Co-owner rental income clubbing under service tax was unsustainable, and extended limitation failed absent suppression.

Co-owners of leased immovable property whose rental income was separately disclosed and shared under a concluded family arrangement could not have their receipts clubbed with one co-owner's income for service tax purposes, and the absence of physical demarcation did not defeat ascertainment of each share. The article also notes that where the dispute concerned interpretation of the renting levy and the material facts were already known to the authorities, suppression could not be alleged to invoke the extended limitation period. On that basis, the service tax demand, interest and penalties were held unsustainable to the extent they depended on clubbing and extended limitation.

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Issues: (i) Whether the rental income of co-owners of the immovable property could be clubbed with the appellant's income for the purpose of service tax demand and denial of threshold exemption. (ii) Whether the demands for the relevant periods were barred by limitation and whether extended limitation could be invoked.

Issue (i): Whether the rental income of co-owners of the immovable property could be clubbed with the appellant's income for the purpose of service tax demand and denial of threshold exemption.

Analysis: The appellant had disclosed the co-owners' PAN numbers, service tax registrations, rental receipts and income-tax returns, and the record showed that the rental income was being shared in accordance with the family arrangement. The memorandum of understanding was treated as evidence of a concluded family settlement and of a collateral transaction, and the absence of registration did not negate the arrangement for that limited purpose. In the absence of any effective rebuttal by the Revenue, the co-owners could not be ignored or treated as absent while their income was clubbed with that of the appellant. Physical demarcation of the property was held to be unnecessary for taxing the renting service where the value attributable to each co-owner was ascertainable.

Conclusion: The clubbing of the co-owners' rental income with the appellant's income was unsustainable, and the appellant was entitled to be treated as not liable on the entire rental value.

Issue (ii): Whether the demands for the relevant periods were barred by limitation and whether extended limitation could be invoked.

Analysis: The dispute was held to involve interpretational issues arising from the levy on renting of immovable property, and the authorities were already aware of the relevant facts when the notices were issued. In those circumstances, suppression could not be alleged for invoking the extended period. The reasoning was applied especially to the early period demand and also to the subsequent notice covering the earlier years, which was not supported by any fresh material showing suppression by the assessee.

Conclusion: The demands were barred by limitation to the extent extended limitation had been invoked, and the limitation-based challenge succeeded.

Final Conclusion: The impugned orders could not be sustained, the demands of service tax, interest and penalties were set aside, and the appeals succeeded with consequential reliefs.

Ratio Decidendi: Where co-owners of leased property are separately identifiable and have been shown to receive rental income under a concluded family arrangement, the Revenue cannot club their income with that of one co-owner without notice to the others, and extended limitation cannot be invoked in an interpretational dispute absent suppression of facts.

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