TMI Blog2023 (10) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... es directly with the Govt. of West Bengal and the Appellant does not have any role in this regard. The permanent assignment of land cannot be called as 'lease' and hence it would not fall under the definition of taxable service as defined under Section 65(105)(zzzz) of the Finance Act,1994 - It is observed that once the Appellant executed the Deed of Assignment in favour of the three business entities, the 'Title' of the land which has been assigned to them has been transferred in the name of the said three parties. Subsequently, lands have also been mutated in the name of the respective parties. Therefore, the transaction must be treated as 'sale of leasehold rights' and service tax would not be applicable on the outright transfer of rights. Further, after the transfer, the 'rent' was payable by the three Business Entities directly to the DLLRO and not to the Appellant - the transaction undertaken by the Appellant cannot be termed as 'lease' or 'sub-lease' for the purpose of levy of service tax.\ It is observed that after the execution of Deeds of Assignment and permanent transfer of leasehold rights by the Appellant in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and support facilities. The Appellant obtained permission from Government of West Bengal to occupy land for the purpose of setting up of a satellite Township. They executed an indenture of Lease dated 21.11.2003, at the District Sub-Registrar office, siliguri, granting a lease of 393.25 acres of land in favour of the Appellant. The lease is for a period of 99 years from 23.04.2002, with an option for renewal of the same for a further period of 99 years thereafter, upon the option of the lessee, with the same terms and conditions except the rent, which may be varied. As per the parent lease deed, the lessee shall pay an annual rent of Rs 2/- per decimal of the leasehold land in the District Land and Land Reforms Office (DLLRO), Darjeeling, within first 60 days of the year for which the rent is payable. 2. The Appellant (Assignor) had subsequently executed Deeds of Assignments with some business entities (Assignees) sub-leasing a part of land out of the total land measuring 393.25 acres which was taken on lease by them from the Government of West Bengal on 21.11.2003. The present issue is related to the following sub-leasing deeds executed by the Appellant with various companies: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay service tax on the sub-leases executed on or after 01.07.2010, on the consideration received. Such services are liable to service tax after 01.07.2012 also, as stipulated in Section 66B of the Finance Act, 1994, as 'Declared service'. 8. The details of the particulars of land which has been subleased by the said assessee to the three business entities along with details of the deeds of assignment and date of execution are given below: Sl. No. Name of the company/firm Deed of Agreement no. and date Date of execution of the deed of assignment Particulars of land 1. Choicest Enterprises Ltd. 7359 2011dt.8.9.2011 08.09.2011 Total 3.036 acres under J.L. No.86, Plot nos: 74 75 (P) under L.R. Khatian no.307 and J.L. No.81, Plot nos: R.S.-173 174(P) under L.R. Khaitian no.1049 2. Mega Builders 11220 of 2012 dt.19.12.12 16.11.2012 Total 1.887 acres under R.S. Khatian no.260, Plot no:297/459 crores to L.R. Khatian No.307, Plot no.817 under J.L. No.86 and R.S.Khatian No.847, R.S. Plot No.148 crores to L.R. Khatian no: 1049, L.R. Plot no:377 under J.L.No.81 3. MLA-OSL Developers(JV) 04096 of 2012 30.04.2012 Total 6.61 acres under R.S. Khatian no.847, R.S. Plot no: 129 crores to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the Assignee, subject to renewal of the original deed after its expiry. (iv) The Title of the land which has been assigned to the Appellant has been transferred in the name of the said three parties and lands have already been mutated in the name of the respective parties. Therefore, the transaction must be treated as 'sale of leasehold rights' and service tax would not be applicable on the outright transfer of rights. (v) The Impugned order has considered the Salami or premium deposited by Business entities with the Appellant as 'rent' paid by them to gain the right of occupation. They have received the premium or Salami for permanent assignment of all rights in favour of the Assignees and not in favour of sub-leasing of the land to the assignees. In fact, the assignees are liable to pay rent at the rate specified in Clause(2) of the Deed of Assignment to the DLLLRO, Darjeeling. Thus, if the transfer of leasehold right is treated as 'lease' then, the State of west Bengal represented through the DLLRO should be treated as the Lessor, since the lease rent is paid to them and not to the Appellant. (vi) There is a difference between the 'Premium or Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. A.R submitted that the sub-lease executed by the Appellant with the three Business Entities fall within the ambit of the definition of 'Renting of immovable property' service with effect from 01.07.2010. Finance Act 2010 specifically included 'vacant land given on lease for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce' within the definition of 'Renting of immovable property'. The sub-lease executed cannot be considered as 'sale of property' as there was no sale agreement executed. Accordingly, he prayed for upholding the impugned order. 