RENTING SERVICES – MEANING & SCOPE

[Dr. Sanjiv Agarwal]

Renting [Section 65B(41)]

Renting has been defined in section 65B(41) of Finance Act, 1994 as ‘‘allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property’.

Renting covers all types of arrangements in relation to immovable property with or without its transfer of possession or control and whether wholly or partly. It would cover/include -

(i) allowing

(ii) permitting

(iii) granting access/entry/occupation

(iv) use of facility

(v) letting

(vi) leasing

(vii) licensing, or

(viii) other similar arrangements

(such as right to use, sub-lease, space sharing etc.)

Renting of Immovable Property [Section 66E(a)]

Service Tax Rules, 1994 as amended by Notification No. 36/2012-ST, dated 20-6-2012 defines ‘renting of immovable property’ in rule 2(f). It means any service provided or agreed to be provided by renting of immovable property or any other service in relation to such renting.

The term ‘immovable property’ has not been defined. Accordingly, immovable property for this purpose shall include building and part of building, and land appurtenant thereto, land incidental to the use of building or its part, common or shared areas and facilities relating thereto and in respect of buildings in a complex or industrial estate or any other building, all common areas and facilities within such complex or estate.

Under section 2(6) of the Registration Act, 1908 immovable property includes any land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit arising out of land, and things attached to earth or permanently fastened to anything which is attached to earth, but does not include standing timber, growing crops or grass.

As per section 3(26) of the General Clauses Act, 1897, ‘immovable property’ shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to earth.

Any machinery attached or fastened to or embedded to earth becomes part of immovable property [see: Official Liquidator v. Srikrishina Dev (1959) 29 comp cases 476 (Allahabad) ; Kulwant Singh v. Makhan Singh 2002 (11) TMI 769 - PUNJAB & HARYANA HIGH COURT]. However, if a machine is fixed by bolts, it does not become a immovable property but remain ‘goods’. Similarly, furniture fixed on ground by bolts, screw etc. are goods i.e., not an immovable property.

The immovable property could be -

(i) factories

(ii) office buildings

(iii) warehouses

(iv) theatres

(v) exhibition halls

(vi) multiple use buildings

(vii) commercial markets

(viii) shops/shopping centre

(ix) hotel, guest houses

(x) community centre etc.

It may be noted that renting of certain kinds of property is specified in the negative list. These are -

• renting of vacant land, with or without a structure incidental to its use, relating to agriculture.
• renting of residential dwelling for use as residence.
• renting out of any property by Reserve Bank of India.
• renting out of any property by a Government or a local authority to all non-business entity.

Renting of all other immovable properties would be taxable unless covered by an exemption which may be an amount of any one or more exemptions. These are -

• Threshold exemption up to ₹ 10 lakh for every service provider vide Notification No. 33/2012-ST, dated 20-6-2012.
• Renting of precincts of a religious place meant for general public.
• Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent. (up to 10.7.2014)
• w.e.f. 11.7.2014, word ‘commercial’ has been omitted so as to include dharmashalas, ashrams or any such entity which offer accommodation.
• Renting to an exempt educational institutions. (omitted w.e.f. 11.7.2014)

Place of Provision of Service for Renting of Immovable Property

In respect of a service relating to immovable property the place of provision of service is the location of immovable property. If the immovable property is located outside taxable territory then it becomes a service provided outside the taxable territory even if the property owners are located in the taxable territory and would hence not be taxable.