

The term `licence' has been explained in Indian Easement Act, 1882 as under:--

"Where one person grants to another, or to a definite number of other persons a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence." [Indian Easement Act (5 of 1882) S. 52]

In Halsbury's Laws of England, (4th Edition Volume 27) it has been explained as under:--

"A licence is normally created whereas person is granted the right to the premises without becoming entitled to exclusive possession of them or the circumstances and conduct of the parties show that all that was intended was, that, the grantee should be granted a personal privilege with no interest in land. A mere licence does not create any estate or interest in the property to which it relates; it only makes an act lawful which otherwise it would be unlawful."

With reference to immovable property or real estate, the licence always refer to an authority to do a particular act or series of acts on another land without possessing any estate therein. In Ram Prakash v. State of Madhya Pradesh, AIR 1992 MP 151, it was explained as under:--

"In Corpus Juris Secundum, the word is stated to connote some sort of a special grant from the Sovereignty in regard to which absolute discretion vests in the Sovereign, Law, it seems clear, is that a privilege is granted; it cannot be claimed. It is enjoyed during the pleasure of the grantor, the enjoyment does not vest any "title" in the grantee in respect of the advantage or benefit. It is neither heritable nor transferable; the enjoyment of the benefit is personal to the grantee. No duty any person owes to the grantee which the latter can enforce at law. When "licence" for enjoyment of any "privilege" is granted, no property rights accrued in favour of the grantee to be enforced against the grantor or anybody else. Evidently, however, when the grant is made under a statute the grantee can enforce against the grantor any right that may be secured to him under the statute in respect of the privilege despite the latter being per se unenforceable."

From the above it is clear that the licence is also a legal permission to do certain things in/on an immovable property, which will be unlawful otherwise. It is popular to come across such licencing in the case of hotels, where various small shopping outlets are leased out to outsiders for running, say a boutique, a health club, hair dressing saloon, confectionary shop etc. In all these transactions, the arrangement is by way of licencing. In the case of licencing, the licence can be revoked according to the terms of the licence by giving a prescribed number of days of notice. The licensee does not get any lease-hold right at all but all the same under the terms of the licence, the licensee is getting the right to use the immovable property for the purpose for which the licence has been granted. The licence may be granted for many purposes, for example, if it is land with or without shed to licence to park a car or vehicle. So long as the permission is for use of the immovable property without the licencing arrangement, the transaction would get covered by the definition.

Similar Arrangements

The definition further states that besides renting, letting or licencing, similar other arrangements also to immovable property would be covered. It may cover other arrangements of anomalous character whereby in substance it is one of renting or letting out of immovable property. In other words, whatever is the means adopted or the method employed if the transaction amounts to letting out or leasing or running of immovable property for commercial or business purpose it will get covered under the definition.

it should come within the purview of service tax

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