2018 (7) TMI 227 - AAR - GST

GST Applicable on Tenant Compensation for Alternate Accommodation & Delayed Possession

In Re : Zaver Shankarlal Bhanushali

The Authority for Advance Ruling held that the compensation received by the tenant for alternate accommodation and delayed possession from the developer ... Levy of GST - Tripartite agreement - taxability of services - scope of 'supply' - Alternate accommodation to be paid to the tenant of the old building by the developer/owner - compensation for alternate accommodation / damages for delayed handover of possession of the new premises. Is GST applicable on the compensation for alternate accommodation to be paid to me (the tenant of the old building) by the developer/owner? - Held that:- For vacating the said premises, the applicant has received/is to receive compensation from the developer - the act of vacating premises for facilitating the developer implies that the applicant has agreed to do an act and such act, of vacating the premises, by the applicant, squarely falls under clause 5(e) of the Schedule II mentioned above and therefore the amounts received by the applicant for having agreed to do such an act, would attract tax liability - Answered in the affirmative. Is GST applicable on the compensation for alternate accommodation / damages for delayed handover of possession of the new premises to be paid to me (the tenant of the old building) by the developer/owner? - Even during the period of redevelopment, the applicant remains a tenant of the owners of the old premises and continues to pay them due rent @ ₹ 5,000/- per month. However in lieu of they vacating the rented premises for redevelopment as per the agreement of redevelopment as referred above, the applicant is agreeing to the obligation to the obligation to refrain from an act or tolerating an act or situation of redevelopment in place of old premises and of not causing hindrance or creating obstacle in the same - the receipt of amounts towards alternate accommodation or delayed possession of premises would be receipt of amounts for doing an act i.e. vacating the premises for redevelopment as well as tolerating the construction cum redevelopment work till possession of new redeveloped premises as per agreement and further for tolerating an act i.e the act of not having completed the redevelopment work within 36 months. In view thereof, the same would definitely be a 'supply' under the GST Act and therefore, there arises an occasion to levy lax under the GST Act on the impugned transactions - Answered in the affirmative. Ruling:- GST is applicable on the compensation for alternate accommodation received by them. GST is applicable on the compensation for alternate accommodation/ damages for delayed handover of possession of the new premises received by them. Issues Involved:1. Applicability of GST on compensation for alternate accommodation paid to the tenant by the developer/owner.2. Applicability of GST on compensation for alternate accommodation/damages for delayed handover of possession of new premises paid to the tenant by the developer/owner.Detailed Analysis:Issue 1: Applicability of GST on Compensation for Alternate AccommodationThe applicant, a tenant, vacated the premises for redevelopment by the developer. The developer agreed to pay the tenant Rs. 2,05,000/- per month for the first 24 months as compensation for alternate accommodation. This compensation is paid because the tenant agreed to vacate the premises, facilitating the redevelopment process. As per Section 7 of the GST Act, a supply includes all forms of supply of goods or services made for a consideration in the course or furtherance of business. The act of vacating the premises is considered as agreeing to the obligation to refrain from an act, which is treated as a supply of services under Schedule II, clause 5(e) of the GST Act. Therefore, the compensation received for alternate accommodation is subject to GST.Issue 2: Applicability of GST on Compensation for Delayed Handover of PossessionThe agreement also stipulated that if the developer failed to hand over the new premises within 24 months, the tenant would receive increased compensation for the delay. The compensation would be Rs. 2,25,000/- per month for the next 6 months and Rs. 2,47,000/- per month for the subsequent 6 months. If the delay extended beyond 36 months, the tenant would receive Rs. 5,00,000/- per month as damages. This compensation for delayed possession is also considered as agreeing to tolerate an act or situation, which falls under the definition of supply of services as per Schedule II, clause 5(e) of the GST Act. Consequently, GST is applicable on these amounts as well.Conclusion:The Authority for Advance Ruling held that the amounts received by the applicant, whether for alternate accommodation or for delayed handover of possession, are subject to GST. The compensation for vacating the premises and tolerating the delay in handover is considered a supply of services under the GST Act.Order:1. GST is applicable on the compensation for alternate accommodation received by the tenant.2. GST is applicable on the compensation for alternate accommodation/damages for delayed handover of possession of the new premises received by the tenant.The applicant has the right to appeal this order with the Appellate Authority, Advance Ruling Maharashtra, within the stipulated time frame and as per the prescribed procedure.