Amount received for providing Common facilities is subject to Service Tax under the head ‘renting of immovable property’: CESTAT [Read Order]

The Delhi bench of the CESTAT, on Monday, held that service tax is payable on the amount received for providing Common facilities under the head ‘ renting of immovable property’ through the same was received under a separate agreement.

The assessee, in the instant case, was managing a hotel including shopping/office space in the said building located near Airport, New Delhi. They have granted sub-lease of the commercial block to various parties and entered into different agreements in this regard. For each of the sub-licensee for lease, the appellants had the license agreement, which is for providing office or commercial space on lease on rent; maintenance agreement for operating air- conditioning plant, generators, motor water pumps and electric installations, etc. in the licensed premises. In pursuance of this agreement, they also operate lifts and firefighting equipment, etc. The third agreement is for user charges.

The appellant paid service tax on the amount received under the agreements for renting of immovable property service. The Revenue took a view that the amount received under the other two agreements are liable to pay service tax for the period 16.06.2005 to 31.05.2007 under the category of maintenance or repair service in terms of Section 65(64) of the Finance Act, 1994.

While concluding the matter in favor of the Assessee, the bench observed that  as per the agreements, the primary object and reasons for these agreements are for the lessee to use the allotted space and to facilitate a proper usage of such leased out space, it is necessary for the appellant to provide all the required common facilities. “Though there were arrangements through separate agreements, we note that the considerations under different headings, which are attributable to maintenance and repair and other activities are in essence with reference to the leasing out the property of the appellant. It cannot be said that the rental consideration received by the appellant alone can be taxed under renting of immovable property service. The other charges collected for common facilities are essentially forming part of the leasing service, without which the said leased agreements, of leasing out and usage of leased out property is not possible. Accordingly, we find that the whole consideration is with reference to leasing out of the commercial property and is right to be taxed as renting of immovable property w.e.f. 1.6.2007. The appellant pleaded that they have paid service tax on such liability. We hold that a portion of the consideration for such renting cannot be taxed prior to 1.6.2007 under a heading of maintenance or repair service.”