TMI Blog2023 (6) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in both these appeals being the same, they were heard together and disposed of by this common order. 2. Brief facts are that the appellant, M/s. Spencer International Hotels Ltd. is engaged in the business of running hotels and is also licensee of three hotels namely West End Hotel at Bangalore in the State of Karnataka, Connemara Hotel at Madras and Savoy Hotel at Ooty, both in the State of Tamil Nadu. These three hotel properties were earlier run as hotels by M/s. Spencer and Company Ltd. for more than 100 years. Later on, as part of business restructuring, these three hotels were transferred on a Going Concern basis to the appellant in June 1978 vide Business Transfer Agreement dated 28.06.1978. Intelligence was gathered that the appellant is providing taxable service and has not registered themselves nor paid any service tax for service rendered under the category of Renting of Immovable Property Service . On investigation, it revealed that an agreement was entered into by the appellant with M/s. International Hotels Company Ltd. (IHCL, for short) dated 20.03.1984. In the said agreement, the appellant ganted licence to M/s.IHCL to run, conduct and operate the above th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnai is concerned, the undertaking has been demerged from the appellant company and transferred to M/s. Grand Royal Enterprises Ltd. w.e.f 01.04.2009 as per the order of the Hon ble High Court of Madras. 5. The agreement entered between the appellant and M/s.IHCL was in the nature of business conducting agreement which permits / allows IHCL to conduct the entire business of running the said hotels. As per the agreement with IHCL i.e. the Joint Venture Agreement, IHCL has a duty cast on it to return the three hotels in fully functional / operational condition at the end of the Licence Agreement, as per Clause 15.1 (n) and Clause 8.3. 6. It is asserted by the Ld. Counsel that main object of the agreement is to assign entire business of the aforesaid hotels to IHCL and it is not for renting immovable property. This fact that the object of the agreement is to assign the entire hotel business to IHCL gets substantiated from the fact that licence fees is received by the assessee as a percentage of Annual Sales. The arrangement cannot be treated as Renting of Immovable Property . 7. The transaction is of sharing of business profits and not renting of immovable property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to compute /ascertain the value attributable to user of the property, then the charging provision [Section 66] itself would fail. The amount received by the appellant is neither in the nature of a fixed rent nor is it a consideration for any service provided by them to IHCL. The licence fee is the amount agreed between the parties to be paid for sharing mutual benefits / profits between themselves. 12. Even if it is assumed that the appellant has rented the hotel property to IHCL, in view of the specific exclusion of buildings used for accommodation including hotels under Explanation-1 to Section 65 (105) (zzzz), the same would not be taxable under Renting of Immovable Property Service . The section deals with two categories of cases e.g. residential and non-residential accommodations. An explanation to the section which is limited in scope to one category namely, residential accommodations, cannot affect the scope of the section with reference to the second category viz. non-residential accommodations. It is submitted by the Ld. Counsel that while interpreting the scope of an explanation, it has to be seen that as to which clause the explanation would apply. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th intention to evade payment of service tax. There is no positive act of suppression brought out and that the issue is interpretational in nature. 17. Ld. A.R Sri R. Rajaraman appeared and argued for the Department. The appellants are owners of Hotel Connemara, Madras, Savay Hotel, Ooty and Westend Hotel, Bangalore. On 20.03.1984, they entered into an agreement with M/s.IHCL granting exclusive right to run, conduct and operate the same together with all the related facilities and business appertaining thereto from the date of execution of the agreement. The period of agreement initially was for 25 years extendable for further period of 25 years on the same terms and conditions. As per clause 3.1 of the agreement, M/s. IHCL has to deposit / pay to the appellant a sum of Rs.5 Crores. The said deposit will be interest-free and held as a security deposit by the appellant. Half of the security deposit has to be returned by appellant on or before the expiry period of 15 years. The balance deposit would continue as interest free deposit which would be refunded on the expiry of the period of the agreement or it s sooner determination as provided in the agreement. As per clause 4.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. It is submitted by the Ld. A.R that the agreement proves that the appellant has leased out the property to M/s.IHCL for consideration and this forms the predominant character of the agreement. Ld.A.R prayed that the appeal may be dismissed. 20. Heard both sides. 21. The issue that arises for consideration is (i) whether the appellant is required to pay service tax under the head Renting of Immovable Property Service in terms of the agreement entered by the appellant with M/s.IHCL; (ii) whether the demand, interest and penalties are sustainable; (iii) whether show cause notice issued invoking the extended period is sustainable. 