service tax applicability on property taken by company for accomodation to its employees

[Guest]

Fact: Mr A, director is giving residential property to Co. on rent of ₹ 24 Lacs p.a. The rent paid by Co. is considered as business expenses for which deduction is taken in Income tax. On the other hand Co. has provided the same property to director as rent free accommodation.

• As we know the renting of residential property for residence purpose is under negative list in service tax. In the above case the property is residential in nature but since the property is given to a company so would it fall under the category renting of residential property for the furtherance of business & profession ??

[KASTURI SETHI]

If residential premises are rented out for business purpose, Service Tax is applicable.

[Ganeshan Kalyani]

The use of house is for residential purpose, but ultimate purpose is to enhance comfort to Director by giving by such free accommodation which has impact on business. thus it is for business purpose. Hence service tax applicable. and if provision is plainly read I.e. renting of immovable property for residential purpose is exempt from service tax. Both possibility is presented here which will help you to take suitable call.

[Rajagopalan Ranganathan]

Sir,

It depends on the conditions stipulated in the rental agreement entered into between the Company and Mr.A. If the agreement says that it rented property is going to be utilized for residential purpose then it will not attract service tax. Bur the agreement says that the property can be used by the Company at its discretion then it will be treated as rented for commercial purpose and will attract service tax. This is my opinion.

[KASTURI SETHI]

Yes Sir. There is no doubt the nature of the agreement executed between the Co. and A will be the deciding factor.

[Ganeshan Kalyani]

Yes I too agree on views submitted by Rajagopalan Sir.

AI Summary

Renting residential property: taxable if used or contracted for business purpose; agreement and actual use decide service tax liability. Renting of immovable property for residential purpose is exempt from service tax, whereas renting for business purpose (including providing accommodation that furthers employer's business) attracts service tax; the rental agreement's terms and actual use determine whether the residential exemption applies or the rental is treated as taxable business purpose.