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2023 (6) TMI 999 - AT - Service TaxClassification of services - Renting of Immovable Property Service - revenue sharing agreement - agreement entered by the appellant with M/s.IHCL and grant of licence to M/s.IHCL to run, conduct and operate the three hotels together with all the related facilities and business appertaining thereto from the date of execution of the agreement - demand with interest and penalty - extended period of limitation - HELD THAT:- 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 cannot be considered as ‘rent’ received for renting / licensing of the immovable property. On perusal of various clauses of the agreement, it cannot be said that the there is a predominant activity of renting of immovable property. The hotel along with its’ premises, facilities, the goodwill etc. has been handed over to M/s.IHCL - The intention is therefore not to merely permit to use the space. Further the alleged consideration is based on the annual sales. The amount paid as security deposit is only to meet the risks at the initial stages. The decision in the case of Grand Royale Enterprises [2022 (9) TMI 273 - SC ORDER] would be squarely applicable as the agreement and facts are identical and the demand for the period upto 31.03.2011 cannot sustain. Whether the consideration received is for providing the taxable service of renting of immovable property? - HELD THAT:- On examination of the agreement, it is in the nature of joint venture where both parties have come together to carry out the business on a revenue sharing model. Both parties are desirous of earning profit. Generally, while in the case of providing service one party is desirous of receiving service and the other party is desirous of receiving the consideration. It cannot be said that by providing the hotel premises for conduct of hotel business and receiving the share of profit, the appellant is providing renting of immovable property service. This is because when the entire hotel along with its’ facilities are licensed to M/s.IHCL with an intention to receive share of the profit of the business, the transaction is more in the nature of contributing to the capital of the joint venture. The Tribunal in the case of Inox Leisure Ltd. Vs CST, Hyderabad [2021 (10) TMI 893 - CESTAT HYDERABAD] had occasion to analyse a revenue sharing agreement. The facts in the case are such that the appellant therein was engaged in the business of exhibiting cinematographic films across India in theatres owned by the appellant as well as taken on rent. The appellant acquired rights for exhibiting films from film distributors by entering into special license agreements for each film. The consideration for such license is paid as per the 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 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. Time Limitation - HELD THAT:- The issue is interpretational in nature and there were various litigations pending before the various forums as to the issue whether such agreements in which there is a sharing of profit can be considered as agreement for renting of immovable property. So also, Explanation-I to Section 65 (105) (zzzz) excludes hotels from the ambit of Renting of Immovable Property Service - demand raised invoking the extended period cannot sustain and requires to be set aside. Appellant succeeds on the ground of limitation also. The demand cannot sustain both on merits as well as on limitation and requires to be set aside - Appeal allowed.
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