TaxTMI 
TaxTMI 
2022 (8) TMI 989
X X X X Extracts X X X X
X X X X Extracts X X X X
....umber AACCB2809FST001. 3. Shri Nikunj Beriwal ( the other appellant) is a Director in the company. 4. Based on the balance sheets filed by the appellants before the income tax authorities for the financial years 2013-14 and 2014-15 the department came to the view that entries shown under the head 'Compensation/Short term capital gains' for the two years was nothing but consideration received for rendering service and was, therefore, liable to service tax . 5. Show cause notice dated 28.09.2018 was , accordingly, issued invoking the extended period and demanding Rs.3,09,55,655/- from the appellants along with interest. Penalty was proposed on the appellant company as well as the Director, Shri Nikunj Beriwal. 6. The appellants submitted detailed reply dated 21.03.2019 giving factual and legal submissions as to why no service tax was payable on the above receipts. 7. However, the Pr. Commissioner of GST & CX, Rourkela, rejected the submissions of the appellants and, vide his Order-in-Original No 3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 (the impugned order), confirmed the full demand along with interest and imposed equivalent penalty plus Rs 10,000/-on the company and p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing out of an immovable property and is, therefore, excluded from the definition of 'service' and, hence, not liable to service tax. (6)(a). The Principal Commissioner has held that capital gains can be earned only against change in ownership, not otherwise. This is not legally correct since even amount earned by surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005]. (6)(b) Further, in para 6.2.8 of the Service Tax Education Guide it has been clarified that ownership is not necessary for transfer of any right in an immovable property. The relevant portion is reproduced below:- 6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax? Ans: Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants. D. Excelsior Services Pvt Ltd. (1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd ,to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money was also paid for the same. As per the agreement the possession of the said building, along with the car parking, was to be handed over to the appellants by September 2014. However, subsequently, M/s Excelsior Services Pvt Ltd expressed their inability to perform their agreement and a deal of cancellation was executed with the appellants on payment of Rs 8,78,50,000/- as compensation. (2). On the same lines, in this case also, the transaction did not relate to any 'service' and, therefore, no service tax was leviable on the same. (3). Further, it is now established law that such compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x for Rs.2,00,000/-. Thus, it is seen that this Rs.2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd. This, by no stretch of imagination can be considered as a 'service' provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd. (2). The appellants had given the correct position in their reply to the SCN but the Principal Commissioner has simply ignored these submissions. (3). Even if it is held that this amount was paid by Thermax for nonfulfilment of agreement to supply manpower ( though there are no documents to support this), as held by the Principal Commissioner, then also this amount is not liable to service tax as it would then be in the nature of liquidated damages. (4). The law is well settled that no Service Tax is payable on liquidated damages. H. Nilu Construction Pvt Ltd. (1). The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3). Further, as per the decision of the Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of 'service' and, therefore, cannot be subjected to Service Tax . (4). Surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers- MANU/SC/0070/2005]. K. Jasmine Commercials Pvt Ltd. (1). Jasmine Commercials Pvt Ltd. was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs 4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants. (2). These damages cannot be considered a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot the case of the department that service tax returns were not filed at all. The case of the department is that the amounts recovered from the 11 companies listed above were not reflected in the said returns. It is submitted that there was no intention on the part of the appellants to conceal anything. Had that been the case they would not have declared these receipts in their balance sheet and also paid capital gains tax on them. It is clear that the appellants were under a bona fide belief that the amount received by them from the 11 companies were not consideration for any service provided by them and, therefore, not liable to service tax. (2). Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. (3) In this regard the appellants have rely on the following judgments:- (i) Compark E Services Pvt. Ltd. Cs. Commr. Of C.Ex & ST., Ghaziabad [2019(24)GSTL634(Tri-All)] (ii) Uniworth Textlines Ltd. Vs. Commissioner of Central Excise, Raipur 2013(288)EL....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iew of the department that the amount received by the appellants was an agreement for refraining from an act or for tolerating an act or situation and was, therefore, liable to service tax under clause (e) of section 66E of the Finance Act 1994 . (3). We find that 'service' has been defined under section 65B(44) of the Finance Act, 1994, as follows:- '(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. .........' (4) 'Immovable property' has not been defined in the Fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll the tenancy is determined by the lessor or lessee. When the lessee (tenant) enjoys certain rights in the building, he is a person who is in enjoyment of benefits arising out of the building and the tenancy right shall by itself be an "immovable property". (6) In the present case the appellants had acquired a right to purchase the said agricultural piece of land and this right was a benefit arising out of an immovable property and was, therefore, an immovable property itself. The instant case is nothing but transfer of the title of immovable property in any other manner ( not by way of sale or gift). Such