Accommodation exclusion in renting of immovable property: integral hotel facilities do not trigger the deeming rule, exclusion upheld.

The question concerns whether premises leased as a hotel, including on-site restaurant, banquet hall, conference hall, bar and health club, fall within the exclusion to taxable "renting of immovable property". The analysis applies the accommodation exclusion under Section 65(105)(zzzz) and treats ancillary facilities as integral and incidental to hotel accommodation rather than separate commercial deployment. Explanation 2's deeming provision is held inapplicable where facilities form part of the hotel use and do not evidence bifurcation into distinct businesses. Result: the premises qualify for the exclusion and the service tax demand is set aside.

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Issues: Whether a building leased out for use as a hotel, which includes facilities such as restaurant, banquet hall, conference hall, bar and health club, falls within the exclusion from taxable 'renting of immovable property' under Section 65(105)(zzzz) of the Finance Act, 1994, notwithstanding Explanation 2 to that provision.

Analysis: The exclusionary language of Section 65(105)(zzzz) exempts buildings used for accommodation, including hotels. Clause (90a) of Section 65 defines 'renting of immovable property' with inclusionary and exclusionary elements and explanatory clauses. Facilities such as restaurant, banquet hall, conference hall, bar and health club, when functioning as part of hotel operations, are integral and incidental to accommodation services rather than constituting independent commercial deployment of the premises. Explanation 2, which deems an immovable property partly used for business to be for business, does not apply where the additional facilities are integral to the hotel use and do not demonstrate a bifurcation of the premises into distinct commercial activities.

Conclusion: The leased premises qualify as a building used by a hotel and therefore fall within the specific exclusion in Section 65(105)(zzzz) of the Finance Act, 1994; the impugned service tax demand is unsustainable and is set aside in favour of the assessee.

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