2016 (1) TMI 1062 - AT - Service Tax

Renting of immovable property on profit sharing basis - demand of service tax on renting including on notional interest received on the security deposit made with the appellants. - Held that - As the issue has already been settled in appellants own case for earlier period, that the appellant is not liable to pay service tax under the category of renting of immovable property service as leasing out the property to Hotel under the deemed provision of section 65 (105)(zzz) of the Finance Act, 1994. Therefore, we hold that appellant is not liable to pay service tax under the renting of immovable property service. - Further, appellant are not liable to pay service tax on the notional interest accrued on the security deposit. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Liability to pay service tax on renting of immovable property service.
2. Liability to pay service tax on notional interest received on security deposit.
3. Imposition of penalty under section 76 of the Finance Act, 1994.

Analysis:

Issue 1: Liability to pay service tax on renting of immovable property service
The appellant, the owner of land and building rented out to a hotel on a profit-sharing basis, was issued a show cause notice for service tax on renting of immovable property service. The Revenue argued that the appellant leased out the building, making them liable for service tax. The appellant contended that the renting to the hotel was outside the taxable service ambit under section 65(105)(zzz) of the Finance Act, 1994. Citing a previous Tribunal decision, the appellant argued against the liability. The Tribunal found in favor of the appellant, stating that they were not liable to pay service tax under the category of renting of immovable property service due to the deemed provision of the Act.

Issue 2: Liability to pay service tax on notional interest received on security deposit
The Revenue proposed that the appellant, who received a security deposit, was liable for service tax on the notional interest accrued. The appellant argued against this, citing a Tribunal decision in a similar case. The Tribunal referenced the case of K Raheja Corp. Pvt. Ltd. and held that notional interest on the security deposit cannot be added to the rent for service tax purposes. Consequently, the Tribunal ruled that the appellant was not required to pay service tax on the notional interest on the security deposit under the category of renting of immovable property service.

Issue 3: Imposition of penalty under section 76 of the Finance Act, 1994
Additionally, the Revenue had filed an appeal for imposing a penalty under section 76 of the Finance Act, 1994. However, the Tribunal did not provide detailed analysis or ruling on this issue in the judgment.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal of the assessee and dismissing the appeal filed by the Revenue. The appellant was found not liable to pay service tax on renting of immovable property service and notional interest on the security deposit. The stay application was also disposed of accordingly.