The Authority for Advance Rulings (AAR), Chennai bench has held that GST is liable to be paid in respect of the properties rented out to the partnership firm by the partner to carry out the business even if it is free of rent as the activity is in furtherance of business.
The applicant is the managing partner in the partnership firm and having certain properties in his name. The firm is carrying out its business on those properties on free of rent. Applicant stated that in IT Act it is clear that when the partner uses his property for business carried out by the firm, then deemed rent does not arise. Hence approached AAR for clarity under GST law for the above scenario.
The bench comprising Ms. K Latha (Member SGST) and Mr. T G Venkatesh (Member CGST) has held that the property of the individual being rented out to the partnership firm is a “supply” under GST Act. However when consideration for such renting is considered, Schedule I of the CGST Act 2007 clearly states that
activities to be treated as supply even if made without consideration are supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made it in the course or furtherance of business.
The bench further held that where the supply is between related persons, the value of such supply shall be open market value of such supply. Where the open market value is not available, the supply of goods or services of like kind and quality will be the taxable value under section 15(5) of the Act.
Considering all the relevant facts AAR Chennai Bench has ruled that the property rented out for business purpose even without rent by the partner attracts GST, and the value should be arrived by applying Rule 28 of CGST/TNGST Rules 2017.
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