999-Year Lease not “Renting of Immovable Property” but Permanent Transfer: CESTAT Holds No Service Tax on One-Time Premium [Read Order]
CESTAT noted that One-time premium for 999-year lease is a capital receipt and that no service tax was leviable as the transaction amounts to transfer of leasehold interest.
Lease - Renting of Immovable Property - CESTAT - Service Tax - taxscan
Lease - Renting of Immovable Property - CESTAT - Service Tax - taxscan
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) recently held that amounts that are received as a one-time premium for transfer of leasehold rights for 999 years are not exigible to service tax under the head of “Renting of Immovable Property”, while affirming that the receipts are to be treated as capital consideration for permanent transfer and not periodic rent.
The present appeal was instituted before CESTAT by M/s Forum Project Holding Pvt. Ltd. and its Manager (Accounts) Deepak Agarwal, challenging an order by the Commissioner of Service Tax Audit, Kolkata, confirming service tax demands and imposing penalties under Sections 78 and 78A of the Finance Act, 1994.
The factual matrix states that the appellant had obtained leasehold rights from the Government of West Bengal for 999 years with explicit power to assign or sub-lease, and executed agreements transferring constructed office spaces together with proportionate undivided rights in leasehold land to third parties for a lump-sum consideration described as “sub-lease premium”.
The agreements provided for mutation of title, allocation of property tax liability to assignees and expressly contemplated that the transferred interest would not revert to the appellant. A show-cause notice dated 18 October 2016 invoked an extended period of limitation and the impugned order confirming numerous demands including ₹90,48,885 on this count along with interest and penalties. It is against the entire demand, interest and penalty that these appeals have been filed.
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Tarun Chatterjee and Sneha Das appeared for the appellant while D. Sue appeared as the authorized representative for the Revenue. The appellant placed on record the agreements and contended that the consideration was a capital receipt for transfer of leasehold interest and not periodic rent liable to service tax; these factual contentions and evidentiary material were considered by the Tribunal.
A Bench of AshokJindal, Member (Judicial) and K. Anpazhakan, Member (Technical) examined the terms of the agreements and applied the substance-over-form principle.
CESTAT relied on the Supreme Court decision in Commissioner of Income Tax v. The Panbari Tea Co.Ltd. (1965) where it was clarified that if the payment is made as consideration for the transfer of a right to enjoy the property, it is rent; whereas if the payment is made as a price for the transfer of an interest in the property, it is capital in nature.
The Tribunal further observed that rent involves periodical payments for continuous enjoyment, whereas the lump-sum premium in this case represented transfer of interest in the property.
Accordingly, the Bench concluded that the transaction did not constitute “renting of immovable property” within the meaning of Section 65(105)(zzzz) read with Section 65(90)(a) of the Finance Act, 1994 and thus set aside the confirmed demand of ₹.90,48,885 together with interest and penalties on the appellants.
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