Service Tax on Jointly Owned Property

RENTING OF IMMOVABLE PROPERTY IS A DECLARED SERVICE UNDER SECTION 66E

 As per clause (a) of section 66E, renting of immovable property is specified as a declared service. 

Hence, this service continues to be chargeable to service tax under the negative list taxation regime. 

RENTING OF IMMOVABLE PROPERTIES - NOT LIABLE TO SERVICE TAX

The following renting services are included under the negative list. Hence, these are not chargeable to service tax, namely -

(i)		renting of vacant land, with or without a structure incidental to its use relating to agriculture [section 66D(d)(iv)].
(ii)		renting of residential dwelling for use as residence [section 66D(m)].
(iii)		renting out of any property by RBI [section 66D(b); and
(iv)		renting out of any property by a Govt. or a local authority to all non-business entity [section 66D(a)(iv).

WHO IS LIABLE TO PAY SERVICE TAX?

 As per section 65B(44), 'service' implies an activity carried out by a person for another for consideration. In case of immovable properties the person, who provides the service, who is normally expected to be the owner, and receives the rent shall be liable to pay service tax.

In case of jointly owned properties - The next issue that arises is as to who will pay tax if the property is jointly owned by more than one person, i.e., there are co-owners of the same property. In such situation there could be two situations, namely—

(a)		The shares of the various co-owners are definite and ascertained and renting  agreement has been executed on this basis.
(b)		The shares are jointly held and there is no specification as to the share of each co-owner and the rent agreement is entered into on this basis.

In situation (a), each co-owner will pay tax on the rent coming to his share after availing of the basic exemption limit of Rs. 10,00,000. In other words, the liability will be determined after giving a deduction for such exemption limit in each case and tax would be payable if the rent coming to the share of different co-owners individually exceeds this limit.

In the situation (b), the liability would be determined on joint co-ownership basis, may be as Association of Persons (AOPs) or Body of Individuals (BOIs) and only one deduction for exemption limit of Rs. 10,00,000 would be available for working out the tax liability.

In Pankajbhai Champaklal Parekh v. CST [Stay Order Nos. S/2102-2104/2012/10ZB/Ahd., dated 18-9-2012], CESTAT, West Zone, Ahmedabad, considered a similar situation regarding co-ownership.

The facts of the case were that the co-owners of a building rented out the premises to a person, who issued different cheques to all the individuals. Revenue considered the amounts received by all co-owners and demanded service tax individually on the persons. Submission of assessee was that the amount received by individuals would be within the threshold limit of SSI exemption under Notification No.6/2005-ST, dated 1-3-2005 and amended vide Notification No.8/2008-ST, dated 1-3-2008

Accepting the assessee's view, the CESTAT decided on perusal of the aforesaid Notifications that the Notification talks about the aggregate value of the taxable services rendered and should be considered for the purpose of exemption. In this case if individually all the appellants be considered as providers of such service, their aggregate value would not exceed the threshold limit.