Liability of service tax for land lord

[Pramodh Gadiya]

What will be liability of the landlord if the service tax on the rented property is not paid by the tenant and in turn the same is not paid to serviec tax department.

[Brijesh Verma]

As such in the light of recent Judgment of Delhi HC in this regard, the levy of Service Tax on rentals is under a dispute. But if we consider that levy is valid then non-payment by the lessee is not a valid ground for escapment from tax liability. The liability is fixed on the Service Provider (Lessor) and not on the service receiver (Lessee) as far as deposit of tax is concerned. This is merely an internal matter that the lessor collects the same from the lessee and pays to the Gobt as service tax is an indirect tax.

[DEV KUMAR KOTHARI]

I agree with Brajesh. As per general understanding and trade practices, it is generally accepted that the tenant shall pay service tax. So suitable provision by way of ascrow account can be made. In case service tax is ultimately held valid, my suggestion is to make the service receiver liable to pay instead of service provider. This will help in better collection and monitoring by the revenue officers. Becasue major service tax is likely to be from organized and corporate sectors like banks, FI, inasurance companies,retailors etc. There the total rent payable by tenant will be considered and chances of exemption by way of splitted ownership shall reduce.

AI Summary

Service tax liability: lessor legally liable to deposit tax, commercial contracts or escrow shift economic burden to tenant. Where a service tax levy on rent is treated as valid, the legal obligation to deposit the tax lies with the service provider (lessor); the lessee's failure to pay the lessor does not relieve the lessor of that deposit obligation. Commercial arrangements commonly shift the economic burden to the tenant via contractual terms or escrow to secure collection, and proposals favour making the service receiver contractually responsible or using escrow to enhance compliance and monitoring, especially with organized tenants.