2024 (12) TMI 1025 - AT - Service Tax

Individual co-owners of leased property cannot be treated as association of persons for service tax purposes

CESTAT Chandigarh held that individual co-owners of leased property cannot be treated as association of persons for service tax purposes. Service tax ... Liability to service tax of individual owners of a property when the property is leased to others - HELD THAT:- The issue has been decided by the Tribunal in a number of cases. It is found that Tribunal Bench at Ahmedabad in the case of Sarojben Khushal Chand [2017 (5) TMI 240 - CESTAT AHMEDABAD] held that 'In the present case, the show cause notices were issued in many cases to one person among the Joint owners and in other cases to all the persons who had jointly owned the immovable property provided on rent. Needless to mention, the Service Tax Registration of individual assessees for collection of Service Tax is PAN based, hence, collection of Service Tax from one of the co-owners, against his individual Registration for the total rent received by all co-owners separately, is neither supported by law nor by laid down procedure. Thus, it is difficult to accept the proposition advanced by the Revenue that all the co-owners providing the service of renting of immovable property be considered as an association of persons and the Service Tax on the total rent be collected from one of the co-owners.' In the present appeals, service tax cannot be recovered from the appellants in a combined fashion. If considered individually, the appellants are eligible for the benefit of exemption contained under N/N. 06/2005-S.T dated 01.03.2005. However, the appellants have undertaken that they will not ask for refund of the service tax deposited as they have recovered the same from their customer i.e. Axis Bank. As we hold that the appellants are not liable to pay service tax during the impugned period, penalties imposed are not sustainable and therefore set aside. Appeal allowed. Issues Involved:1. Determination of service tax liability for individual co-owners of jointly owned immovable property.2. Applicability of threshold exemption under Notification No. 6/2005-S.T. for individual co-owners.3. Classification of co-owners as an 'association of persons' for tax purposes.4. Entitlement to penalties and refund of service tax collected.Issue-wise Detailed Analysis:1. Determination of Service Tax Liability for Individual Co-owners:The primary issue revolves around whether each co-owner of a jointly owned immovable property, who receives rent individually, should be liable for service tax separately or collectively. The appellants argued that their service tax liability should be determined individually, as they received rent in proportion to their ownership shares. The Tribunal referred to several precedents, including the cases of M/s Sidhi Vinayak Associates and Sarojben Khushal Chand, which supported the view that service tax liability should not be determined by combining the consideration received by all members of the joint property. The Tribunal concluded that service tax cannot be recovered from the appellants jointly, and each co-owner is eligible for individual assessment.2. Applicability of Threshold Exemption under Notification No. 6/2005-S.T.:The Tribunal examined whether each co-owner is entitled to the benefit of the threshold exemption limit prescribed under Notification No. 6/2005-S.T., which exempts services with an aggregate value not exceeding four lakh rupees in a financial year from service tax. The Tribunal found that each co-owner, receiving rent in proportion to their share, is eligible for the exemption separately. The Tribunal referred to the notification's conditions and concluded that the exemption applies individually to each co-owner, not collectively.3. Classification of Co-owners as an 'Association of Persons':The Revenue's contention was that the co-owners should be treated as an 'association of persons' and taxed collectively. The Tribunal rejected this argument, citing the Supreme Court's interpretation of 'association of persons' in the case of Commissioner of Income Tax v. Indira Balkrishna. The Tribunal emphasized that merely owning property jointly does not constitute an association of persons unless there is a common purpose or action. Since the co-owners were assessed separately for income tax and had separate PAN numbers, the Tribunal found no basis to classify them as an association of persons for service tax purposes.4. Entitlement to Penalties and Refund of Service Tax Collected:The Tribunal addressed the issue of penalties imposed under Sections 77 and 78. Given the conclusion that the appellants were not liable to pay service tax during the impugned period, the penalties were deemed unsustainable and were set aside. Regarding the refund of service tax, the appellants undertook not to claim any refund as they had recovered the tax from their customer, Axis Bank. The Tribunal accepted this undertaking, thus resolving the issue of refund.In conclusion, the Tribunal allowed all four appeals, ruling in favor of the appellants. The decision reinforced the principle that each co-owner's service tax liability should be assessed individually, and they are entitled to the threshold exemption under Notification No. 6/2005-S.T. The penalties were annulled, and the issue of refund was resolved based on the appellants' undertaking.