Service Tax is leviable on Rent received by Individual assessee from a Property jointly owned: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal has held that service tax is leviable on rent received by an individual assessee from a property jointly owned. While allowing the appeal, the CESTAT held that the demand against the appellant who is not the recipient of the rent cannot be sustained.

M/s Mahalaxmi Enterprise ( “the Appellant” ) is a Partnership Firm consisting of six Partners and is engaged in leasing out of immovable property i.e. cinema theatre. All the Partners of the Appellant Firm jointly owned a property situated at Palanpur and have appropriated shares in the same. The aforesaid property is built up into a theatre known as ‘Movie World’ for exhibiting cinema.

For renting out ‘Movie World’, the Appellant had entered into a Conducting Agreement on 25.03.2008 and a revised agreement on 30.11.2009 with M/s. Reliance Media Works Limited ( “RM” ). Because the Partners/ co-owners intended to earn monthly/quarterly income individually, the rent from the aforesaid property was received by all of them independently in their names and was credited to their Accounts.

Against the said consideration RM would also deduct TDS on year to year basis and issue TDS Certificates to co-owners to ensure that the actual rent amount gets credited to the Accounts of the co-owners. On the rent received by the co-owners, no Service Tax was paid by them because the rent amount received by them in individual capacity was less than Rs. 10 Lacs which made them entitled to the benefit of the basic threshold exemption in terms of Notification No. 06/2005- ST dated 01.03.2005.

The department argued that all the persons who received the rent though individually but being partners of partnership firm that is appellant the appellant is liable to pay the Service Tax. 

Shri Jigar Shah, Counsel appearing on behalf of the appellant submitted that the department had erroneously issued the show cause notice to the appellant that is Partnership firm because the rent amount was received by the partners of the co-owners individually and independently and not the appellant which is a partnership firm. He submitted that the show cause notice was issued on the basis that the agreement for this was entered in between the appellant and RM and not separately with each co-owner.

It is his submission that the agreement was entered into by the appellant merely because RM did not agree to enter into separate individual agreements with each co-owner. Hence an agreement was entered into by RM with the appellant when the appellant was acting merasy of an agent for the co-owners.

He submitted that every individual has received the rent in their account and separate TDS was deducted by RM from the amount payable to the individual. On the other hand, Shri Tara Prakash Deputy Commissioner on behalf of the revenue reiterated the finding of the impugned order.

The Tribunal found that there is no dispute that irrespective of any agreement of RM with the present appellant the rent was paid by RM individually to the co-owners and TDS from the amount payable was deducted by RM. No amount was received by the appellant being a partnership.

A two-member bench comprising Mr Ramesh Nair, Member ( Judicial ) and Mr C L Mahar, Member ( Technical )  viewed that  receipt of rental income by every individual is only subject to liability of service tax. If the value is below the threshold exemption limit in the case of any individual, the same will not be taxable being exempted under Notification No. 06/05-ST dated 01.03.2005. At the same time in the case of any person, if the threshold in the financial year, the same will be liable for service tax.

It was settled that even though for one single property if the co-owners are receiving the rent individually in their account the total rent cannot be considered as one for levy or Service Tax. Every individual who receives the rent as a co-owner should be treated as an individual Assessee and if the total receipt crosses the threshold limit of exemption they are liable to pay Service Tax otherwise not.

While allowing the appeal, the CESTAT held that the demand against the appellant who is not the recipient of the rent cannot be sustained and set aside the impugned order.

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