2018 (10) TMI 559 - AT - Service Tax

Co-owners' Service Tax Exemption Upheld: Individual Rent Income Not Clubbed

The case involved whether co-owners of a commercial complex could individually avail the threshold exemption for service tax liability. The issue was ... Exemption under Notification No.6/2005-ST - clubbing of rental income of co-owners - service tax liability on renting of immovable property - association of persons - levy and recovery of service tax from individual co-owner - penalty under Section 77 and 78 of the Finance Act, 1994Exemption under Notification No.6/2005-ST - clubbing of rental income of co-owners - service tax liability on renting of immovable property - association of persons - levy and recovery of service tax from individual co-owner - penalty under Section 77 and 78 of the Finance Act, 1994 - Whether rents received by individual co-owners of jointly owned immovable property must be aggregated for computing service tax liability under Notification No.6/2005-ST, and whether the demand, interest and penalties confirmed by the authorities can be sustained. - HELD THAT: - The Tribunal applied consistent precedents holding that where co-owners receive rent in their individual capacities proportionate to their shares, possess separate PANs and separate service tax registrations, they are not to be treated as an association of persons so as to permit aggregation of the total rent for denying the benefit of the exemption under Notification No.6/2005-ST. The reasoning rejects the Revenue's contention that indivisibility of the physical property or the definition of 'person' warrants treating co-owners collectively; service tax is levied on the value of the service rendered by each provider and, where each co-owner's receipt falls below the threshold, the exemption applies to them individually. The Tribunal relied on and followed earlier decisions including Sarojben Khusalchand and others, and recorded that collection of service tax from one co-owner for the total rent received by all, contrary to PAN-based registration and prescribed procedure, is not permissible. Applying these principles to the facts for the period April 2009 to September 2010, the Tribunal found the impugned demand, interest and penalties unjustified and not supportable by law.The impugned order confirming service tax demand, interest and penalties is set aside; the appeal is allowed and the benefit of the Notification is extended to the appellant, with consequential relief as per law.Final Conclusion: The Tribunal allowed the appeal, holding that rents received by co-owners in their individual capacities are not to be clubbed for denying exemption under Notification No.6/2005-ST for the period April 2009 to September 2010, and set aside the confirmed demand, interest and penalties with consequential relief. Issues:1. Whether the co-owners of a commercial complex can individually avail the threshold exemption for service tax liability.2. Whether the rental income received by each co-owner in proportion to their share in the jointly owned property can be clubbed together and assessed to service tax.Analysis:Issue 1:The case involved the question of whether the co-owners of a commercial complex could individually avail the threshold exemption for service tax liability. The department contended that the co-owners could not individually avail the exemption, leading to a demand for differential service tax. The original authority confirmed the tax liability, interest, and penalties. In appeal, the Commissioner upheld the order, prompting the appellants to approach the forum.Issue 2:During the hearing, the appellant's advocate argued that the exemption under Notification No.6/2005-ST applied to both co-owners individually. She asserted that the rent received by each owner based on their share in the property could not be clubbed together for service tax assessment. The advocate cited various Tribunal decisions supporting this position. On the contrary, the respondent supported the impugned order.Upon hearing both sides and reviewing the facts, the bench found merit in the appellant's argument. They referred to the Tribunal's decision in the case of Sarojben Khusalchand Vs CST Ahmedabad, which emphasized that each co-owner receiving rent proportionate to their share should not be considered as an association of persons for service tax assessment. The bench highlighted that the Service Tax Registration of individual assesses is PAN-based, making it inappropriate to collect service tax from one co-owner for the total rent received by all co-owners separately. The bench also rejected the Revenue's argument that since the property was indivisible, service tax should be levied on the total rent without apportioning it among co-owners. Relying on previous Tribunal decisions, the bench allowed the appeal, setting aside the impugned order and granting consequential relief as per law.In conclusion, the judgment clarified that each co-owner of a jointly owned property can receive rent in proportion to their share without being considered an association of persons for service tax purposes. The decision aligned with established legal principles and previous Tribunal rulings, providing clarity on the issue at hand.