Renting of immovable property

[vasudevan unnikrishnan]

In the pre negative list period ,shop rooms were given on rent for 2 years.However,tenant did not remit the rent afetr six months and also did not vacate after the agreement period .Tenant closed the Shop and rooms remained locked . Civil case in the matter is decided in favour to get it vacated and settle the rental dues. The service tax was paid for the rent received.Dept has issued demand for the tax on the rent not received during 2009-13.Here till April,2011 no tax is to be paid as no rent was received.Subsequent period also ,no invoice/bills were issued .Here the issue is whether tax is payable on accrual basis?.The space was not legally let out after agreement period,the space was not used 'for furtherance of business or commerce' ,being locked.and under Civil case.Adjudicating authority has confirmed demand rejecting the pleas and imposed penalties under sec.77 and 78. Obliged to know expert views on the matter.

AI Summary

Service tax accrues on rental income when obligations crystallise, including by court judgment, not merely by nonpayment.
Prior to point of taxation rules, service tax on renting was payable on receipt; after those rules tax generally accrues on an accrual basis determined by date of completion, invoice, or payment. A court judgment directing rental dues may be treated as an invoice/crystallising event, triggering tax accrual from the period specified by the judgment. Tax for earlier periods is payable only upon actual receipt. Periods when premises were vacant and locked did not involve a service and are not taxable.