Rent Free Accomodation Provided By Partner To Partnership Firm Is Exigible To GST: Tamil Nadu AAR
The Tamil Nadu Bench of the Authority for Advance Ruling, consisting of members T.G. Venkatesh and K. Latha, has ruled that GST is liable to be paid in respect of properties of a Partner rented to a partnership firm, even if it is free of rent, to carry out the business of the firm, since the activity is in furtherance of business and amounts to supply under Section 7 read with Schedule 1...
The Tamil Nadu Bench of the Authority for Advance Ruling, consisting of members T.G. Venkatesh and K. Latha, has ruled that GST is liable to be paid in respect of properties of a Partner rented to a partnership firm, even if it is free of rent, to carry out the business of the firm, since the activity is in furtherance of business and amounts to supply under Section 7 read with Schedule 1 of the CGST Act, 2017.
The Applicant Shanmuga Durai filed an application before the Authority for Advance Ruling (AAR), seeking an advance ruling on whether GST liability arose in respect to the property of the Applicant used by the partnership firm, in which he was a partner, to carry out the business of the firm free of rent.
The Applicant stated before the AAR that the activity of letting out his own property to the partnership firm, wherein he was a Managing Partner and held 2/3rd of the shares, was not in furtherance of business so as to attract GST.
The AAR observed that as per Section 2(17) of the CGST Act, the term 'business' includes any trade, whether or not it is carried for a pecuniary benefit. The AAR added that in order to qualify any service as being carried out in the course of business it should be provided with the intention of deriving economic benefits. The AAR ruled that if the economic benefit accrued directly or indirectly, then the same would be treated as provision of service against consideration under the GST law.
The AAR ruled that the property of the Applicant rented to the partnership firm for free eased the burden of rent to be paid by the firm and thus reduced the expenditure to be borne by the firm, consequently increasing the firm's profits. Therefore, the AAR ruled that the rent free accommodation provided by the Applicant indirectly accrued as a profit for the firm which was enjoyed by the Applicant as a partner. Thus, the AAR held that the accommodation provided by the partner to the partnership firm, which is a separate person, was a supply in the course of and in furtherance of business under Section 7 of the CGST Act and was therefore exigible to GST.
The AAR noted that as per Schedule 1 of the CGST Act, the supply of goods or services or both made between related persons in the course or furtherance of business, would be treated as supply under the GST Act even if made without consideration. The AAR observed that the Applicant and the partnership firm were 'related persons' under CGST Act and therefore, the supply of service between them was taxable even when rendered without consideration.
The AAR ruled that therefore the activity of renting immovable property owned by the Applicant to the partnership firm, in which he was a major shareholding partner, is a taxable supply under CGST Act.
Applicant: Shanmuga Durai
Dated: 31.01.2022 (Tamil Nadu AAR)
Application No.: 30/2021/ARA