Damages to tenant

[Guest]

Dear experts,

I am a property owner and i had given my property to some individual fr their business purposes but due to some reason i requested to him for vacant my property and he wants Rs. 1 crorre as compensation. And i have heard about service tax on 

5.7 Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act

In terms of this entry the following activities if carried out by a person for another for consideration would be treated as provision of service.

•  Agreeing to the obligation to refrain from an act.
•  Agreeing to the obligation to tolerate an act or a situation.
•  Agreeing to the obligation to do an act.

 Then is my act covered under service tax purview?

[YAGAY andSUN]

Your query is not clear to me.   Under renting of immovable property, for use it in for furthern to business service tax is applicable.

You must have to pay him according to the terms and condition of the  lease agreement.

If you are paying Rs. 1 crore to him then service tax would be applicable on this amount under the clause 6.7 of the eductional guide to service tax.

[Guest]

If the claim is settled through arbitration then what will happen because then it will my legal irresponsibility. 

[Guest]

Dear pradeep ji.

My query in detail 

A pvt ltd co had in its balance sheet an office building of 4 floors. A portion of 2 floors were rented out to a listed co on monthly rent of rs 75000/- per month from 1st april 2012 wherein the lease deed mentioned that the lock in period would be of 9 years with an increment of 25% after completion of every 3 years.

 

Now, after first 9 months (in Dec 2012) a dispute arose between the tenant and the landlord regarding some office maintenance issues like electricity, plumbing, etc....

 

3  or 4 registered a/d letters were exchanged amongst them without any result. As a result the tenant referred the matter to arbitrator who was to be referred in case of disputes as per the agreement.

 

Now, this arbitrator after hearing all the issues from both the sides gave an award in favour of the tenant awarding an amount to be paid by the landlord to the tenant of rs 5 crore. This amount has been duly paid by the Landlord to the tenant and the landlord has debited this payment made to the cost of the property thereby increasing the cost of the building by this amount.

 

Now, kindly suggest whether any service tax obligation is there on either the tenant or the landlord per se.

 

Awaiting for an early reply,

 

[dipsang vadhel]

Your questions as I under stand are

1. " Will the amount of Rs.5 crore lanlord paid to tenant for settlement of dispute amount to consideration of Service? 

2.  If yes, whethet it will attract service tax?"

You may note that whether Amonut paid or recived in settlement of dispute  will amount to consideration for service or not depend upon facts of individual case.

Per se such amounts are not consideration unless it represents a portion of the consideration for an activity that has been carried out.

Since in your case, amount of consideration of Rs. 5 crore is not for representing any portion of the consideration for an activity that has been carried out,amount of compansation should be liable to service tax.

 

 

AI Summary

Agreement to refrain or tolerate an act may attract service tax where the settlement payment constitutes consideration for a service. Whether a payment made in settlement of a lease dispute is taxable depends on whether it constitutes consideration for a service under the entry covering agreements to refrain from, tolerate, or do an act; settlement sums are not per se consideration unless they represent part of the consideration for an activity carried out, so liability depends on the factual characterisation of the payment.