Partnership or renting service

[S.C. WADHWA]

We have received rent from one of our building from the year 2007 to March 2015
on monthly basis as per agreement. 1) Fixed rent 2) variable rent of 5%
of sale value also on monthly basis. Now from April 2015 we are getting amount 40% of
gross sale value and no fixed rent will be received in future.
Dear Experts, We have received rent from one of our building from the year 2007 to March 2015 as per agreement i.e 1) Fixed rent 2) Variable rent @5% of Gross sale value per month. From April we are getting 40% of gross sale value. No fixed rent fill be received in future. No minimum guarantee of value. Now my query is whether we drafted a partnership deed and inform to the deptt that tenant has vacated the building or this 40% receipt to be treated as rental income. Please give your expert opinion immediately to enable us to deposit service tax if applicable well in time. Regards, WADHWA
Regards,
WADHWA

[S G]

Dear Mr. Wadhwa,

From your aforementioned query, I am of the view that earlier you were getting the rent from the Tenant and thereafter the 40% of sale value is also shared by the same Tenant.

In this regard, my views are as follow:

1. In the absence of Partnership:

In the absence of partnership deed, if you have provided the immovable property to someone for doing business or other activity and he is paying any amount, in any form, as may be decided the same shall be treated as service amount and shall be taxable under 'Renting of Immovable Property'. Even ST authority will presume the activity is service.

Further, as per the Section 67 of the Finance Act, 1994, service tax chargeable on any taxable service with reference to its value shall,-

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

Hence, form above it is relevant to note that you have to pay the Service Tax as there is flow of consideration (in any form) for providing the building.

2. In case of Partnership/ Partnership Deed:

Assuming that you have partnership deed and share of said 40% is not correlated with the immovable property in any manner in the partnership deed. In that case, you need not be required to deposit service tax. As the same shall be treated as part of Partners profit sharing/salary, as per Partnership Act.

The views are based on the facts informed and mentioned therein. Author will not be responsible if any contrary interpretation is given by any Court having binding effect.

Thanks!!

AI Summary

Renting of immovable property taxable as service when consideration flows; partnership deed may recharacterise receipts. In the absence of a partnership, amounts received for permitting use of immovable property - fixed rent, percentage of sales, or a share of gross receipts - are consideration for Renting of Immovable Property and taxable as service tax on the gross amount. If a valid partnership deed shows the receipts are partners' profit shares unrelated to property use, those amounts may be treated as partnership income rather than taxable rent.