TaxTMI 
TaxTMI 
2023 (6) TMI 999
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....hese three hotels were transferred on a Going Concern basis to the appellant in June 1978 vide Business Transfer Agreement dated 28.06.1978. Intelligence was gathered that the appellant is providing taxable service and has not registered themselves nor paid any service tax for service rendered under the category of 'Renting of Immovable Property Service'. On investigation, it revealed that an agreement was entered into by the appellant with M/s. International Hotels Company Ltd. (IHCL, for short) dated 20.03.1984. In the said agreement, the appellant ganted licence to M/s.IHCL to run, conduct and operate the above three hotels together with all the related facilities and business appertaining thereto from the date of execution of the agreement. As per the agreement, the license was initially termed for 25 years. The licence fee fixed was equivalent to a percentage of the annual sales from the operation of the said three hotels. It appeared to the department that the appellant is receiving rent from M/s.IHCL for renting out immovable property (hotels) to M/s.IHCL. Appellant had not discharged service tax for the period 01.06.2007 to 31.03.2011. Show cause notice da....
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.... return the three hotels in fully functional / operational condition at the end of the Licence Agreement, as per Clause 15.1 (n) and Clause 8.3. 6. It is asserted by the Ld. Counsel that main object of the agreement is to assign entire business of the aforesaid hotels to IHCL and it is not for renting immovable property. This fact that the object of the agreement is to assign the entire hotel business to IHCL gets substantiated from the fact that licence fees is received by the assessee as a percentage of Annual Sales. The arrangement cannot be treated as 'Renting of Immovable Property'. 7. The transaction is of sharing of business profits and not renting of immovable property. If it was mere renting of the immovable property, the rent charged in whatever form would be fixed, and not variable and would never be in the form of percentage of the business profits. 8. As per the agreement, M/s.IHCL has been permitted to use the hotel property. The act of giving hotel property to operate and run the hotel is incidental to the assigning of running the entire hotel business. The agreement is for assigning the entir....
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....s between themselves. 12. Even if it is assumed that the appellant has rented the hotel property to IHCL, in view of the specific exclusion of 'buildings used for accommodation including hotels' under Explanation-1 to Section 65 (105) (zzzz), the same would not be taxable under 'Renting of Immovable Property Service'. The section deals with two categories of cases e.g. residential and non-residential accommodations. An explanation to the section which is limited in scope to one category namely, residential accommodations, cannot affect the scope of the section with reference to the second category viz. non-residential accommodations. It is submitted by the Ld. Counsel that while interpreting the scope of an explanation, it has to be seen that as to which clause the explanation would apply. Under Section 65 (105) (zzzz) in clause (d) of Explanation, buildings used for accommodation including hotels have specifically been excluded. It is relevant to note that this part of exclusion does not use the word 'solely', as, it is used in previous expression i.e. 'building used solely for residential purposes'. 13. The issue w....
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....a, Madras, Savay Hotel, Ooty and Westend Hotel, Bangalore. On 20.03.1984, they entered into an agreement with M/s.IHCL granting exclusive right to run, conduct and operate the same together with all the related facilities and business appertaining thereto from the date of execution of the agreement. The period of agreement initially was for 25 years extendable for further period of 25 years on the same terms and conditions. As per clause 3.1 of the agreement, M/s. IHCL has to deposit / pay to the appellant a sum of Rs.5 Crores. The said deposit will be interest-free and held as a security deposit by the appellant. Half of the security deposit has to be returned by appellant on or before the expiry period of 15 years. The balance deposit would continue as interest free deposit which would be refunded on the expiry of the period of the agreement or it's sooner determination as provided in the agreement. As per clause 4.1 of the agreement, M/s.IHCL has to pay licence fee to the appellant. The licence fee fixed is equivalent to 15% of the Annual Sales from the operations of the said three hotels. It is provided in the agreement that M/s.IHCL has to pay to ....
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....ement. Ld.A.R prayed that the appeal may be dismissed. 20. Heard both sides. 21. The issue that arises for consideration is (i) whether the appellant is required to pay service tax under the head "Renting of Immovable Property Service" in terms of the agreement entered by the appellant with M/s.IHCL; (ii) whether the demand, interest and penalties are sustainable; (iii) whether show cause notice issued invoking the extended period is sustainable. 22. The period involved in appeal ST/40737/2014 is from 01.06.2007 to 31.03.2011. The period involved in appeal ST/41552/2017 is from 01.04.2012 to 30.06.2012. The dispute revolves around the agreement executed by the appellant with M/s.IHCL dated 20.03.1984. Relevant clauses of the agreement read as under : "DEPOSIT 3.1 IHC will deposit with SIHL a sum of Rs.5,00,00,000/- (Rupees Five Crores only) on or before the appointed date. The said deposit will be interest free and held as a security deposit. SIHL will refund half of the deposit amount i.e. Rs.2,50,00,000/- (Rupees Two Crores Fifty Lakhs only) on or before the expiry of the period of 15 years from the appointed date. Th....
