2015 (2) TMI 886 - AT - Service Tax

Demand of tax on notional interest - whether the appellant is required to pay service tax on notional interest accrued on security deposits for renting of immovable property is liable to service tax or not - Held that - issue has been extensively considered by this Tribunal in the case of Magarpatta Township Developers & Construction Co. (supra), wherein this Tribunal held that notional interest on security deposit cannot be added to rent agreed upon between the parties for the purpose of levy of service tax for renting of immovable property. Therefore, we hold that the appellant is not required to pay service tax on notional interest on security deposit under the category of renting of immovable property service. Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
Whether the appellant is required to pay service tax on notional interest accrued on security deposits for renting of immovable property.

Analysis:
The judgment delivered by the Appellate Tribunal CESTAT MUMBAI, involved the issue of whether the appellant is liable to pay service tax on notional interest accrued on security deposits for renting of immovable property. The appellant argued that the security deposit is refundable and is meant to secure default in payment of rent and other charges by the lessee. Citing a previous Tribunal decision in the case of Magarpatta Township Developers & Construction Co. Ltd., the appellant contended that notional interest on security deposits should not be subject to service tax under the category of renting of immovable property service. On the contrary, the respondent supported the impugned order.

The Tribunal, after hearing both sides, referred to its previous decision in the case of Magarpatta Township Developers & Construction Co., where it was held that notional interest on security deposits should not be included in the calculation of service tax for renting of immovable property. Therefore, the Tribunal concluded that the appellant is not required to pay service tax on notional interest on security deposits under the category of renting of immovable property service. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

In summary, the judgment clarified that notional interest accrued on security deposits for renting of immovable property is not subject to service tax, based on the precedent set by the Tribunal in a similar case. This decision provides clarity on the tax treatment of such interest in the context of renting of immovable property services.