Co-Owners Holding Immovable Property To Be Treated As Independent Service Provider For Service Tax Exemption: CESTAT

The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that co-owners holding immovable property should be treated as independent service providers for the purpose of availing service tax exemption.

The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed the decision in the case of Sarojben Khushalchand versus Commissioner of Service Tax, in which it was held that the rent received by individuals owning property jointly cannot be clubbed to impose service tax.

The appellants and assessees are co-owners of a building situated at Jawahar Road, Rajkot. They had given the immovable property on lease to Punjab National Bank.

The total rent received for the period 2008–09 to 2012–13 jointly by them amounts to Rs. 53,49,086 in aggregate.

A show cause notice was issued demanding a service tax of Rs. 5,29,509 payable on the aggregate amount of the sum total of rent received by them in regard to the co-owned property, aggregating to Rs. 53,49,086.

The show cause notice was adjudicated by the adjudicating authority. The appeal filed by the co-owners of the property before the Commissioner (Appeals) came to be rejected.

The assessee contended that the amount of rent received individually for one financial year is much below the threshold limit of exemption as per Notification No. 6/2005-ST dated 01.03.2005, as amended by Notification No. 8/2008-ST dated 01.03.2008. Each individual out of both co-owners has to be considered an individual service provider, and therefore, their portion of rent received being within the threshold limit of exemption, service tax liability is not sustainable.

The issue raised was whether each of the co-owners, holding immovable property jointly but receiving the lease rent separately in proportion to the share in the property, is eligible to benefit from the threshold exemption limit as prescribed under Notification No. 6/2005-S.T., dt. 1-3-2005, as amended, separately.

The Notification No. 6/2005-S.T., dated 1/3/2005, stated that the service tax exemption applies when the value of taxable service provided does not exceed Rs. 4 lakhs in a financial year.

The tribunal noted that 'association of persons' has been considered a separate legal entity under the Income-tax Act for assessment and provided a separate PAN number different from the PAN number possessed by individual co-owners who joined together to form an 'association of persons'. Service tax is levied on the service provided, which is an intangible thing, and hence it is not necessary to be identified with the physical demarcation of the immovable property given on rent against individual co-owners. Once the value of the service provided by a service provider is ascertainable, service tax is accordingly charged.

The tribunal allowed the appeal and quashed the order of the Commissioner (Appeal).

Counsel For Appellant: D.K. Trivedi

Counsel For Respondent: AR Kanani

Case Title: Shri Kamleshkumar K Kotecha Versus Commissioner of Central Excise & ST

Case No.: Service Tax Appeal No. 11244 of 2015-DB

Click Here To Read The Order