22. The period involved in appeal ST/40737/2014 is from 01.06.2007 to 31.03.2011. The period involved in appeal ST/41552/2017 is from 01.04.2012 to 30.06.2012. The dispute revolves around the agreement executed by the appellant with M/s.IHCL dated 20.03.1984. Relevant clauses of the agreement read as under : DEPOSIT 3.1 IHC will deposit with SIHL a sum of Rs.5,00,00,000/- (Rupees Five Crores only) on or before the appointed date. The said deposit will be interest free and held as a security deposit. SIHL will refund half of the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from commercial space on account of compensation and / or licence fees of shops, counters, shop-windows, show-cases or any premises given out to any person/parties. d) Excess of recovery over the expenditure incurred in respect of telephone, telex charges, charges for laundry, T.V., Car hire, and other services. e) Income from service charges, surcharges/additional charges, swimming pool, squash courts/and sports and recreation facilities, health club, income from valet services and hire charges and other miscellaneous income. 23. The foremost argument put forward by the Ld. counsel for the appellant is that the amount received by the appellant from M/s.IHCL is not in the nature of rent received for permitting to use the immovable property and that it is in the nature of Joint Venture Agreement where both parties have agreed to share the profits in a particular manner. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 25. The question is whether the consideration received is for providing the taxable service of renting of immovable property. The Explanation to Section 67 (Valuation of taxable services for charging service tax) reads as under : Explanation : for the purposes of this section (a) consideration includes any amount that is payable for the taxable services provided or to be provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of infrastructure support services (BSS) as under section 65 (104c) of the Finance Act, 1994. 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. 28. In the case of Moti Talkies Vs Commissioner - 2012 (45) GSTL 168 (Tri), the department raised the demand under the category of Renting of Immovable Property on the agreement / arrangement between distributor / producer and exhibitor of films. In the case of Golcha Properties Pvt. Ltd. Vs Principal Commissioner of Service Tax - 2021 (45) GSTL 141 (Tri.) the appellant therein had entered into agreements with films distributors under which the theatrical exhibition rights for exhibition of films was transferred to the appellant. The appellant agreed to share percentage of net box office collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.150 Lakhs per annum from the fourth year onwards. Subsequently, Hotel Connemara undertaking was transferred to the appellant by way of demerger scheme approved by the Hon ble Madras High Court vide order dated 27-2-2009. In consequence, the IHCL started paying license fee in respect of Connemara Hotel undertaking to appellant from 2009-10 onwards under the same conditions. As the license fee received by the appellant was based on a certain percentage of the income from operations of the hotel business, it appeared to the department that appellant has rented out the immovable property for conducting hotel and other related business for furtherance of business or commerce against license fee, hence the appellants are liable for payment of service tax under Renting of Immovable Property Service w.e.f. 1-6-2007. Accordingly, proceedings were initiated by issue of a SCN dated 17-3-2014 wherein inter alia, service tax liability of Rs. 3,21,94,224/- under the category of Renting of Immovable Property Service for the period 2009-10, 2011-12 and 2012-13 was proposed to be demanded with interest thereon. SCN also proposed imposition of penalties under Sections 76, 77 78 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CESTAT, in a case where the appellant had similarly leased its hotel to IHCL, the Tribunal held as under : 9. In our considered view the above interpretation adopted by the Authorities below is fundamentally flawed. The taxable service falling within the scope of Section 65(90a) and enumerated to be a taxable service under Section 65(105)(zzzz) is the renting of immovable property. A reading of clause (90a) and clause (zzzz) would indicate that a complex drafting methodology is adopted. Even in clause (90a) there are inclusionary and exclusionary clauses. Under this provision renting of immovable property or similar arrangement for use in course of or furtherance of business or commerce but excluding renting of immovable property by a religious body or to a religions body; 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, are excluded. The Explanation under clause (90a) further defines the expression for use in the course or business or commerce and also incorporate a clarificatory clause for removal of doubts, not necessary for the purposes of these appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6 In Orient Express Co. Ltd. (supra), where the hotel was licensed by the appellant therein to IHCL for running, conducting and operating, under a similar agreement, the Tribunal found that there is no dispute on the fact that the entire property/space is used as hotel only and hence relying on Jai Mahal Hotels decision (supra). The Tribunal held that Revenue s stand that Service Tax is liable for renting of subject property is not correct and is untenable in law. 5.7 Even in the recent decision in the case of Ex Maharani Mahendra Kumari v. CCE ST, Jaipur (supra) presided over by the then president of CESTAT, the Tribunal further ruled that presence of other incidental facilities related to entertainment, personal care etc. does not exclude the building from the category of hotel . The relevant portion of the decision is as under : 6. The appellants claimed exclusion under the category of buildings used for the purpose of accommodation including hotels. Admittedly, the building and the land as appurtenant thereto are used for the purpose of running the hotel. The term hotel is not defined in the Finance Act, 1994. As generally understood, a hotel is for temporary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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