Company Not Required to Service Tax under RCM on Rent paid to Directors for Leasing Out Premises in Their Individual Capacity: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that a company need not pay service tax on the rental amount paid to its directors who leased out the premises in their individual capacity.

The appellant, M/s Cords Cable Industries Limited, is engaged in the manufacture of instrumentation/power cable and during the period of dispute from July 2012 to August 2014, the appellant paid an amount of Rs2,73,01,852/- towards rent to Naveen Sawhney and D.K. Prashar for the premises let out by them to the appellant. The premises were used by the appellant for its Registered Office/Corporate Office. Naveen Sawhney and D.K. Prashar also happen to be the Directors of the appellant.

The premises which were let out to the appellant are owned by Naveen Sawhney and D.K. Prashar in their individual capacity and it is not the case of the department that the properties were owned by them as Directors of the appellant. In such a situation, rent wascollected by them in their individual capacity and merely because they also happen to be the Directors of the appellant would not mean that they had collected rent as Directors of the appellant.

A two-Member bench of the CESTAT comprising Justice Dilip Gupta, President and Mr. P. V. Subba Rao, Member (Technical) observed that the CBIC relied on the Notification dated 20.06.2012, as amended by Notification dated 07.08.2012 wherein the description of services, the person liable to pay service tax and the extent of service tax payable by such person under the reverse charge mechanism has been specified.

Relying on the notification, the CESTAT held that “The Commissioner (Appeals) assumed that Naveen Sawhney and D.K. Prashar are providing service of renting of immovable property as Directors of the appellant, whereas they are providing the said service in their individual capacity as owners of the premises and not as Directors of the appellant. The appellant, in such a situation, could not have been asked to pay service tax on a reverse charge mechanism. What needs to be further noticed is that service tax had been deposited on the rent received by Naveen Sawhney and D.K. Prashar from the appellant.”

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