![]() |
![]() |
![]() |
April 25, 2009 Has Your Landlord Become A Realtor?
As odd as the
question might sound, in the context of service tax, this
question came up for consideration before the Delhi High Court
in the case of Home
Solution Retail India Limited v.
Union of India1.
The case clubbed approximately 20 writ petitions and the
petitioners included such well known brands as Lifestyle,
Shopper’s Stop, Barista and Bata.
The petitioners are primarily lessors or lessees with
respect to immovable properties that are used for business or
commercial purposes.
The dispute in question arose with respect to Notification No. 24/2007
dated 22/05/2007 (the “Notification”)
and Circular No. 98/1/2008-ST sated 04/01/2008 (the “Circular”) issued by the Secretary, Ministry of Finance, Department
of Revenue, Government of India, New Delhi.
The Notification and Circular sought to levy service tax on the
letting out/ renting out of properties
per se.
The petitioners contended that the Notification and the Circular
arose out of an erroneous construction of Sections 65 (90a) and 65 (105)
(zzzz) of the Finance Act, 1994, which in turn defined the terms
“taxable service” and “renting of immovable property”.
In terms of the definition of “immovable property” it is made
amply clear that the term, for the purposes of Section 65 (105) (zzzz)
refers specifically to immovable property used in the course of business
or commerce and not in respect of other property such as residential
property.
Section 65 (105) (zzzz) reads as follows:
“Taxable service” means any
service provided or to be provided… (zzzz) to any person, by any other
person in relation to renting of immovable property for use in the
course or furtherance of business or commerce”.
This appears to refer to services such as the service provided by a
realtor that are in relation to the immovable property and not the
actual renting out of the property.
The petitioners contended that this amounted to a tax on immovable
property which is ultra vires
the powers of the Union Government since the said subject falls under
List II of Schedule 7 of the Constitution of India (the ‘State List’).
However, the primary contention of both the petitioners and the
respondent drew from TN Kalyana
Mandapam Association v. Union
of India2,
which held that the renting of a ‘mandap’ was a service and would be
subject to service tax. The
Court in the instant case clarified that the renting of a mandap
included several value added services such as catering and decoration
and that it was not the rent or lease of immovable property
per se.
In All India Federation of
Chartered Accountants v. Union of India3, the Supreme Court
had held that service tax is essentially a value added tax.
____________________________
1
Judgment delivered on: 18.04.2009 2 (2004) 5 SCC 632 3 (2007) 7 SCC 527
- Arjun Rajgopal & Rajesh Simhan You may direct your queries or comments to the authors |
|
Disclaimer: The contents of this hotline should not be construed as legal opinion. View detailed disclaimer. |
This hotline provides general information existing at the time of
preparation. The hotline is intended as a news update and Nishith Desai
Associates neither assumes nor accepts any responsibility for any loss
arising to any person acting or refraining from acting as a result of
any material contained in this hotline. It is recommended that
professional advice be taken based on the specific facts and
circumstances. This hotline does not substitute the need to refer to the
original pronouncements. |
NDA |