2017 (4) TMI 1136 - AT - Service Tax

Renting of immovable property services - consideration in the form of percentage of gross income PLUS gross operational profit or minimum guaranteed profit - The appellants claimed exclusion under the category of buildings used for the purpose of accommodation including hotels - Held that - it is not the case of the renting out empty land to be later developed with construction of hotel - 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 accommodation of people paying for their rooms and meal. Many hotels will have various other incidental facilities relating to entertainment, personal care, etc. The presence of these facilities does not exclude the building from the category of hotel - similar issue came up for decision before the Tribunal in Jai Mahal Hotel Pvt. Ltd 2014 (7) TMI 540 - CESTAT NEW DELHI , where it was held that buildings used for or as hotels do not amount to immovable property. The legislative provision in question i.e. the exclusionary clause (d), to the extent relevant and material, excludes from the purview of immovable property, buildings used for the purposes of accommodation including for hotels - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability under "renting of immovable property services" category.

Analysis:
The dispute revolved around the service tax liability of the appellant under the category of "renting of immovable property services" as per Section 65(90c) read with Section 65(105)(zzzz) of the Finance Act, 1994. The appellant had an agreement with Indian Hotel Company Ltd. (IHCL) allowing IHCL to use their premises for a hotel business, receiving consideration based on a percentage of gross income or guaranteed profit. The Revenue asserted that the appellant provided taxable services falling under "renting of immovable property services," leading to a demand for service tax. The Original Authority confirmed a demand of ?29,13,947 against the appellant, upheld by the Commissioner (Appeals) in the impugned order dated 31.12.2013.

The appellant argued that they provided land and building premises to IHCL for a hotel business, emphasizing that the statutory definition of "immovable property" excludes buildings used for accommodation like hotels. They contended that profit-sharing from the hotel business cannot be equated to rent for service tax purposes. The appellant also challenged the lower authorities' conclusion that additional facilities in the hotel complex negate its exclusion, asserting that the primary purpose of a hotel is accommodation, even if it offers various incidental services.

The Appellate Tribunal analyzed the statutory provisions related to renting out immovable property services under Section 65(105)(zzzz) and the exclusions provided therein. The Tribunal noted that the appellant permitted IHCL to use their land, buildings, and structures for operating a hotel, clarifying that the agreement involved developing, expanding, and operating a hotel on the premises. The Tribunal highlighted that the term "hotel" is not explicitly defined in the Finance Act, 1994, but generally refers to establishments providing temporary accommodation along with additional facilities, which do not exclude them from the hotel category.

Referring to precedents like Jai Mahal Hotel Pvt. Ltd. and The Lake Palace Hotel and Motels Pvt. Ltd., the Tribunal emphasized that buildings used for accommodation, including hotels, do not fall under the definition of immovable property for service tax purposes. Citing these decisions and the exclusionary clause (d) under Explanation 1 to Section 65(105)(zzzz), the Tribunal concluded that buildings utilized as hotels are not considered immovable property, thereby setting aside the impugned order and allowing the appeal.

In conclusion, the Appellate Tribunal ruled in favor of the appellant, holding that the service tax liability under the "renting of immovable property services" category did not apply to buildings used for accommodation like hotels, based on the exclusionary provisions and precedents cited.