The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the developer is liable to pay service tax on the amount received as rental income on letting out of residential flats and commercial spaces.
The appellant, M/s The Vardhman Developers, is engaged in construction and sale of residential house property (Flats). They are registered with the Department under the head “Construction of residential complex”. After audit, the Revenue investigation and called for the several documents, copy of sale deed executed by the appellant to the buyer of flat, copy of flat buyer agreement, copy of final allotment letter. The Revenue also found that the appellant was also let out some residential flat as well as commercial space and received rental income for which, they did not pay service tax.
The appellant have accepted their tax liability with respect to service tax on rent received. The counsel for the appellant, Mr. Abhinav Kalra, Chartered Accountant urged that the receipt in the ledger includes amounts which are non taxable in nature like income. It was also urged that delay in filing of return was not intentional but due to non availability of the accountant being on leave, the return could not be prepared in time.
The bench comprising Mr. Anil Chaudhary (JM) and C J Mathew (TM) held that so far the amount of rental income is concerned, we find that the appellant have received rent both for renting of residential flat as well as for commercial space.
“The appellant have admitted the liability under this head. However, as stated that they are not paying service tax on the rent received from renting of residential flat. As the appellant has not given the break-up of the rent received from residential flats and commercial space, we confirm demand under this head of Rs. 1,57,467/-. It is further evident from the record that the appellant has not collected any service tax on this account,” the Tribunal said.
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