Service Tax on right of collection of rent

[Kunal Pawar]

If one party 'A' is owner of property which he gives on rent to some tenants for commercial purpose and through Auction, 'A' sells the rights of collection of rent from the tenants to other party 'B' for amount of ₹ 50 Lacs per annum. 'A' receives ₹ 50 Lacs from 'B' per year. Is there any Service Tax liability on 'A' in the said case, if so, under which Service Tax category the service would be classifiable.

[Rajagopalan Ranganathan]

Sir,

A gives the right of collection of rent from the tenants of the property which belongs to A. For assigning such right A receives ₹ 50 lacs from B. I feel that this will be treated as actionable claim. If it is so then no service tax is payable.

On the other hand the amount earned by A can be treated as rent received from his property and the same can be subjected to service tax as rental income. The fact that such rent is received through an agent, namely B will not affect Revenue's right to charge and collect the service tax due.

I would request other experts of this forum to give their considered opinion about this matter.

[Ganeshan Kalyani]

The amount receivable by A from B is nothing but rent receivable by A from the tenants. Thus the category of taxable service only because an intermediary is involved does not changes the fact of the arrangement between the tenants and A. Further the amount which is paid by B to A and subsequently collected from the tenants would fall under either under the taxable category of Business Support service or more likely under taxable category recovery of sum (65 (105)(zzzl). This is my view.

[KASTURI SETHI]

This is a very hypothetical query and such query should not be answered because filing reply without perusing terms and conditions of contract executed between 'A' and 'B' will not be complete and concrete. My premonition is that it is just planning and contract is still to be executed.However, since Sh.Rajagopalan Ranganathan, Sir, has invited comments so I would like to opine as under :-

(1) In this situation both 'A' and 'B' have provided taxable services. 'A' has provided taxable service under the category of 'Renting of Immovable Property' and 'B' has provided service under the category of 'Recovery Agent Services under Section 65(105)(zzzl). (Now Other Than Negative) or under the category of BAS (now other than negative) depending upon the nature of contract/agreement. Proceeds to be received by A from B is nothing else but rent of commercial property. If A has recovered rent through B it does not alter the classification of service provided by A. If 'A' is a body corporate or firm, then 'B's services will fall under the Service Tax net.

Since B provides service for and on behalf of A, so B's services clearly fall under erstwhile B.A.S. (see definition of Commission Agent Explanation- (a)(iii) to BAS. (Now we can say 'Other Than Negative)

Now it depends upon the nature of the agreement so as to determine where B's services are classifiable under Recovery Agent Services or BAS. It is certain that both services are taxable. Old accounting code still exist not just for statistical purpose but also for clarity the concept of any service.

[Rajagopalan Ranganathan]

Sir,

Thank you for a brilliant clarification provided by you.

[Ganeshan Kalyani]

Thank you sir

[MUKUND THAKKAR]

Sir,

I am agree with your view.

Transcation may also come in to the net of income tax. B have some legal agreement for collection is req. on bases of the same as explain by Kasturi Sethi sir.. service tax is applicalbe to B. as recovery agent.

AI Summary

Service tax on assignment of rent-collection rights depends on characterisation as actionable claim or taxable rental/service. Whether consideration for assignment of rent-collection rights is taxable depends on classification: it may be an actionable claim (not taxable) or treated as rental income of the owner (taxable). If regarded as service activity, the collector may be liable under Renting of Immovable Property, Recovery Agent Services, or Business Support Service, with the contract terms and nature of collection determining the applicable category.