2017 (10) TMI 967 - AT - Service Tax

Renting of immovable property service - commercial or residential - consideration received for letting out a building to M/s Plasser (India) Pvt. Ltd. for use of Sh. Thomas Hentze for residence and personal office - interpretation of word personal office - Held that - from the agreement it is clear that the purpose of letting will be residential only and the lessee shall be responsible if the premises is used for other than residence. All the consequences including extra levy shall be the liability on the lessee - the terms of lease make it clear that the building was let out to the appellant for residential use by one of its employees. Even if we consider that the said employee did attend to some personal office work from the said premises, the same will not make it use of premises other than the residence. Extended period of limitation - Held that - Admittedly the tax liability on his particular tax entry has been a subject matter of substantial litigation - demand is time barred. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Liability of the appellant to pay service tax on letting out a building for residential and personal office use, imposition of penalty under sections 78 & 77 of the Finance Act, 1984, interpretation of lease agreement, applicability of service tax on renting of immovable property, contesting demand on grounds of limitation.

Analysis:

1. Liability of Appellant for Service Tax:
The dispute in the appeal revolved around the liability of the appellant to pay service tax on letting out a building for residential and personal office use. The Revenue argued that since the term "personal office" was mentioned in the lease agreement, the consideration received should be taxed under the category of "renting of immovable property service." The Commissioner (Appeals) reversed the original decision and held the appellants liable for service tax, imposing penalties under sections 78 & 77 of the Finance Act, 1984.

2. Interpretation of Lease Agreement:
The appellant contended that the lease agreement clearly indicated that the property was let out only for residential purposes, with a clear prohibition on using it for other purposes. Despite the mention of "personal office" in the lease, it was argued that the premises were used solely for residential purposes. The appellant provided evidence, including affidavits, to support this claim, emphasizing that no rental income was received for a specific period due to the absence of a lease agreement.

3. Applicability of Service Tax on Renting of Immovable Property:
The Tribunal noted that the demand against the appellant arose due to the inclusion of "personal office" in the lease agreement. However, upon careful consideration of the lease terms, it was clarified that the primary purpose of letting the property was for residential use only. The lessee was held responsible if the premises were used for purposes other than residence, absolving the appellant of additional liabilities. The Tribunal highlighted that renting per se was not taxable, as established in previous judicial decisions, leading to statutory amendments regarding the tax liability on renting.

4. Contesting Demand on Grounds of Limitation:
The appellant raised a strong argument regarding the limitation period for the demand, citing substantial litigation surrounding the tax liability on renting of immovable property. Referring to previous judgments, including one by the Hon'ble Delhi High Court, the Tribunal acknowledged the complexity and uncertainty surrounding the tax entry, leading to statutory amendments and provisions for penalty waivers. Consequently, the Tribunal found the demand against the appellant untenable both on merit and time bar, ultimately allowing the appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing that the demand for service tax on letting out the building for residential and personal office use was not justified based on the lease terms, previous judicial interpretations, and the complexity of the tax liability issue.