Rental Income Received Separately by Each Co-Owner Below the Threshold Limit is not subject to Levy of Service Tax: CESTAT [Read Order]

The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that rental income received separately by each co-owner below the threshold limit is subject to the levy of service tax.

Based on intelligence that M. Vijayabharathi, the appellant assessee providing services under ‘Renting of Immovable Property Service’ during the period from 2007-08 onwards and have not paid appropriate service tax, verification of the transactions was conducted by the Anti-Evasion Wing of the Department. 

On perusal of documents, it was noticed that agreements with tenants of Ananda Towers were jointly entered into by the appellant as well as one Smt. Akila.   The department was of the view that property tax on the said commercial complex was assessed jointly in the name of both appellant and other co-owner Smt. Akila and the rental income received by the appellant from the property have to be considered for discharging service tax.

Show cause notice was issued proposing to demand service tax from both co-owners jointly.  After due process of law, the original authority confirmed the demand, interest as well as imposed penalty.  Against the order of the original authority, the appellant preferred to appeal before Commissioner (Appeals) who upheld the same.

Counsel Shri K. Sankaranarayan appeared for the appellant and submitted that the co-owner Smt. Akila had already preferred an appeal before the Tribunal and the demand was set aside as per Final Order No.42538/2018 dated 01.10.2018 observing that the rental income received separately is within the threshold limit and is not required to pay service tax.  Shri N. Sathya Narayanan appeared for the department and supported the findings in the impugned order. 

A two-member bench of Ms Sulekha Beevi C.S., Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that the Tribunal has set aside the demand observing that income received as rent separately by each co-owner is much below the threshold limit to subject to levy of service tax. Thus, the income falls within the threshold limit for payment of service tax.

In light of the case of S.V. Janardhanam Vs CGST & CE Salem, the CESTAT bench held that demand cannot sustain and set aside the impugned order.

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