The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand on amount received from ‘Renting of Immovable Property Services’.
The appellant, M/s. Peninsula Hotels (P) Ltd, had entered into an agreement with M/s. GRT Regency (“GRT”) by which GRT obtained lease of the Hotel and the premises. GRT then obtained registration for providing ‘Outdoor Catering Services’ and ‘Mandap Keeper Services’. During the scrutiny of records of GRT it was noticed that GRT had entered into an agreement with the appellant.
It appeared to the Department that the license fee is nothing but rent paid by GRT to the appellant towards renting of the appellant’s premises of M/s. Peninsula Hotels (P) Ltd. The activity was taxable under Renting of Immovable Property Service and the appellant is liable to pay service tax on the amounts received from GRT. The appellant had not paid service tax on such amounts received by them.
Joseph Prabhakar appeared and argued for the appellant. It was submitted by the counsel that, as per the License agreement, the appellant had granted license to GRT to operate and run the Hotel. Though the appellant was earlier running the hotel and registered with the Department for providing ‘Outdoor Catering Services’ and ‘Mandap Keeper Services’, after executing the said agreement with GRT, the appellant exited the business of running the hotel. Consequently, the appellant had surrendered the service tax registration on 09.07.2010.
The Counsel further submitted that the appellant is not receiving any rent for leasing out immovable property. Appellant is receiving a share of the profit of running the hotel as agreed between the parties. The appellant has not received any consideration in the form of rent for providing the services of ‘Renting of Immovable Property’.
K. Komathi appeared and argued for the Department. The Counsel submitted that even if it is partly used for residential or accommodation purposes when part of the building is used for other services, it is deemed to be used for the furtherance of business or commerce and would be covered by the definition. The appellant has received license fee as stated in the agreement for renting of the immovable property which is the Hotel.
A Two-Member Bench of the Tribunal comprising Sulekha Beevi C.S, Judicial Member and M Ajit Kumar, Technical Member relied on the judgment in Ambience Construction India Ltd. Vs. Commissioner of Service Tax, Hyderabad, wherein it was held that if there is no “fixed rent” that is payable as would be expected in a normal renting of immovable property transaction. On the other hand, the consideration for license to run, conduct and operate the hotel is a “license fee” equivalent to 15%/20% of the annual sales from the operation of the hotels. This being so, the license fee that would accrue to the appellant is only a percentage of the turnover
The Tribunal concluded that “If the business is at a loss or suppose the hotel has to be closed down (for eg., in a situation like lockdown during COVID-19) there may not be any income for the hotel. The appellant then does not get any consideration. Whereas in a situation of renting of immovable property, the consideration is for the service of providing renting of immovable property. In other words, the rent is paid all along when the transfer of right in the immovable property is active and alive.”
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