Changes in Respect of Renting of immovable properties - Service Tax

Existing Definitions:

Taxable Service under Section 65(105)(zzzz)

Any services provided or to be provided to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.

Explanation 1.—For the purposes of this sub-clause, "immovable property" includes—

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, 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;

Meaning of Renting of immovable property - 65(90a)

"renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include —

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

Explanation 1. — For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;

Explanation 2.— For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

Scope of Taxable Service after amendment as proposed by Finance Bill, 2010 [Budget 2010-2011]

Amended Definition of Taxable Service under Section 65(105)(zzzz)

Any services provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce [old:to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.]

Explanation 1.—For the purposes of this sub-clause, "immovable property" includes—

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, 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.

(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;

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;

Meaning of Renting of immovable property - 65(90a)

"renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include —

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

Explanation 1. — For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;

Explanation 2.— For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

Related Details

1.         Amendment is Retrospective in nature and effective from 1-6-2007.

2.         Retrospective amendment has been validated through Clause 76 of the Finance Bill, 2010 [Budget 2010-2011], which is read as under:

Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994[32 of 1994.], at any time during the period commencing on and from the 1st day of June, 2007 and ending with the day, the Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub-clause (zzzz) of clause (105) of section 65, by sub-item (i) of item (h) of sub-clause (5) of

clause (A) of section 75 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,—

(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as validly taken or done or omitted to be done as if the said amendment had been in force at all material times;

(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;

(c) recovery shall be made of all such amounts of service tax, interest or penalty or fine or other charges which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.

Explanation.—For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force.

3.         Extracts of Circular letter no. D.O.F. No.334/1/2010-TRU dated 26-2-2010 issued with Budget 2010-2011, explaining the changes proposed in the Budget 2010-2011

            9.1 This service was introduced in 2007 with a view to tax the commercial use of immovable property hired on rent. The tax on rent paid is available as input credit if the commercial activity involves provision of taxable service or manufacture of dutiable goods. However, the Hon'ble High court of Delhi in its order dated 18.04.2009 in the case of Home Solutions Retail India Ltd. & Others vs. UOI has struck down this levy by observing that the renting of immovable property for use in the course of furtherance of business or commerce does not involve any value addition and therefore, cannot be regarded as service. Apart from the revenue loss caused to the exchequer, the judgement has placed the landlords in a very precarious situation. In view of this judgement, the commercial tenants have stopped them reimbursing the tax element. However, the landlords are receiving regular demand notices from the department issued to protect government's revenue for the interim period.

            9.2 In order to clarify the legislative intent and also bring in certainty in tax liability the relevant definition of taxable service is being amended to clarify that the activity of renting of immovable property per se would also constitute a taxable service under the relevant clause. This amendment is being given retrospective effect from 01.06.2007.

4          Relevant Judgments:

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

2010 TMI - 35371 - HIGH COURT OF DELHI   SSIPL RETAIL LTD & ORS Versus UNION OF INDIA & ORS

5          Relevant Circulars issued prior to Budget 2010, regarding service tax on Renting of immovable property

Service Tax - Instruction F.No 336/10/2009-TRU - dated - 15-07-2009 - Instruction regarding judgement of Delhi High Court in respect of Service Tax on "Renting of immovable property"

Service Tax - 98/1/2008-ST - dated - 04-01-2008 - Amendment to Circular No. 96/7/2007-ST dated the 23rd August, 2007 - Clarification in respect of renting of immovable property service and works contract service

Service Tax - F. No. B1/16/2007-TRU - dated - 22-05-2007 - Post Budget 2007-08 notifications to give effect to the provisions of the Finance Act, 2007 - regarding.

Service Tax - EXPLANATORY NOTES - dated - 01-03-2007 - EXPLANATORY NOTES - SERVICE TAX-BUDGET 2007