SERVICE TAX LIABILITY BETWEEN HOLDING AND SUBSIDIARY COMPANY

[RAJEEV JAIN]

A Pvt Ltd is holding company of B Pvt Ltd.A Pvt Ltd holds 99% shares of B Pvt Ltd. B Pvt Ltd is into hotel business and transfers majority of its income to A Pvt Ltd. B Pvt Ltd pays service tax on the receipts of its hotel business. The question is whether service tax liability will arise if B Pvt Ltd transfers 90% of the income to A Pvt Ltd. Kindly clarify with applicable notifications/circulars and extract from law. Thanks in advance.

[Suryanarayana Sathineni]

Dear Friend,

There is a concept of Distinct entity in Service Tax Provisions and according to me, Holding and subsidiaries are falls under Distinct entities.

In view of this the amount is subject to service Tax

Best regards

Surya

[Ganeshan Kalyani]

Sir service tax is liable on consideration charged by service provider from service recipient for service rendered. Here there is no service provided but only some amount is transferred. The nature and purpose of transfer to be examined. Only then a fool proof reply can be given. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani's reply is really very deep. Where is service ? Only transaction in money is no service in terms of Section 65 B (44) (a)(iii).

AI Summary

Distinct entity status: intra group transfers taxable only if they constitute consideration for a service rendered. Whether transfers from a subsidiary to its holding company attract service tax turns on whether the payments constitute consideration for a service between distinct entities. One position treats holding and subsidiary as distinct entities making receipts taxable if they are consideration for services; the contrasting position maintains that mere monetary transfers, absent a service, fall outside the definition of service. A factual analysis of the nature and purpose of the transfer is necessary to determine service tax liability.