No Service Tax Can Be Levied On Rental Agreements In Name Of Individual Partners For Jointly Owned Property: CESTAT

The Bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that “………post 01.07.2012, the firm was not functional, and the rental agreements are in the name of the individual partner, with regard to the property held by them jointly. So, there cannot be a case of service to oneself. Hence, they are not liable to service tax.”

Section 73(1A) of Finance Act, 1994 provides that the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax.

Section 77 of the Finance Act 1994 deals with penalties that are levied on those assessees who are found to have contravened or violated any of the provisions or rules laid down by the Act.

Section 65B(51) of the Finance Act 1994 defines taxable services as “any service on which service tax is leviable under Section 66B”.

Section 66B of the Finance Act, 1994 provides that there shall be levied a tax on all services except those mentioned in negative list (Negative list has been defined under Section 65B(34) as services listed in Section 66D of Finance Act, 1994) and provided or agreed to be provided by one person to another in the taxable territory and collected in the manner prescribed.

The assessee/appellant, a partnership firm with four partners, provides “Renting of Immovable Property Services” under Section 65 of the Finance Act, 1994. Following an intelligence report regarding non-payment of service tax on these services, an enquiry was initiated by Central Excise officers in Dehradun. It was found that the assessee had not paid the required service tax. Consequently, a show cause notice was issued, demanding the payment of ₹16,44,367 in service tax. The adjudicating authority confirmed the demand under Section 73(1) of the Finance Act, 1994, and imposed penalties under Sections 78 and 77 of the Finance Act, 1994. The assessee filed an appeal before the Commissioner (Appeals) who rejected their appeal by upholding the order of the adjudicating authority. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The assessee contended that the property was purchased by partners in their name separately. The rent was received separately by all the partners, for which the tenant deducted TDS and the rent agreement was jointly signed but having separate mention of their portion in the property.

The department submitted that since the rent agreement was jointly entered with tenant, the rent amount to be considered as one. Since there was a clause in partnership deed that if any deduction of tax on account of property in question related to the firm in partners name/firm name, deduction will be stands in the name of firm. It was on this basis that the department formed an opinion that tax liability was on the firm.

The Tribunal agreed with the contention of the department that the demand for the post negative list period is within normal period of limitation. For the period 1.7.2012 to 31.03.2013, the due date for payment of service tax was 05/06.04.2013. Consequently, the last date for issuing a show cause notice is 05/06.10.2014 whereas the said notice was issued on 15.04.2014. Hence, the said demand is within the normal time period.

The department has submitted that the firm did not carry on any business since 2009-10 onwards, and that no TDS was deducted in the name of the appellant firm/assessee. It was also submitted that the appellate authority took cognisance of the CA Certificate submitted by the assessee in this regard. The Department has not submitted any evidence to the contrary, added the Tribunal.

The bench concluded that “post 01.07.2012, the firm was not functional, and the rental agreements are in the name of the individual partner, with regard to the property held by them jointly. So, there cannot be a case of service to oneself. Hence, they are not liable to service tax.”

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: Rajesh Chibber

Counsel for Respondent/ Department: Harshvardhan

Case Title: M/s Sidhi Vinayak Associates v. Commissioner of Central Excise, Customs: Revenue (s) And Service Tax, Dehradun

Case Number: Service Tax Appeal No. 51322 Of 2016

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