a transaction is excluded from the definition of 'service' and, hence, not liable to service tax. (7) We do not agree with the adjudicating authority that 'capital gains' can be earned only against change in ownership, not otherwise. It is now established law that any amount received on account of surrender of tenancy rights is also liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005]. (8) Further, in para 6.2.8 of the Service Tax Education Guide of the CBEC it has been clarified that ownership is not necessary for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- "Therefore, the principal question we have to consider is whether the right to collect dues upon a given piece of land, the property of the alleged lessor, is a benefit to arise out of land within the purview of Section 3 of the Registration Act. In our opinion, the right to collect dues upon a given spot is such a benefit, and therefore, we are constrained to find that the document in question purported to convey that which falls within the definition of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in evidence. We are therefore of opinion that the Court of first instance was right. We set aside the order of the lower appellate Court and restore the decree of the Court of first instance with costs in all courts." Further, in the case of Chheda Housing Development Corporation v. Bibijan Shaikh Farid, the Hon'ble High Court of Bombay observed as under - 15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants in so far as the additional FSI is concerned, are not entitled for an injunction to that extent. An....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f this court reported in 2007(3) Mh.L.J. 402 in the matter of Chheda Housing Development Corporation v. Bibijan Shaikh Farid and ors. Para no. 15 of the said judgment is material and is reproduced hereunder. 15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants insofar as the additional F.S.I. is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under Section 3(26) has been defined as under :- (26) "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." If, therefore, any benefit arises out of the land, then it is immovable property. Considering section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief. Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgments for that purpose. In Sikandar and ors. v. Bahadur and ors., XXVII Indian Law R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3(26) of General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act, 1994. (10) Section 66E(e) of the Finance Act, 1994, reads as under:- "Section 66E. Declared services. - The following shall constitute declared services, namely :- (a) renting of immovable property (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completioncertificate by the competent authority. ......... (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... land by the appellants at the price of Rs 15,00,000/- earnest money was paid to the owner. In this case too another company by the name Shivshankar Logitex Pvt Ltd wanted to purchase the said land and after mutual discussion the appellants released their agreement rights to the property for Rs 36,50,000/-. In this case also, we hold that since the rights or benefits of the appellants arose out of an immovable property the same was outside the scope of ' service' and, therefore, outside the scope of service tax. (2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of another person or tolerated any act or situation. C. M/s Shanti Enterprise (1). In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs 2,08,00,000/. On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the 'Development Agreements' and agreed for the settlement with the appellant. Ultimately, the Development Agreement with the appellant was cancelled and the land owners agreed to pay the Appellant a sum of Rs. 21,90,00,000/- towards full and final settlement amount for terminating the said Development Agreement. In addition to this Development Agreement, four separate Development Agreements dated April 5, 2012, were entered into between various land owners and the appellant. This 'Development Agreement' also could not materialise because of the similar difficulties. In these cases also the appellant got the settlement amount of Rs. 23,18,09,200/- from the land owners. Accordingly, the appellant got a total amount of Rs. 45,08,09,200/- as the full and final settlement for the termination of Development Agreement from the various land owners. In addition to this, the Appellant also received an amount of Rs. 1,97,50,000/- as compensation from M/s. Amit Mines Limited towards the non-supply of agreed manganese ore. It is these settlement amounts, which the Department is trying to tax under the Finance Act in terms of provisions of Section 65B(44) of the Act under subheading 65B(44)(a)(....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... liable to service tax. G. M/s Thermax Ltd (1). The appellants entered into an agreement with M/s Thermax Ltd for supply of manpower to the appellants' plant . M/s Thermax Ltd, in turn, entrusted this job to M/s Ensol Power Pvt Ltd, their sub-vendor. M/s Ensol Power Pvt Ltd then supplied the manpower on behalf of M/s Thermax to the appellants. But since M/s Thermax had not released payments to M/s Ensol Power Pvt Ltd the appellants made payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount paid on M/s Thermax account. Hence, the appellants issued a debit note on Thermax for Rs 2,00,000/-. Thus, it is seen that this Rs 2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd. (2) This cannot be considered as a 'service' provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd. H. Nilu Construction Pvt Ltd (1) The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecision of the Hon'ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of 'service' and, therefore, cannot be subjected to Service Tax . K. Jasmine Commercials Pvt Ltd (1). Jasmine Commercials Pvt Ltd was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs.4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants. (2). This is nothing but receipt of compensation on account of the other party not being able to fulfil its obligations under a contract. These damages cannot be considered as agreeing 'to the obligation to r....