Service tax on immovable property rented for the purpose of lodging.

[Rakshith Bhaskar]

Dear Sir

We are a partnership firm and in position of a commercial building which we have taken on management and a lump sum lease amount where we don’t pay any rents to the owners of the property and we have let out a portion of the building for the purpose of Lodging / Hotel ( Only accommodation) to a tenant in the capacity of Property managers representing through a partnership firm. We are 3 partners who divide the rent in the ratio of 50:25:25. We have rented the property for last 9 years starting with and annual rent of Rs. 14,40,000/- per Annum and after all the escalation now the rent is ₹ 18,90,000/- per annum.

1. Is the immovable property let out for the purpose of and lodging by a partnership firm liable for service tax? Is it exempted?
2. our tenant charges rent not more than 1000 rs. per day
3. As Co owners of the partnership firm, not the property, we have received rents and declared that each co owner of the firm gets less than Rs. 10 lakhs as rent when dived by 3 partners but the firm is collecting on behalf. How is this treated now?

kindly request you to help me with this

regards

rakshith

[KASTURI SETHI]

Whether rent deed is one or separate for each partner of the firm ?

[Rakshith Bhaskar]

Dear Sir

The Rent deeds are just one for all. The rent is made in between our tenants firm and our Partnership firm. And the partnership is collecting the rent.

Kindly assist.

Thank you

[KASTURI SETHI]

In my view you are entitled to individual exemption of ten lakhs per year. Secondly, one judgement of the Tribunal ( you must be aware) has held that rent deed should be separate for each partner. Cheque should be separate. Bank account should be separate. This judgement has been accepted by the department.

AI Summary

Service tax on rented lodging: exemption depends on accommodation nature and individual partner documentation for receipts. Service tax liability for a partnership firm letting immovable property for lodging depends on whether the accommodation qualifies for exemption and whether receipts can be treated as individual partner income; a tribunal view accepted by the department requires separate rent deeds, cheques and bank accounts for each partner to support individual exemption, while collection under a single rent deed and account may lead to taxation at the firm level.