TMI Blog2020 (9) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... ed separately by the supplier - It is observed that in the instant case, the supplier (applicant) and the recipient are not related; price is the sole consideration of the supply and monthly rent is the price payable. Thus the monthly rent is the transaction value and the same would be the value of supply of the impugned service of RIS - the property tax is not deductable from the value of taxable supply of Renting of Immovable Property service. Whether notional interest on the security deposit should be taken into consideration for the purposes of arriving at total income from rental? - HELD THAT:- The security deposit is collected normally equivalent to 6 months or 12 months rent. Also it is a known fact that the higher the security deposit lower the monthly rent amount. In the instant case, an amount of ₹ 5 Crore is proposed to be collected as security deposit and a monthly rent of ₹ 1.5 Lacs. However the applicant has not furnished adequate date / information so as to decide whether actually the notional interest influences the monthly rental amount or not - the notional interest has to be considered as part of value of supply of service, if and only if the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.1 The Applicant discharge the statutory taxes levied by the BBMP (Bruhut Bengaluru Mahanagar Palike) and also deposits, which is as per the contract. These taxes being paid on the property and such deduction are legal in respect of valuing the actual receipt of rent under the contract. 2.2 The applicant do not have any taxable activity other than the activity of leasing out Immovable Property commercial spaces and hence they are at present claiming exemption since their turnover is less than ₹ 20 Lakhs. 2.3 In view of the above, the applicant sought for advance ruling in respect of the following questions: i. For the purpose of arriving at the value of rental income, whether the applicant can seek deduction of property taxes and other statutory levies. ii. For the purposes of arriving at total income from rental, whether notional interest on the security deposit should be taken into consideration. iii. Whether the applicant is entitled for exemption of tax under the general exemption of ₹ 20 lakhs. 3. Admissibility of the application : The applicant filed the instant application as an unregistered person, in relation to the proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther as per the definition of consideration is concerned, as per the proviso, the deposit given in respect of supply of services shall not be considered unless the supplier applies such deposit as consideration for the said supply. Even, as per this provision, deposit or interest will not be treated as consideration under the rental service. 5.3 The applicant further relies on Authority on Advance Ruling in the case of M/s. E-Square Leisure Pvt Ltd [2019 (24) GSTL 125 (AAR-GST)] = 2019 (4) TMI 805 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA , in the case of M/s. Avadh Infratech Ltd [2016 (45) STR 580 (AAR)] = 2016 (9) TMI 145 - AUTHORITY FOR ADVANCE RULINGS and CESTAT Order in the case of M/s. Ashiana Maintenance Services LLP [2019 (24) GSTL 47 (Tri. Del)] = 2019 (3) TMI 184 - CESTAT NEW DELHI . 6. DISCUSSION FINDINGS: 6.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the issues involved relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant. 6.2 At the outset, we would like to state that the provisions of both the CGST Act, 2017 and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and the same would be the value of supply of the impugned service of RIS. In view of the above, we conclude that the property tax is not deductable from the value of taxable supply of Renting of Immovable Property service. 6.5 The second question is whether notional interest on the security deposit should be taken into consideration for the purposes of arriving at total income from rental. In this regard we examine relevant clauses of the draft rental agreement furnished by the applicant, which are as under: 2. The lessee shall pay a monthly rent of ₹ 1,50,000/- (Rupees One Lakh Fifty Thousand only) plus applicable taxes, subject to deduction of tax as may be applicable. 3. The lessee shall pay to the lessor, an interest free refundable security deposit of ₹ 5,00,000/ -Rupees Five Crore Only) which will be returned to lessee upon vacation of scheduled property. 5. The lessor shall bear and pay the property taxes and cess as applicable to the concerned authorities in regard to the scheduled property. 6.6 This question involves two parts, one being whether the security deposit so collected need to be considered as consideration towards suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar case is related to notional interest on security deposits in relation to goods, held that notional interest on advances taken by the assesse from the buyers cannot be added to the assessable value of the goods cleared, unless there is evidence to show that the interest free deposit taken has influenced the price. Therefore to decide the instant issue two things are required to be considered i.e. whether the notional interest on security deposit is in relation to the supply of RIS and whether the said notional interest influences the value of the supply i.e. the monthly rent. 6.10. The security deposit is taken invariably in all cases and it is a general practice that wherever the quantum of deposit is higher the rent charged is less and vice-versa. The applicant is collecting the security deposit as their property is being leased. Had the property has not been leased, the applicant would not have been collected the security deposit. Thus there is a nexus between security deposit taken and the rent charged beyond doubt. 6.11 The security deposit is collected normally equivalent to 6 months or 12 months rent. Also it is a known fact that the higher the security depos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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