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....ount of compensation and / or licence fees of shops, counters, shop-windows, show-cases or any premises given out to any person/parties. d) Excess of recovery over the expenditure incurred in respect of telephone, telex charges, charges for laundry, T.V., Car hire, and other services. e) Income from service charges, surcharges/additional charges, swimming pool, squash courts/and sports and recreation facilities, health club, income from valet services and hire charges and other miscellaneous income." 23. The foremost argument put forward by the Ld. counsel for the appellant is that the amount received by the appellant from M/s.IHCL is not in the nature of rent received for permitting to use the immovable property and that it is in the nature of Joint Venture Agreement where both parties have agreed to share the profits in a particular manner. On perusal of the licence fee, it is seen that it is fixed on the basis of the annual sales from the operations of the hotels. The term 'Sales' is explained in clause 4.3 of the agreement. These clauses show that amount received by the appellant is in the nature of sharing of profits and....
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....ure at a later stage to be used for furtherance of business or commerce; but does not include - (a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes; (b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land; (c) land used for educational, sports, circus, entertainment and parking purposes; and (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2 - For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce." 25. The question is whether the consideration received is for providing the taxable service of renting of immovable property. The Explanation to Section 67 (Valuation of taxable services for charging service tax) read....
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....he agreed percentage of box office collection and such percentage varies from distributor to distributor, movie to movie, week to week, after the release date. The department was of the view that appellant was providing services to the distributors / producers in the nature of infrastructure support services (BSS) as under section 65 (104c) of the Finance Act, 1994. The Tribunal held that a revenue sharing agreement by itself does not necessarily imply provision of service, unless service provider and service recipient relationship is established. As per para 4 of the said order of the Tribunal, the demands were raised for the period 09.05.2009 to 31.03.2012 and 01.04.2012 to 30.06.2012. The Tribunal set aside the demands for both the periods observing that the agreement did not bring out any service provider and service recipient relationship. 28. In the case of Moti Talkies Vs Commissioner - 2012 (45) GSTL 168 (Tri), the department raised the demand under the category of 'Renting of Immovable Property' on the agreement / arrangement between distributor / producer and exhibitor of films. In the case of Golcha Properties Pvt. Ltd. Vs Principal Commi....
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....he 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 years 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 demerger scheme approved by the Hon'ble Madras High Court vide order dated 27-2-2009. In consequence, the IHCL started paying license fee in respect of Connemara Hotel undertaking to appellant from 2009-10 onwards under the same conditions. As the "license fee" received by the appellant was based on a certain percentage of the income from operations of the hotel business, it appeared to the department that appellant has rented out the immovable property for conducting hotel and other related business for furtherance of business or commerce against license fee, hence the appellants are liable for payment of service tax under "Renting of Immovable Property Service" w.e.f. 1-6-2007. Accordingly....
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....ion 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 case where the appellant had similarly leased its hotel to IHCL, the Tribunal held as under : "9. In our considered view the above interpretation adopted by the Authorities below is fundamentally flawed. The taxable service falling within the scope of Section 65(90a) and enumerated to be a taxable service under Section 65(105)(zzzz) is the renting of immovable property. A reading of clause (90a) and clause (zzzz) would indicate that a complex drafting methodology is adopted. Even in clause (90a) there are inclusionary and exclusionary clauses. Under this provision renting of immovable property or similar arrangement for use in course of or furtherance of business or commerce but excluding renting of immovable property by a religious body or to a religions body; renting of immovable....
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....e 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. & Others v. CCE & ST Jaipur-1 (supra) where also the hotels had been licensed by the appellant therein to IHCL. 5.6 In Orient Express Co. Ltd. (supra), where the hotel was licensed by the appellant therein to IHCL for running, conducting and operating, under a similar agreement, the Tribunal found that there is no dispute on the fact that the entire property/space is used as hotel only and hence relying on Jai Mahal Hotels decision (supra). The Tribunal held that Revenue's stand that Service Tax is liable for renting of subject property is not correct and is untenable in law. 5.7 Even in the recent decision in the case of Ex Maharani Mahendra Kumari v. CCE & ST, Jaipur (supra) presided over by the then president of CESTAT, the Tribunal further ruled that presence of other incidental facilities related to entertainment, personal ca....