Permanent Assignment of Commercial Space with Right on Leasehold Land Not ‘Lease’: CESTAT Rejects Service Tax Demand [Read Order]

Also Read: Service Provided to Foreign Airline Amounts to Export of Service under Finance Act: CESTAT Quashes Service Tax Demand

The ruling was made by the Tribunal while adjudicating appeals filed by M/s Forum Project Holding Pvt. Ltd. and its Manager (Accounts) Deepak Agarwal, challenging an order passed by the Commissioner of Service Tax Audit, Kolkata, by which the Commissioner confirmed a total service tax demand of ₹5,58,73,725 along with interest and penalties pertaining to the period 2011-15.

Tax Audit Deadline Is Near! Are you prepared? Click here

The concerned property at centre of the issue had been leased by the Government of West Bengal to the appellant for a period of 999 years with the right to assign or sub-lease. The appellant thereafter permanently transferred certain office spaces to other entities with no reversionary rights remaining with the appellant.

Among numerous demands, a specific demand of ₹90,48,885 was raised on the ground that the company had transferred commercial property by way of a long-term lease for 999 years, and thus was alleged to be taxable as “Renting of Immovable Property.”

Tarun Chatterjee and Sneha Das appeared for the Appellant while D. Sue appeared as the Authorized Representative for the Revenue.

Also Read: No Service Taxwithout Proper Categorisation of Services: CESTAT Quashes Demands againstHIMUDA for Vagueness and Lack of Specific Classification

The appellants contended that the transaction in question was a permanent assignment of leasehold rights and not a lease involving periodic rental payments. They argued that the consideration received was a one-time premium for outright transfer of interest in property, and thus constitutes a capital receipt, being not liable to service tax.

The two-member Bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the terms of transfer demonstrated permanent assignment of ownership rights rather than a continuing lease arrangement. Accordingly, the Bench emphasized that the nature of the transaction was one of outright transfer of property and that the appellant retained no further interest after the transfer.

The Bench relied on prior Tribunal rulings such as Luxmi Township Ltd. v. Commissioner of CGST & C. Ex., Siliguri (2023) and Safari Retreats Pvt. Ltd. v. Principal Commissioner of GST & C. Ex., Bhubaneswar (2025) and the Supreme Court decision in CIT v. Panbari Tea Co. Ltd. (1965). CESTAT specifically referred to the decision from Safari Retreats (supra) where the Tribunal reiterated that a lump-sum premium or salami is a one-time payment for transfer of property rights, thus being a capital receipt and not periodic rent subject to service tax.

Also Read: CESTAT OrdersFresh Verification of BSNL Chennai Telephones’ CENVAT Credit Based on CharteredAccountant’s Certificate

Accordingly, the CESTAT set aside the service tax demand of ₹90,48,885, holding that the permanent assignment of commercial space with rights on leasehold land does not constitute “renting of immovable property.”

Since the service tax demands in the order were found unsustainable, the Tribunal quashed all associated interest and penalties.

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