As per the ruling of the Delhi Bench Of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), the value of “premium” or “salami” is subject to service tax under “renting of immovable property” for the time period before July 1, 2012, under section 65(105)(zzzz) of the Finance Act, and starting on July 1, 2012, under section 66B of the Finance Act.
A Division Bench of the Principal Bench of the Tribunal, while hearing Service Tax Appeal filed by Rajasthan State Industrial Development & Investment Corporation Ltd, noticed that conflicting views had been expressed by Division Benches of the Tribunal, therefore, referred the following issue to be resolved by a Larger Bench of the Tribunal. The City and Industrial Development Corporation of Maharashtra Limited , the co appellant filed appeal against the said order.
The issue raised was whether „premium‟ or „salami‟ can be subjected to levy of service tax under “renting of immovable property‟ defined under section 65(90a) of the Finance Act. The issue that arises for consideration is regarding the taxability of the value of “premium” or “salami” for the period prior to 01.07.2012 and w.e.f. 01.07.2012 under “renting of immovable property‟.
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Section 65(90a) of the Finance Act, 1994 defines “renting of immovable property” prior to 01.07.2012 and this service was made taxable under section 65(105)(zzzz) of the Finance Act. Section 65B (44) of the Finance Act defines “service” w.e.f. 01.07.2012 to mean any activity carried out by a person for another for consideration, and includes a „declared service‟. “Renting of immovable property” constitutes a „declared service‟ under section 66E (a) of the Finance Act.
The distinction between “premium” and “rent” was pointed out by the Judicial Committee in Raja Bahadur Kamakshya Narain Singh, of Ramgarh vs. Commissioner of Income-Tax, Bihar and Orissa. It was stated that the Salami has been, rightly, in their Lordships‟ opinion, treated as a capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease. The general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account. But the royalties are on a different footing.
The two member bench of Justice Dilip Gupta (President), Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that “Renting of immovable property” is a “declared service” under section 66E of the Finance Act. Once “renting of immovable property” is a declared service and so taxable under section 66B of the Finance Act, it cannot be contended by the appellant that it will also be included in those services which are excluded under section 65B (44) of the Finance Act, for it can never be the intention of the legislature to include a “service” as exigible to service tax and at the same time also exclude that “service” from taxability.
The tribunal held that once “renting of immovable property” is a declared service and so taxable under section 66B of the Finance Act, it cannot be contended by the appellant that it will also be included in those services which are excluded under section 65B (44) of the Finance Act, for it can never be the intention of the legislature to include a “service” as exigible to service tax and at the same time also exclude that “service” from taxability.
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“Premium” is a payment for being allowed to take possession of the immovable property. It is a price paid for a transfer of a right to enjoy the property. The lessor, who owns and possesses the property transfers the possession to another for a price. There can, therefore, be no doubts that „premium‟ is the amount received for “renting” of immovable property. It was observed that consideration is received in the form of premium which would be included in the definition of “renting”. “
Renting of immovable property” is a “declared service” under section 66E of the Finance Act. Once “renting of immovable property” is a declared service and so taxable under section 66B of the Finance Act, it cannot be contended by the appellant that it will also be included in those services which are excluded under section 65B (44) of the Finance Act, for it can never be the intention of the legislature to include a “service” as exigible to service tax and at the same time also exclude that “service” from taxability.
The larger bench has placed two appeals before the respective Division Benches of the Tribunal for deciding them on merits.
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