2025 (4) TMI 1188 - AT - Service Tax

One-time premium for transferring 99-year leasehold rights not taxable as rent under service tax

M/s. Bengal Silver Spring Projects Limited Versus Principal Commissioner of Service Tax-I Commissionerate, Kolkata

CESTAT Kolkata held that one-time premium received by appellant for transferring 99-year leasehold rights to sub-lessees does not constitute 'rent' under ... Classification of service - Renting of Immovable Property Service or not - transaction of transferring leasehold rights for a period of 99 years by the appellant to sub-lessees - levy of service tax under the category of Business Auxiliary Service (BAS), given the nature of the receipts involved - time limitation. Classification of service - Renting of Immovable Property Service or not - transaction of transferring leasehold rights for a period of 99 years by the appellant to sub-lessees - HELD THAT:- The one time Premium received by the Appellant cannot be equated with rent payable on regular intervals for continuous use of the property. The difference between the Premium or Salami and the lease rent as envisaged in Section 105 of the Transfer of Property Act, 1882, has been dealt in the decision of the Hon’ble High Court in the case of AR KRISHNAMURTHY AND AR RAJAGOPALAN VERSUS COMMISSIONER OF INCOME-TAX, MADRAS [1980 (12) TMI 33 - MADRAS HIGH COURT]. From the decision, it is observed that the price paid for transfer of possession or the right to enjoy the property is called the ‘Premium or Salami’ and the periodical payments made for continuous use of the property under lease is called ‘rent’. The Applicant has received only a one-time payment as Premium and hence by relying on the above decision it becomes clear that the Premium received by the Appellant cannot be called as ‘rent’. The difference between the ‘Premium’ and ‘Rent’ has been highlighted in the Judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax v. The Panbari Tea Co. Ltd., [1965 (4) TMI 19 - SUPREME COURT]. From the aforesaid judgement, it is observed that consideration, i.e. one-time payment, in the form of Premium or Salami and consideration in the form of ‘rent’ connotes two different types of consideration. In the instant case, the Applicant has not received any ‘rent’ from the sub-lessees. Accordingly, the premium or salami paid to the Applicant for transfer of right in the property, should not be exigible to the service tax. The one time Premium/ Salami received by the appellant from the sub- lessee is not a consideration towards the taxable service of 'Renting of Immovable Property'. Levy of service tax under the category of Business Auxiliary Service (BAS), given the nature of the receipts involved - HELD THAT:- The impugned Order does not specify under which clause of 'BAS' the aforesaid charges would fall. Accordingly, it is held that demand of service tax confirmed under the category of 'BAS' is not sustainable without specifying the particular Clause under the definition of 'BAS'. Accordingly, the demand confirmed under the category of 'BAS' in the impugned order is not sustainable. Time Limitation - HELD THAT:- In this case, the Show Cause Notice was issued after a period of 18 months. We also observe that the taxability on this issue has been subject matter of dispute at various forums. Also, it is a fact on record that the demand has been calculated from the audited financial statements. Thus, there is no suppression of fact with intention to evade the tax established in this case. Accordingly, the demand is also barred by limitation. Since, the demand of service tax is not sustainable, the question of demanding interest and imposing penalty does not arise. Conclusion - i) The one time Premium/ Salami received by the appellant from the sub- lessee is not a consideration towards the taxable service of 'Renting of Immovable Property'. ii) Demand of service tax confirmed under the category of 'BAS' is not sustainable without specifying the particular Clause under the definition of 'BAS'. iii) There is no suppression of fact with intention to evade the tax established in this case, the demand is also barred by limitation. iv) Since, the demand of service tax is not sustainable, the question of demanding interest and imposing penalty does not arise. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:1. Whether the transaction of transferring leasehold rights for a period of 99 years by the appellant to sub-lessees constitutes a service under the category of 'Renting of Immovable Property Service' liable to service tax.2. Whether the demand of service tax under the category of 'Business Auxiliary Service' (BAS) is sustainable given the nature of the receipts involved.3. Whether the demand of service tax is barred by limitation due to the issuance of the Show Cause Notice beyond the prescribed period.ISSUE-WISE DETAILED ANALYSIS1. Transfer of Leasehold Rights as 'Renting of Immovable Property Service'- Relevant Legal Framework and Precedents: The Finance Act, 1994, particularly Section 65(90a), defines 'Renting of Immovable Property Service'. The appellant argued that the transaction is a sale of leasehold rights and not a taxable service. The Tribunal referred to precedents such as the Luxmi Township Ltd. case, which held that permanent transfer of leasehold rights does not attract service tax.- Court's Interpretation and Reasoning: The Tribunal analyzed the sub-lease agreement clauses, observing that the appellant transferred full rights and title to the sub-lessees, with no reversionary rights retained. The transaction was considered a sale due to the permanent nature of the transfer and the payment of stamp duty, which is characteristic of sales rather than rentals.- Application of Law to Facts: The Tribunal concluded that the one-time premium received by the appellant could not be equated with periodic rent payments. The transaction was deemed a sale of leasehold rights, not subject to service tax under 'Renting of Immovable Property Service'.- Treatment of Competing Arguments: The respondent's reliance on the Greater Noida Industrial Development Authority case was countered by the Tribunal, which clarified that only lease rent, not one-time premiums, is taxable.- Conclusions: The Tribunal set aside the demand for service tax under 'Renting of Immovable Property Service', recognizing the transaction as a sale rather than a rental service.2. Demand under 'Business Auxiliary Service'- Relevant Legal Framework and Precedents: The Finance Act, 1994, defines 'Business Auxiliary Service' with specific categories of taxable services. The appellant contested the classification of various receipts under BAS.- Court's Interpretation and Reasoning: The Tribunal noted the lack of specific categorization of receipts under BAS by the adjudicating authority. The receipts included electricity charges, legal charges, miscellaneous charges, and sundry balances, which the appellant argued were not taxable services.- Application of Law to Facts: The Tribunal found that the adjudicating authority failed to specify under which clause of BAS the charges fell, rendering the demand unsustainable.- Conclusions: The Tribunal held that the demand under BAS was not sustainable without clear classification and set it aside.3. Limitation and Suppression of Facts- Relevant Legal Framework and Precedents: The limitation period for issuing a Show Cause Notice is crucial in determining the sustainability of the demand. The appellant argued that the notice was time-barred and that there was no suppression of facts.- Court's Interpretation and Reasoning: The Tribunal observed that the Show Cause Notice was issued after 18 months and that the demand was calculated based on audited financial statements, indicating transparency.- Conclusions: The Tribunal concluded that there was no suppression of facts with the intent to evade tax, and the demand was barred by limitation.SIGNIFICANT HOLDINGS- The Tribunal established that the one-time premium or salami received by the appellant for the transfer of leasehold rights does not constitute a taxable service under 'Renting of Immovable Property Service'.- The Tribunal emphasized the distinction between premium/salami and rent, relying on previous judicial interpretations, including the Supreme Court's decision in Commissioner of Income Tax v. The Panbari Tea Co. Ltd.- The Tribunal held that demands under 'Business Auxiliary Service' must be clearly categorized under specific clauses to be sustainable.- The Tribunal determined that the demand was barred by limitation, as there was no evidence of suppression of facts with intent to evade tax.In conclusion, the Tribunal set aside the impugned order on merits and limitation, allowing the appeal filed by the appellant.