Service Tax applicability of surrender of Tenancy Rights

[Mukesh Panchal]

We have received consideration from landlord for surrender of tenancy Rights. Whether service Tax is applicable on this amount under section 66E?

[KASTURI SETHI]

Yes. Your activity is covered under Section 66 (E) (e) of the Finance Act. It is a declared service. Service Tax is applicable.

[Mukesh Panchal]

there is no kind of service has been provided in surrender of tenanacy Rights. Actually it is a sale of property which is not on ownership basis. We have even paid Capital Gain tax on it, then how Service Tax is applicable under Section 66E (e) under declared services? Actually it is read as

agreeing to the obligation to refrain from an act, or to tolerate on act or situation, or to do an act.

here we are not in obligation to refrain from any action nor we are getting any consideration to tolerate an act or to do an act.

so there is no kind of service has been provided and so should not attract any service tax.

Please clerify

[Ganeshan Kalyani]

I am sure the queriest is well aware of the answer. Hence the query is deemed to be answered. This is what is opine.

[KASTURI SETHI]

Yes Sir. He was well aware of the answer but he needed confirmation from us before taking final decision.

[Ganeshan Kalyani]

Agreed with you Sir. I will try to answer the query. Please correct me if am wrong. In my view, by giving up tenancy right he is actually refraining from the right of enjoying the accessibility of the residence, premises... And giving up right would mean he cannot again enjoy the right to give the tenancy right to someone else. Thus it would be covered by the definition and would attract service tax.

[Ganeshan Kalyani]

Hope the query is resolved.

AI Summary

Service tax on surrender of tenancy rights: treatment hinges on whether surrender is an agreement to refrain, attracting declared service. Whether consideration for surrendering tenancy rights is taxable under Section 66E(e) as a declared service: advisers say yes, viewing surrender as agreeing to refrain from exercising or transferring tenancy rights and thus falling within the statutory description; the querent argues it is a sale-like transfer (capital gains paid) and not a service, while others maintain that giving up the right to enjoy or reassign tenancy fits the definition and attracts service tax.