2017 (8) TMI 905 - AT - Service Tax

Renting of immovable property - whether renting of immovable property for commercial use given by the appellant being a charitable hospital is liable for service tax under the category of renting of immovable property for commercial use in terms of clause 105 (zzzz) of Section 65 of the Finance Act, 1994? - Held that - under the category of renting of immovable property, the service is taxable, if the property is rented out for the purpose of business or commerce - In the present case even though the appellants are charitable trust, the immovable property rented out is undisputedly for the purpose of commerce or business. There is no specific exemption notification in respect of renting of immovable property by a charitable trust - demand upheld. Penalty - Held that - the issue was contentious - still the matter is pending before the Hon ble Supreme Court - In this scenario, entertaining the bonafide belief by the appellant is convincing, the penalty is set aside. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Whether renting of immovable property for commercial use by a charitable hospital is liable for service tax under Section 65 of the Finance Act, 1994.

Analysis:

Issue 1:
The main issue in this case revolves around the taxability of renting immovable property for commercial use by a charitable hospital under clause 105 (zzzz) of Section 65 of the Finance Act, 1994. The appellant, a charitable trust, argued that their property should be exempt from service tax due to their charitable status. They pointed out that the charitable institution became taxable only after a specific date and highlighted the ongoing legal disputes at the Bombay High Court and Delhi High Court, with the matter pending before the Supreme Court. The appellant also mentioned a special provision in Section 80 of the Finance Act, 1994, for waiver of penalties. However, the tribunal found that even though the appellants were a charitable trust, the property in question was rented out for commercial purposes, making it liable for service tax. Since there was no specific exemption for renting by a charitable trust, the tribunal upheld the service tax demand.

Issue 2:
Regarding penalties, the tribunal acknowledged the complexity and contentious nature of the issue, as evidenced by conflicting judgments from different high courts and the matter pending before the Supreme Court. Considering the appellant's genuine belief regarding the taxability of the services, the tribunal decided to set aside the penalties imposed by the lower authorities under Sections 70, 76, and 78 of the Finance Act. However, the tribunal maintained the interest on delayed payment of service tax. Ultimately, the appeals were partly allowed with penalties being waived but interest being upheld.

In conclusion, the tribunal ruled that renting of immovable property for commercial use by a charitable hospital is subject to service tax, even if the property is owned by a charitable trust. However, due to the complexity and ongoing legal disputes surrounding the issue, the tribunal decided to waive penalties while upholding the interest on delayed payments.