Service tax on renting by organisation having 12a exemption

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tabrez khan (Querist)
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23 April 2016 Dear Sir
A Charitable organization registered12AA of the Income tax Act 1961,has rented building for Commercial Purpose.Does the organisation need to collect Service Tax or Claim benefit of master circular Sr 4.
Thanx

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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24 April 2016 Notification No.25/2012 often referred to as Mega Exemption Notification vide serial no 4 exempts "Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities".

Whether letting out a building for rent for commercial purposes constitute charitable activities is a moot point. It may be argued that the funds received from letting out of property will be utilized for charitable purposes, and hence the activity is a charitable one, therefore covered by the said notification.

The only way this activity can be deemed a charitable activity is if the Trust Deed specifically states that such immovable properties not directly used for own activities may be let out on rent, which rent shall then be used for charitable activities. I am sanguine that no such clause would exist in the trust deed.

Prima facie the activity of letting out premises for long term rent to commercial organization does not constitute charitable activities and hence the said exemption is NOT APPLICABLE. The Trust should collect service tax from the tenant and remit the same to the credit of the Government.

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