Rent received by Individuals who Jointly Own Property cannot be Clubbed Together: CESTAT sets aside Service Tax Demand Order [Read Order]

The two-bench of Ramesh Nair and C L Mahar of Customs Excise and Service Tax and Appellate Tribunal (CESTAT) has set aside the demand order to pay service tax on the rent received by the individuals who jointly owned the property.

It was ruled that demand of service tax is not sustainable as the appellants are entitled for benefit of Notification No. 06/2005- S.T., dated 1-3-2005.  The  total rent receipt of the appellants were within the threshold exemption limit.

The bench observed the issue involved in the present case is that for renting of property jointly owned by five persons, whether appellants are liable to service tax by clubbing of all five persons or otherwise.

The appellant's counsel asserted that because each of the five appellants receives a specific amount of rent under the terms of the lease with Reliance Industries Limited, they are all distinct service providers. The property is owned equally by the five appellants. As a result, the rent for all people cannot be combined.

Furthermore, there is no legal entity like Body Corporate or Association of Persons therefore, rent received by the individuals cannot be clubbed and charged to service tax.

Additionally, the counsel of the appellant submitted that the total rent falls below the threshold limit of exemption under Notification No. 6/2005-ST dated 01.05.2005 therefore, the demand does not sustain.

The tribunal observed that as per lease agreement, every individual is an independent owner of his share. The rent is also paid by the service recipient to each individual. In such a case, every individual becomes a separate service provider hence, if service tax arises, it needs to be assessed in respect of every individual.

The panel highlighted the case of Neenaben R Doshi & others, which was considered by the same tribunal. In the mentioned case, the bench stated that the receipt of rental income by every individual is only subject to liability of service tax. If the value is below thresh-hold exemption limit in case of any individual, the same will not be taxable being exempted under Notification No. 06/05-ST dated 01.03.2005.

Further noted that at the same time in case of any individual person if the thresh-hold limit exceeded in the financial year, the same will be liable for service tax.

To Read the full text of the Order CLICK HERE

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