Companies cannot be subjected to service tax for renting premises to run their businesses, the Delhi High Court has ruled while disposing of petitions filed by some retailers against a government directive.

The court struck down Centre's notification, by which renting of immovable property for use in the course of business was brought within the ambit of service tax.

"We hold that law does not in terms entail that renting out of immovable property for use in the course of furtherance of business or commerce would by itself constitute a taxable service and be eligible to service tax," Justice B D Ahmed said.

The court passed the order on a number of petitions filed by corporate houses in retails sector, including Shopper's Stop, Lifestyle International and Fun Multiplex, challenging Finance Ministry's notification issued in 2007 by which rent was made taxable.

"The interpretation placed by the impugned notification and circular on the said provision is not correct.

Consequently, the same is ultra vires the said Act and to the extent that they authorised the levy of service tax on renting of immovable property per se, they are set aside," the court said.

HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI - 33136 - DELHI HIGH COURT

Taxability of commercial property rental found incompatible with statute, removing service tax on renting premises for business. Notification bringing renting of immovable property for use in the course of business within the ambit of service tax was held not to make such renting per se a taxable service. The court concluded the statutory provision does not, by its terms, treat ordinary commercial leasing as a taxable service, and that the administrative interpretation extending tax to rent was incorrect, rendering the impugned notification and circular ultra vires insofar as they authorised such levy.