Relief for Trust: Delhi HC Rules Trading in Land and Immovable Property Without Fixed Remuneration Does Not Attract Service Tax [Read Order]
The Delhi High Court ruled that trading in land and immovable property without fixed remuneration does not amount to real estate agent service and is not liable to service tax
In a recent ruling, the Delhi High Court held that when a transaction involves trading in land and immovable property without any fixed remuneration, it does not attract service tax.
The respondent, Government Official Welfare Organisation, is a trust formed by serving and retired government officials. Under a memorandum of understanding signed in 2009 with India Affordable Housing Solutions, the trust collected applications and deposits from its members for allotment of residential flats from builders.
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A membership fee of Rs. 50,000 and small deposits were collected, which were refundable or adjustable against the cost of flats. In 2014, the Anti-Evasion Branch issued a show cause notice alleging that the trust was operating as a real estate agent and liable to pay service tax.
The adjudicating authority passed an order in 2018 dropping the show cause notice. It held that the trust was not acting as a real estate consultant, that no consultancy or technical services were rendered, and that deposits collected were refundable while cancellation charges were penal in nature.
The CESTAT confirmed this view in 2024, holding that the activity was not taxable under the Finance Act, 1994. The revenue then filed an appeal before the High Court arguing that the trust’s activities fell within the scope of “real estate agent service” because it facilitated the booking of flats with builders on behalf of its members.
They submitted that cancellation charges and deposits also formed part of the taxable consideration.
The two-member bench comprising Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta observed that the CESTAT had applied binding precedents such as Saumya Construction Pvt. Ltd. and Ess Gee Real Estate Developers Pvt. Ltd. to hold that trading in land and immovable property, without a fixed remuneration or commission, does not fall within the definition of real estate agent service.
The court explained that the deposit of Rs. 5,000 per member was meant for adjustment or refund and could not be treated as consideration for taxable services. It also pointed out that the trust consisted of serving and retired officials and raising demands after so many years would unfairly burden them and disturb transactions where third-party rights may already have been created.
The revenue’s appeal was dismissed.
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