What are the case laws available? Does rental income be called a service ? Does our constitution permit imposition of service tax on rental income ?
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Leasingof Immovable property to be used for commercial or business purpose is liable to Service Tax under Section 65 (105)(zzzz) of the Finance Act 1994. The matter was challenged in the High Court as to whether 'Services relating to Leasing of Property' or 'Total Rent Amount' itself is chargeable to Service Tax under the said category. The Hon Delhi High court in the matter of Home Retails Solutions Ltd held in 2009 that since Tax on land is exclusively covered under Entry 49 of the Constitution which is under the domain of the staes and is thereby liable to Tax by the state only. It was held that the rent amount is not liable to Service Tax but any other services given in relation to the renting of immovable property will be liable to Service Tax under this category.
In the Budget 2010, Govt amended this entry to read as 'Renting of Immovable Property or any service given in relation to such renting' under the said category and made it effective retrospectively from June 2007. A Circular No 334/1/2010-TRU dared 26-2-2010 was issued by CBEC in this regards. This amendment amounted to undo the findings in the said High Court judgement.
This amended provision has also been challenged in an appeal and the matter is now pending before the Supreme Court.