12. Heard both sides and perused the appeal records. 13. From the information available on the record, we observe that the Appellant executed a Deed with the State Government and acquired 393.25 acres of land for a period of 99 years, with effect from 23.04.2002. Out of this, they relinquished their leasehold right on certain portion of the land and permanently assigned the same on long term lease in favour of the three companies vide three different Deeds of Assignment. Thus, the issue to be decided in the present appeal is whether this pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'Declared Service'. The term Renting of immovable property has been defined under clause (41) of Section 65B of the Act and also under clause (f) of Rule 2 of the Service Tax Rules 1994. Rule 2(f) of the Service Tax Rules, 1994 defines Renting of Immovable Property means any service provided or agreed to be provided by renting of immovable property or any other service in relation to such renting. Section 65B(41) of the Act defines renting as allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly in an immovable property and includes letting, leasing, licensing or other similar arrangement in respect of immovable property. 16. We observe that the Revenue has inferred the term renting from the above definitions and stated that it includes letting, leasing, licensing or other similar arrangement in respect of immovable property, which as per the clause (26) of the General Clauses Act, 1897 includes land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to earth which makes it clear that in the new regime, definition or renting is very wide in scope and covers almost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re terms for situation in which a tenant in possession of property transfers his or her right to possess that property to a third party. If the lessee transfers his or her entire remaining interest in the tenancy, then the transfer is known as an assignment . If the lessee transfers only part of his or her interest, then the transfer is known as a sublease. There are two forms of relationship between every landlord and tenant. There is contractual relationship that took effect and exists by virtue of lease agreement itself. That relationship is known as private of contract . In addition, there is a property ownership relationship, by virtue of their sharing of the ownership of the property. That relationship is known as privity of estate . Privity of estate exists between two parties when those two parties have successive ownerships in the same property (i.e., one holds a present interest while the other holds a future interest or they both hold future interests, one after another). The Assignment An assignment is a full transfer of the lease between the tenant and the assignee. Therefore, since the tenant no longer has any ownership interest in the property, there is no longer any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree Business Entities, the land transferred has been mutated in the name of the respective Assignees. (iii) After the Deed of Assignment, the Assignee is deemed to be the lessee of the said plot. (iv) The Assignee is responsible for renewal of the lease deed after its expiry. (v) The Assignee is responsible for payment of 'rent' fixed by the Government. 22. From the above it is evident that the State Government considers only the Assignee as the lessee of the plots transferred in their names. In a normal lease, the lessor ratains the reversionary rights and the property is returned back to them after the lease period. The Title of the property is never transferred to the lessee. Thus, we observe that the terms and conditions of the Deeds of Assignment clearly indicate that it is not a lease or sub-lease as alleged in the impugned order. In the instant cases, from the Deed of Assignment, we observe that the Appellant does not have any reversionary right of the property after the after the permanent transfer of their leasehold rights to the three Business Entities. It is only the assignees who have the right to get the lease renewed in their favour after completing the forma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty while allowing the W.P. 13645 (W) of 2013 held that : sub-lease or transfer of rights effected by the petitioner company in favour of any third party in respect of any area in what is known as Luxmy Township would be regarded as an assignment of the petitioner rights under the original lease in respect thereof. On the basis of the above decision of the Hon'ble High Court, the Appellant contended that at any stretch of imagination they cannot be said to be a 'lessor' of said leasehold property for the purpose of levy of service tax once they received the one time salami/premium from the said assignees. The department would have made out a case , had it been a situation where the property would have come back to the sublessor after expiry of the lease. Since the leasehold right alongwith obligations are permanently assigned in favour of the assignees herein and the property would not come back to the Appellant, it cannot be considered as sub-lease of property thereby attracting the service tax liability under Renting of immovable property . 