Renting Residential Premises to Educational Foundation for Students Not Service Taxable: CESTAT [Read Order]

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that renting residential premises to an educational foundation for student accommodation was not liable to service tax under Section 66D(m) of the Finance Act, 1994.

Shri Karinje Sripathi Bhat, the appellant, was registered under “Renting of Immovable Property Services”. He had constructed a multistorey building with five floors and 129 rooms. The premises was rented to Alvas Educational Foundation for residential accommodation of students and staff from June 1, 2014 to May 30, 2015.

The appellant had initially declared the value under Renting of Immovable Property Services. Later, he claimed that the rental income was exempt under Section 66D(m) and Notification No. 33/2012 dated June 20, 2012. He filed a refund claim on April 27, 2015 for Rs. 6,47,490 and interest of Rs. 17,401.

The department rejected the refund claim. The original authority held that the building was rented for running a hostel and did not fall under the negative list. The Commissioner (Appeals) also held that the premises was hired for hostel use and not for residential purpose.

The appellant’s counsel argued that Section 66D(m) exempts renting of residential dwelling for use as residence. They submitted that the provision does not require the tenant himself to reside in the premises. They argued that the premises was used by students for residence on a long-term basis and that the exemption was based on the activity, not the identity of the lessee.

The appellant’s counsel relied on the Supreme Court decision in The State of Karnataka and Another v. Taghar Vasudeva Ambrish. It also referred to the Education Guide and TRU letter D.O.F. No. 334/1/2012-TRU dated March 16, 2012.

The revenue counsel argued that the appellant had self-assessed and paid service tax. It submitted that refund could not be claimed without first challenging the assessment. The revenue counsel relied on Flock India, Priya Blue, ITC and Mafatlal Industries.

The single-member bench of R. Bhagya Devi, Technical Member, observed that the refund was not rejected by the lower authorities on the ground that assessment was not challenged. The Tribunal held that the revenue could not raise a new ground beyond the show cause notice and the impugned order.

On merits, the Tribunal observed that there was no dispute that the premises was used for residence by students. It relied on Taghar Vasudeva Ambrish and held that the exemption applies where the ultimate use is residential. The tribunal allowed the appeal and held that the appellant was not liable to pay service tax on the rental income. Consequential relief was granted.

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