2023 (6) TMI 414 - AT - Service Tax

Levy of Service Tax - Renting of Immovable Property Service or not - whether the appellant is liable to pay service tax under the category of Renting of Immovable Property Services for the amounts received from GRT? - HELD THAT - As per the agreement there is no fixed assured rent paid to the appellant by GRT. A sum calculated as 20% of the Gross Room Income and all other income, except food and beverage income and 15% on the food and beverage income derived from the hotel has to be paid on a monthly basis. It is also stated that room income, food or beverage income and other income derived shall be called as Gross Turnover of the Hotel . It is thus sharing of profit of the business of the hotel and not a consideration paid for renting of the Hotel Building. If the business is at a loss or suppose the hotel has to be closed down (for eg., in a situation like lockdown during COVID-19) there may not be any income for the hotel. The appellant then does not get any consideration. Whereas in a situation of renting of immovable property, the consideration is for the service of providing renting of immovable property - the rent is paid all along when the transfer of right in the immovable property is active and alive. Similar arrangement of licence granted to operate and run a Hotel was considered by the Tribunal in the case of GRAND ROYALE ENTERPRISES LTD. VERSUS COMMISSIONER OF SERVICE TAX-I CHENNAI 2018 (10) TMI 656 - CESTAT CHENNAI . The Tribunal had set aside the demand and relied upon the decisions of the Tribunal in the case of AMBIENCE CONSTRUCTIONS INDIA LTD. VERSUS THE COMMISSIONER OF SERVICE TAX HYDERABAD 2012 (11) TMI 653 - CESTAT BANGALORE and M/S JAI MAHAL HOTELS PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2014 (7) TMI 540 - CESTAT NEW DELHI - The above decision of the Tribunal in the case of Grand Royale Enterprises (supra) was affirmed by the Hon ble Supreme Court in COMMISSIONER OF SERVICE TAX 1 CHENNAI VERSUS GRAND ROYALE ENTERPRISES LTD. 2022 (9) TMI 273 - SC ORDER . After analysing the facts, evidence and applying the decision in the case of Grand Royale Enterprises as affirmed by the Hon ble Apex Court, it is opined that the demands cannot sustain - Appeal allowed.

Summary

Issues Involved:
1. Liability of the appellant to pay service tax under 'Renting of Immovable Property Services'.
2. Definition and interpretation of 'Renting of Immovable Property Services'.
3. Nature of the agreement between the appellant and GRT.
4. Consideration received under the agreement.
5. Relevant judicial precedents and their applicability.

Summary:

1. Liability of the appellant to pay service tax under 'Renting of Immovable Property Services':
The primary issue is whether the appellant is liable to pay service tax under the category of 'Renting of Immovable Property Services' for the amounts received from GRT.

2. Definition and interpretation of 'Renting of Immovable Property Services':
The definition of 'Renting of Immovable Property Services' as per Section 65(105)(zzzz) of the Finance Act, 1994, includes renting, letting, leasing, licensing, or other similar arrangements of immovable property for use in the course of business or commerce. However, buildings used for the purposes of accommodation, including hotels, are excluded from this definition.

3. Nature of the agreement between the appellant and GRT:
The appellant entered into an agreement with GRT to operate and run the hotel. The agreement specified that GRT would pay a sum calculated as a percentage of the gross room income and food & beverage income derived from the hotel. The appellant contended that this arrangement is a profit-sharing agreement and not a rental agreement.

4. Consideration received under the agreement:
The consideration received by the appellant is not a fixed rent but a share of the profits from the hotel business. This profit-sharing arrangement indicates that the agreement is not for renting immovable property but for sharing the business income.

5. Relevant judicial precedents and their applicability:
The Tribunal relied on the judgments in the cases of Jai Mahal Hotels Pvt. Limited and Grand Royale Enterprises Ltd., which held that similar profit-sharing agreements do not fall under the category of 'Renting of Immovable Property Services'. The decision in Grand Royale Enterprises Ltd. was affirmed by the Supreme Court, reinforcing that such agreements are outside the purview of the taxable service.

Conclusion:
After analyzing the facts, evidence, and applying the decision in Grand Royale Enterprises Ltd., the Tribunal concluded that the demands for service tax cannot sustain. The impugned order was set aside, and the appeal was allowed with consequential reliefs as per law.