Notional interest on tenant security deposits is not taxable where rent is the agreed consideration for leasing.

Service tax could not be extended to notional interest on interest-free security deposits collected from tenants, because section 67 of the Finance Act, 1994 taxes only the gross amount charged as consideration for the taxable service. The rent was the agreed consideration for leasing the immovable property, while the security deposit served a separate protective purpose against default, utility dues, or damage. In the absence of any specific statutory deeming provision treating notional interest on such deposits as part of the taxable value, the valuation could not be enlarged by implication. The resulting demand was therefore unsustainable.

---

---

Issues: Whether service tax could be levied on the notional interest computed on interest-free security deposits collected from tenants in addition to the rent on which service tax had already been paid.

Analysis: Under section 67 of the Finance Act, 1994, service tax is chargeable on the gross amount charged for the taxable service, and the consideration must be the amount payable for the service provided or to be provided. The rent was the agreed consideration for leasing the immovable property, while the security deposit was taken for a different purpose, namely safeguarding against default in rent, utility charges, or damage. In the absence of any specific provision deeming notional interest on such security deposits to be part of the consideration, the taxable value could not be expanded by a notional addition.

Conclusion: Service tax could not be levied on the notional interest calculated on the interest-free security deposits, and the demand was unsustainable.

---