By TIOL News Service

MUMBAI, SEPT 15, 2015: THIS is a Revenue appeal.

The facts are that the respondents are co-owners of the property located at ‘Patel Plaza', Near Govinda Rickshaw Stop, M G Road, Jalgaon and there is no legal partition or division amongst them. They entered into a joint agreement with M/s. Max New York Life Insurance Co Ltd, M/s HDFC Standard Life Insurance, M/s Oriental Bank of Commerce, M/s Axis Bank and M/s Kotak Mahindra Bank, Jalgaon through joint Leave & License agreement for letting out the said premises. They collected rent and amenities charges from the commercial firms viz. M/s. Oriental Bank of Commerce, M/s Axis Bank and M/s Kotak Mahindra Bank during the period June 2007 to January 2012.

The department viewed that the appellants were jointly engaged in providing the Services of Renting of Immovable Property as per sub-clause (zzzz) of Section 65(105) of Finance Act, 1994, which defines taxable service as any service provided or to be provided ‘to any person, by any other person, in relation to renting of immovable property for use in the course of furtherance of business or commerce'.

The demand notice was contested on merits as well as on the ground of limitation but the adjudicating authority confirmed the service tax liability jointly and severally& demanded interest on the same and imposed various penalties.

Before the Commissioner(A), the appellants submitted that rented property belongs to four separate persons (all brothers) but the service tax has been demanded wrongly by the department from the appellants by clubbing the rent received by all the co-owners and, therefore, the demand of tax is not maintainable. In support, they have produced a City Survey Extract as evidence regarding ownership of the rented property which shows that the said property was purchased in 2003 and is owned jointly by all the four co-owners. Further, the lease agreements with M/s Max New York Life Insurance Co Ltd., Oriental Bank of Commerce, Axis Bank, Kotak Mahindra Bank and HDFC Standard Life Insurance Ltd. are also entered into by the appellants in their individual capacity, as per SCN also, all four co-owners have obtained separate Registration Certificate on 10/4/2012 and all the four co-owners individually paid their Service tax liability along with interest on 14/2/2012.

The Commissioner(A) maintained that service tax liability has to be upheld for the year 2009-10 to 2011-12 as the rent received by each of the appellants exceeded the statutory limit of Rs.10 lakhs during the said period but the same having been paid along with interest before receipt of SCN, therefore, penalties u/s 76, 78 of FA, 1994 are not imposable.For the previous FY 2007-08 and 2008-09, the demand was set aside as the rent received by each of them was lesser than Rs.8 lakhs/10 lakhs by virtue of Notfn. 6/2005-ST. He, however, upheld the penalties imposed under the provisions of Section 77of the FA, 1994. The respondent is not in appeal against this order.

As mentioned, the CCE, Nasik is in appeal.

The ARsubmitted that the respondent had a premises which was rented out to various banks and an amount was collected as rent; that in order to avail ineligible exemption, respondent informed the lower authorities that there was partition of the property, which was incorrect as there is no registered document of such partition. It is further informed that the agreement entered by the respondent and four brothers was composite contract for renting out the entire property and it is in use commonly for business. Furthermore, the benefit of notification no. 6/2005-ST dated 01/03/2005 is not applicable and is in respect of “qua-service” and not “qua service provider” and, therefore, the exemption granted by the first appellate authority under this notification is incorrect; penalties imposed under Section 76 and 78 have also been set aside incorrectly.

The respondent took the support of the findings of the Commissioner(A) and also submitted that the adjudicating authority had erred in holding that respondent and his brothers were an ‘association of persons'. Decision of the Bombay High Court in the case of CIT vs. Shiv Sagar Estate 1993 (201) ITR 953 BOM in the matter of interpretation of the expression “association of persons” was also adverted to.

The Bench after considering the submissions observed –

+ The issue that needs to be decided in this case is whether the respondent and his brothers are to be treated as association of persons or otherwise and service tax liability on it arises; should be confirmed without the benefit of the notification No. 6/2005-ST.

+ It is undisputed that the property which has been rented out by the respondent and his brothers is jointly owned property; Service Tax liability arises on such renting of property.

+ On deeper perusal of impugned order, we find that the first appellate authority has considered all the angles in the dispute and come to the correct conclusion.

After reproducing verbatim the findings of lower appellate authority the Bench observed that the conclusion arrived at is ‘very' correct inasmuch as co-owners of the property cannot be considered as liable for service tax jointly or severally.

Holding that the Commissioner(A) had rightly extended the benefit of notification 6/2005-ST correctly for the years 2007-08 and 2008-09 when the rent received by each of the co-owners was below the exemption limit of eight lakhs and ten lakhs during the relevant period and confirmed the tax liability for the FY 2009-10, 2010-2011 and 2011-2012 when the rent received by each of the appellants had exceeded the statutory exemption limit of Rs.10 lakhs (and which has been paid along with interest on their own), the Bench noted that there was no reason to interfere in ‘such a detailed' order.

The appeal filed by the Revenue was rejected.

(See 2015-TIOL-1936-CESTAT-MUM)