By TIOL News Service

MUMBAI, JUNE 08, 2018: THE appellant, Kagal Nagar Parishad, in the course of leasing of the premises of Government local authority, keeps a non-refundable deposit, which is called as one time premium or Salami, which is not refundable.

The lower authorities were of the view that the said deposit is liable for Service Tax under the head of Renting of Immovable Property.

Before the CESTAT, the appellant submitted that this issue is no longer res integra in as much as it is held that such non-refundable deposit cannot be taxed towards the service of renting of immovable property. Reliance is placed on the following judgments: -

+ Greater Noida Indl.Devp. Authority – 2014-TIOL-1741-CESTAT-DEL

+ Mormugao Municipal Council- 2017-TIOL-3229-CESTAT-MUM

+ Municipal Corpn. Rajahmundry- 2017-TIOL-3349-CESTAT-HYD

+ Municipal Corpn. Aurangabad- 2017-TIOL-2772-CESTAT-MUM

The Bench extracted the decision in Greater Noida Industrial Development Authority (supra), paragraph 10.1 of the same, which reads –

"10.1 A lease is a transaction, which has to be supported by consideration. The consideration may be either premium or rent or both. The consideration which is paid periodically is called rent. As regards premium, the Apex Court in the case of Commissioner of Income Tax, Assam and Manipur v. Panbari Tea Co. Ltd. - 2002-TIOL-1509-SC-IT-LB has made a distinction between premium and rent observing that when the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments for continuous enjoyment are in the nature of rent, the former is a Capital Income and the latter is the revenue receipt. Thus, the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event under Section 65(105)(zzzz) read with Section 65(90a) is renting of immovable property, Service Tax would be leviable only on the element of rent i.e. the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether this rent is collected periodically or in advance in lump sum. Service Tax under Section 65(105)(zzzz) read with Section 65(90a) cannot be charged on the "premium" or ‘salami' paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased. Since the levy of Service Tax is on renting of immovable property, not on transfer of interest in property from lessor to lessee, Service Tax would be chargeable only on the rent whether it is charged periodically or at a time in advance…"

Holding that the onetime non-refundable deposit is not liable for tax under the head of renting of immovable property, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1760-CESTAT-MUM)