TaxTMI 
TaxTMI 
2018 (10) TMI 656
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....for 25 years. M/s.IHCL deposited with "SIHL" a sum of Rs. 5 crores as interest free deposit of which the latter would refund an amount ofRs.2.50 crores at the end of 15 years and the balance would be refunded on the expiry of the agreement. As per para 4.1 of the agreement a consideration agreed was asunder : "a. The license fee equivalent to 15% of the Annual Sales from the operation of the said three hotels till such time SIHL return half of the security deposit i.e. 2.5 Crores. b. The license fee equivalent to 20% of the Annual Sales from the operations of the said three hotels from the date on which SIHL return half of the security deposit i.e. 2.5 Crores. Provided, however, that IHCL shall pay to SIHL a minimum license fee of Rs. 120 Lakhs per annum for the initial period of three year and a minimum license fee of Rs. 150 Lakhs per annum from the fourth year onwards." Subsequently, Hotel Connemara undertaking was transferred to the appellant by way of de-merger scheme approved by the Hon'ble Madras High Court vide order dt. 27.02.2009. In consequence, the IHCL started paying license fee in respect of Connemara Hotel undertaking to appellant fro....
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....ness for conducting which is the predominant activity. Permitting usage of property is merely incidental, which cannot be taxed separately based on the ratio of following judgments : (i) Dr.Lal Path Lab. - 2006 (4) STR 527 (T) upheld by P&H - HC - 2007 (8) STR 337 (P&H) (ii) B.E. Gelb Consultancy - 2009 (14) STR 241 (T) (iii) N.Rajashekar& Co. - 2008 (12) STR 760 (T) (iv) Jai Mahal Hotels Pvt. Ltd. - 2014 (36) STR 669 (T) (v) Ambience Constructions India Ltd. - 2013 (31) STR 343 (T) (vi) Paradise Mehak Properties Pvt. Ltd. - 2013 (32) STR 236 (T) (vii) Orient Express Co. Ltd. - Stay Order No.ST/SO/55044/2013 -CU [DB] dt.28.12.2012 passed by CESTAT-Delhi (viii) Paradise Mehak Properties -2014-TIOL-2156-CESTAT-Del. iv) The issue has been settled by the Tribunal in the following cases : S/Nos Case Laws 01 Ambience Constructions - 2013 (31) STR 343 (T) 02 Jai Mahal Hotels - 2014 (36) STR 669 (T) 03 Paradise Mehak - 2014 - TIOL-2156-CESTAT-DEL 04 The Lake Palace Hotel - 2016-TIOL-2140- CESTAT-DEL 05 Orient Express Co. Ltd. - 2016-TIOL-3227- CESTAT-DEL 06 Ex Maharani Mahendra....
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....beque, ball room, restaurant etc. which are used for commerce or business purposes. Hence the impugned activity is very much renting of immovable property and will attract service tax liability. ii) The license fees which is paid as a percentage of operating income is only for the purpose of property of the appellant to run the business of hotels in the said properties. Appellants apart from letting out property to use by IHCL do not have any say in the day to day running of the business. iii) The activity of the appellant is akin to that of a normal activity of renting since they are guaranteed a fixed minimum amount; do not have a say in the day to day running of the business and are not responsible for any loss incurred by the ICFL in their operation. Hence there is service provider and recipient relationship between the appellant and the IHCL. 4. Heard both sides and have gone through the facts of the case. 5.1 The renting of immovable property as defined in Section 65 (90a) of the Finance Act includes renting, letting leasing, licensing or similar arrangements of immovable property. What is immovable property is defined in Section 65 (105) (zzz) ibid is....
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....uld be expected in a normal renting of immovable property transaction. On the other hand, the consideration for license to run, conduct and operate the hotel is a "license fee" equivalent to 15% / 20% of the annual sales from the operation of the hotels. This being so, the license fee that would accrue to the appellant is only a percentage of the turnover. Since the turnover is never static but is dynamic and will go up or down in every succeeding year, the "lease license fees" would also wax or wane in resonance. The license fees are accruing to the appellants therefore have an umbilical card relation with the turnover and profits of the hotel business under IHCL. In our view therefore, the transaction between the appellant and IHCL is definitely not one of "renting of immovable property" but a business transaction between the two, where the consideration is not like a regular rent but is dependent on the annual performance and profits of the hotel. 5.3 We find that the same view has been reiterated in a number of Tribunal's decisions cited by the Ld. Advocate (supra). 5.4 In Jai Mahal Hotels Pvt. Ltd. (supra), in a Bench presided over by the then President of CESTAT, in a c....
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....ted 19-12-2013 in Order-in-Appeal No. 222/BC/ST/JPR-I/2013 has recorded a diametrically contrary conclusion, that the legislative intent of sub-clause (d) of Explanation 1 under Section 65(105)(zzzz) is not to tax immovable property used for accommodation which includes hotels; the legislative intent is clear, namely not to tax immovable property used for hotels; and that the definition of renting of immovable property excludes buildings used for the purpose of hotels. 13. Since we have concluded that the transaction in issue falls wholly outside the ambit of the taxable service, is not necessary to deal with the other contention urged on behalf of the appellant to impeach the impugned order namely, that since the appellant had entered into a joint venture with M/s. Indian Hotels Company Limited there is no relationship of a service provider and a service recipient, that is susceptible to the levy of service tax, qua the agreements between the parties." 5.5 The Jai Mahal Hotels decision (supra) was followed by the Tribunal in Paradise Mehak Properties Pvt. Ltd. & Other Vs CCE & ST Jaipur-I (supra) where also the hotels had been licensed by the appellant therein to IHCL.....