No Service Tax Leviable under Renting of Immovable Property when Amount Received in Nature of Sharing of Profit :CESTAT [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that no service tax is leviable under the category of renting of immovable property when the amount received like sharing of profit. 

Hotel Shreelekha Regency Limited, the application assessee was engaged in the hotel business. The appellant had constructed a multi-storied building and was running a three-star hotel called Hotel Shreelekha Regency. The department based on an investigation issued a show cause notice and imposed duty liability under taxable services ‘renting on immovable property’. 

The assessee appealed against the order passed by the adjudicating authority for the imposition of tax liability on the assessee. 

Radhika Chandrasekar, the counsel for the assessee contended that the amount received was like sharing of profits and cannot be considered as rent and the main object of the agreement was to exploit the commercial potential of the hotel business and the use of the immovable property was only incidental and the same cannot be considered as letting of immovable property. 

Further submitted that there cannot be a demand of service tax under renting of immovable property service when the amount received was like sharing of profits and the same cannot be considered as rent received for renting / licensing of immovable property as the intention was not merely to permit the use of space and that the consideration is based on the annual sales. 

M. Ambe, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee has handed over immovable and movable property to Palm Grove for running the hotel business and all the employees had left the services or their services have been terminated. 

Also stated that the agreement clearly shows that the assessee had no say in the day-to-day business of the hotel right from the appointment of staff and running of the hotel. 

The bench observed that the revenue’s stand that Service Tax was liable for renting the impugned property was not correct and was untenable in law and liable to be deleted. 

The two-member bench comprising P. Dinesha (Judicial) and M.Ajith Kumar (Technical) quashed the demand for service tax imposed by the department while allowing the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates