2015 (9) TMI 790 - AT - Service Tax

Co-owners renting jointly taxed individually, not as group for service tax.

The Tribunal upheld the decision that co-owners jointly renting out a property should be treated as individual service providers, not an association of ... Renting of immovable property - association of persons - exemption under Notification No. 6/2005-ST - payment under Section 73(3) with immunity from penalty under Explanation 2 - penalties under Sections 76, 77 and 78Association of persons - renting of immovable property - Whether the co-owners are to be treated as an association of persons so as to attract joint and several service tax liability - HELD THAT: - The Tribunal accepted the first appellate authority's finding that the co-owners acted and contracted in their individual capacities and that the Department had not shown any legal basis for treating the four co-owners as a single person for tax liability. Lease agreements were in the individual names of the co-owners, receipts of rent were distributed among them, and each obtained separate registration and made individual payments. On these facts, the co-owners could not be clubbed as an 'association of persons' for imposition of a joint or several service tax liability; tax liability must be determined with reference to individual receipts.Co-owners are not an association of persons for the purpose of imposing joint and several service tax liability; liability is to be assessed on individual rental receipts.Exemption under Notification No. 6/2005-ST - renting of immovable property - Whether the exemption in Notification No. 6/2005-ST applies to the assessee/co owners for the years in dispute - HELD THAT: - Applying the principle that liability is to be judged on individual receipts, the first appellate authority found that for 2007-08 and 2008-09 each co-owner's share of rent was below the exemption threshold prescribed by Notification No. 6/2005-ST, and therefore no service tax was payable for those years. For 2009-10 and 2010-11 each co-owner's receipts exceeded the exemption limit; the co-owners, however, voluntarily paid the service tax with interest before issuance of the show cause notice. The Tribunal concurred with these findings and accepted the appellate authority's application of the notification to those years where the individual receipt fell below the exemption limit.Notification No. 6/2005-ST exemption applies to 2007-08 and 2008-09 on individual assessment; for 2009-10 and 2010-11 individual receipts exceeded the exemption but tax with interest was paid by the co-owners prior to notice.Payment under Section 73(3) with immunity from penalty under Explanation 2 - penalties under Sections 76, 77 and 78 - Whether penalties under Sections 76 and 78 were correctly imposed and whether the voluntary payment attracted protection from penalty - HELD THAT: - The first appellate authority held that since the co-owners paid the service tax with interest on their own initiative before service of the show cause notice, the conditions of subsection (3) of Section 73 (as interpreted in the impugned order) applied and Explanation 2 to that subsection precluded imposition of penalties under the Act for the relevant period. Consequently penalties under Section 76 and Section 78 were set aside. Penalties under Section 77 were maintained by the appellate authority and that part of the order was not challenged by the respondent. The Tribunal found no reason to interfere with the appellate authority's conclusions regarding penalty relief arising from voluntary payment prior to notice.Penalties under Sections 76 and 78 set aside because tax with interest was voluntarily paid before notice, invoking the protection of Section 73(3) and Explanation 2; penalties under Section 77 upheld (not challenged by respondent).Final Conclusion: The Revenue appeal is without merit and is rejected. The first appellate authority's order - treating the co-owners' liabilities on an individual basis, applying Notification No. 6/2005-ST for the years where individual receipts fell below the exemption limit, and setting aside penalties under Sections 76 and 78 on account of voluntary payment under Section 73(3) - is upheld; the portion upholding penalties under Section 77 remains undisturbed. Issues:1. Whether the co-owners of a property jointly engaged in renting out the property are to be treated as an association of persons for service tax liability.2. Whether the benefit of notification No. 6/2005-ST applies to the case.3. Whether penalties under Section 76 and 78 of the Finance Act, 1994 are applicable.Issue 1:The appeal revolves around determining whether co-owners of a property jointly engaged in renting it out should be treated as an association of persons for service tax liability. The Revenue contended that the co-owners were not disputing that the services fell under 'renting of immovable property.' However, the first appellate authority correctly found that the co-owners should not be considered jointly or severally liable for service tax. The authority noted that each co-owner had obtained separate registration certificates and paid their individual service tax liabilities. The appellate authority concluded that the co-owners should be considered as individual service providers, not jointly liable. The Tribunal upheld this conclusion, emphasizing the correct application of the law in this case.Issue 2:The second issue pertains to the applicability of notification No. 6/2005-ST to the case. The first appellate authority correctly determined that the co-owners were individually liable for service tax and were eligible for exemption under the said notification for certain years where their rental income fell below the exemption limit. The Tribunal concurred with this finding, highlighting that the co-owners had paid their service tax liabilities before any investigation or notice from the department. The Tribunal agreed that no penalty should be imposed for the relevant period as the co-owners had proactively paid their service tax dues.Issue 3:Regarding the penalties under Section 76 and 78 of the Finance Act, 1994, the Revenue argued that the penalties set aside by the first appellate authority were incorrect. However, the Tribunal found that there was no intentional suppression of facts by the co-owners to evade service tax. The Tribunal agreed with the first appellate authority's decision not to impose penalties under these sections. As the co-owners were individually liable for service tax and had paid their dues before any notice, the Tribunal held that no penalties should be levied. The Tribunal upheld the decision on penalties, as the co-owners were not in appeal against the imposition of penalty under Section 77 of the Finance Act, 1994.In conclusion, the Tribunal rejected the Revenue's appeal, affirming the first appellate authority's decision on the issues discussed. The co-owners were deemed as individual service providers, eligible for exemption under the notification, and not subject to penalties under Sections 76 and 78.