Partnership firm not liable for service tax when rent paid directly to individual co-owners below threshold limit

CESTAT Ahmedabad allowed the appeal of a partnership firm challenged for service tax liability on rental income from jointly owned property. The tribunal held that where rent is paid directly to individual co-owners in their separate accounts rather than to the partnership firm, each co-owner should be treated as an individual assessee for service tax purposes. Since individual rental receipts were below the threshold limit under exemption notification 6/2005-ST, no service tax liability arose. The tribunal distinguished the revenue's reliance on Gtail Corporation case, noting different facts where the partnership firm first received rent before distribution. The demand against the partnership firm was unsustainable as it was not the actual recipient of rental income.

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Issues Involved:
1. Liability of a Partnership Firm to discharge service tax for renting of immovable property jointly owned by parents of the Firm.
2. Denial of SSI Exemption to co-owners of jointly owned property due to rent exceeding threshold limit.

Summary:
Issue 1: The Partnership Firm, engaged in leasing out a cinema theatre, jointly owned a property built into a theatre for cinema exhibition. Rent from the property was received by individual co-owners independently, credited to their accounts, and TDS was deducted by the tenant. The department argued that as partners of the Firm, they are liable to pay Service Tax. However, the Firm contended that the rent was received individually by co-owners, making them liable for Service Tax, if applicable, based on the threshold exemption limit.

Issue 2: The Tribunal found that each co-owner, as an independent service provider, received rent individually, making them liable for Service Tax if the rent exceeded the threshold exemption limit. Various judgments supported the view that individual co-owners should be treated separately for taxation purposes, and the total rent cannot be considered as one for Service Tax levy. The Tribunal distinguished a case where a partnership firm received rent and distributed it among partners, noting that in the present case, individual co-owners directly received the rent. Therefore, the demand against the Partnership Firm, which did not receive the rent, was not sustainable.

In conclusion, the impugned order was set aside, and the appeal was allowed, emphasizing that individual co-owners should be treated as separate assesses for Service Tax liability based on their individual rent receipts and the threshold exemption limit.

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