SERVICE TAX ON RESIDENTIAL HOSTEL HIRED TO A CORPORATE HOUSE FOR THEIR EMPLOYEES

[Hiren Thakker]

Dear Sir,

I have rented my residential house to one of the corporate house to use  the same as hostel for their employees. The corporate house is not charging any rent from its employees.

Kindly confirm, since it is a residential property and rented only for use as residential dwelling  hence no service tax is applicable

or

it is a property given for commercial use , hence service tax is liable to be charged ?

CA Hiren Thakker.

[Mahir S]

(i) [(90a) "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce -

Herein, though the corporate house is not charging any rent from its employees, however such an activity by the company can be termed as FURTHERANCE OF BUSINESS.

(ii) Even otherwise, the rent agreement/contract must have been with the company/corporate and not with the employees, which means that the residential property is used by the company in the course of its business, by way of providing accommodation to its own employees free of cost.

Hence, my personal view is that service tax is required to be paid on the rent income.

[Hiren Thakker]

Dear  Sir,

Thanks a lot for your reply.  I am a bit confused between the two purposes. One is actual using that is for residential purpose and second is the intention behind this use is commercial. 

Any way thanks for your early reply.

CA Hiren.

AI Summary

Renting of immovable property may attract service tax when provided to a corporation for employee accommodation. The statutory definition of renting of immovable property includes arrangements for use in the course or furtherance of business; where the lease or license is granted to a corporate and the company provides accommodation to employees free of charge, the property is used by the company in the course of its business, and therefore, on the view expressed, service tax is payable on the rent income received from the corporate.