Renting of immovable property includes lease premium as taxable consideration, while penalty may fail on bona fide interpretive controversy.

Upfront fee or one-time premium received under pre-1 July 2010 concession agreements was treated as part of the taxable consideration for renting of immovable property, because premium or salami forms part of the lease consideration within section 105 of the Transfer of Property Act, 1882. The service tax demand on merits was therefore sustained. The equivalent penalty under section 78 was set aside, as the assessee, a public sector undertaking, was found to have acted under a bona fide belief in a matter involving divergent interpretations, which constituted reasonable cause on the facts found by the Tribunal.

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Issues: (i) Whether the upfront fee or one-time premium received under concession agreements entered into before 1 July 2010 was exigible to service tax under renting of immovable property; (ii) Whether the equivalent penalty imposed under section 78 was sustainable.

Issue (i): Whether the upfront fee or one-time premium received under concession agreements entered into before 1 July 2010 was exigible to service tax under renting of immovable property.

Analysis: The larger bench ruling on the same levy issue was treated as ative. It held that "premium" or "salami" forms part of the consideration for leasing within the meaning of section 105 of the Transfer of Property Act, 1882, and that renting of immovable property under the Finance Act includes such leasing arrangements. The one-time premium paid for being allowed to take possession and enjoy the property was therefore treated as consideration for renting and not as a separate non-taxable payment.

Conclusion: The upfront fee or one-time premium was held exigible to service tax, and the demand on merits was sustained.

Issue (ii): Whether the equivalent penalty imposed under section 78 was sustainable.

Analysis: The assessee was a public sector undertaking and the controversy involved interpretation of the taxing provisions with prior divergent views. In that setting, the assessee's non-payment was treated as arising from a bona fide belief, amounting to reasonable cause for purposes of penalty relief. The penalty provision was therefore not attracted on the facts found by the Tribunal.

Conclusion: The penalty under section 78 was set aside.

Final Conclusion: The service tax demand was upheld on merits, but the penalty was deleted, resulting in a partial allowance of the appeal.

Ratio Decidendi: Premium or salami received for grant of lease rights is part of the taxable consideration for renting of immovable property, while penalty may be waived where the assessee establishes bona fide belief and reasonable cause in a case involving interpretative controversy.

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