25. We observe that the impugned order has alleged that the Appellant exercises some sort of control even after assignment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. In the Deed of Assignment it is categorically mentioned that all the rights, title and interest has been transferred by the Appellant in favour of the Assignee and the Assignee would be deemed to be the Lessee of the plot as if the Lease had been executed by the State Government in favour of the assignee. Further, the letter of permission accorded to the Appellant by the DLLRO clearly states that the assignee would be deemed to be the Lessee of the plot as if the lease has been executed by the State Government in favour of the assignee. Further, the letter of permission accorded by the DLLRO to assign the leasehold right in favour of the assignee stated inter-alia that assignee shall pay such rent as may be determined by the DLLRO, Darjeeling @ 0.03% of the land cost within first 60 days of the year for which such rent is payable in the office of the DLLRO. The clause regarding payment of rent to the DLLRO by the assignee has also been spelt out in the Deed of Assignment. Thus, if the Deed of Assignment is to be regarded as Lease Agreement, then it should be regarded as a Lease Agreement which is to be read with Letter of Permission accorded to the Appellant by the DLLRO betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Accordingly, we hold that these Clauses are incorporated in the Assignment deed only to enable them to perform the functions as per the original deed, which would no way infringe any of the rights permanently transferred to the Assignees. 28. We observe that after the execution of Deeds of Assignment and permanent transfer of leasehold rights by the Appellant in favour of the Assignees, the Title of the land which has been assigned to the Appellant has also been transferred in the name of the said three parties and lands have already been mutated in the name of the respective parties. This is evident from the clarification issued by the DLLRO. Therefore, we hold that the transaction must be treated as 'sale of leasehold rights' and service tax would not be applicable on the outright transfer of rights for a period of 99 years. 29. We observe that the one time Premium received by the Appellant cannot be equated with rent payable on regular intervals for continuous use of the property . The difference between the Premium or salami and the lease rent as envisaged in Section 105 of the Transfer of Property Act, 1882, has been dealt in the decision of the Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is a fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent or both. The consideration which is paid periodically is called rent. As regards premium, the Apex Court in the case of Commissioner of Income Tax, Assam and Manipur v. Panbari Tea Co. Ltd. reported in (1965) 3 SCR 811 has made a distinction between premium and rent observing that when the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments for continuous enjoyment are in the nature of rent, the former is a Capital Income and the latter is the revenue receipt. Thus, the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event under Section 65(105)(zzzz) read with Section 65(90a) is renting of immovable property, Service Tax would be leviable only on the element of rent i.e. the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether this rent is collected periodically or in advance in lump sum. Service Tax under Section 65(105)(zzzz) read with Section 65(90a) cannot be charged on the premium or salami paid by the les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended period not invocable to demand service tax. We find merit in the argument of the Appellant. The department has initiated the investigation for the first time vide letter dated 13.08.2013. The Appellant has furnished all information regarding the Deeds of assignment executed by them vide letter dated 26.08.2013. The Notice was issued on 11.06.2015, more than two years after all information was furbished by them to the investigating officers. Even otherwise, all information regarding the receipts from the said Business Entities are available in their profit and loss account. They were filing returns regularly and disclosed the rent income in which they have paid service tax. If the department has any doubt about the service tax paid by them, they could have clarified the same with the Appellant. Even after knowing the details, the officers took almost two years to issue the Notice. In view of the above, we hold that there is no suppression involved in this case and the entire demand issued in this case is barred by limitation. Accordingly, we hold that the demand is not sustainable on the ground of limitation also. 35. In view of the above discussion, we hold that the deman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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