2024 (7) TMI 1573 - AT - Service Tax

Liability of co-owners to pay service tax on aggregate amount of sum total of rent received in regard to the co-owned property - co-owners of a property leasing it out are considered independent service providers for the purpose of service tax liability or not - Applicability of the threshold exemption limit under N/N. 6/2005-ST as amended by N/N. 8/2008-ST to each co-owner individually - HELD THAT - There is no dispute that the immovable property is co-owned by both the appellants and the rent was received from Punjab National Bank (lessee) equally to both the co-owners. In this fact, both the co-owners are to be treated as independent service provider. Therefore, individually each appellant received rent for the financial year involved in the entire period of this case is much below the threshold limit of exemption under N/Ns. 6/2005-ST dated 01.03.2005 and No. 8/2008-ST dated 01.03.2008, therefore service tax demand will not sustain. This issue has been considered time and again in various judgements - reliance can be placed in Sarojben Khushalchand versus Commissioner of Service Tax, Ahmedabad 2017 (5) TMI 240 - CESTAT AHMEDABAD where it was held that 'it is difficult to accept the proposition advanced by the Revenue that all the co-owners providing the service of renting of immovable property be considered as an association of persons and the service tax on the total rent be collected from one of the co-owners'. It is found that the ground of appeals stated by Revenue in the said appeal is before me are only about what constitutes association of persons . There are no ground which establishes that the eight individuals who are respondents can be called association of persons through any definition provided by any law, when they have not entered into any agreement to form association of persons . Even the definition of person in Section 3(42) of the General Clauses Act, 1897 states that person shall include any company or association or body of individuals. So, since the definition is inclusive, there has to be an association of individuals to become person under said Section 3(42) of the General Clauses Act, 1897. The impugned order is set-aside and the appeal is allowed.

Summary

Issues Involved:
1. Whether co-owners of a property leasing it out are considered independent service providers for the purpose of service tax liability.
2. Applicability of the threshold exemption limit under Notification No. 6/2005-ST as amended by Notification No. 8/2008-ST to each co-owner individually.
3. Whether co-owners can be treated as an "association of persons" for the purpose of computing service tax liability.

Issue-wise Detailed Analysis:

1. Independent Service Providers:
The core issue addressed in the judgment is whether each co-owner of the jointly owned property leased to Punjab National Bank can be treated as an independent service provider. The appellants argued that since the rent received by each co-owner individually is below the threshold limit of exemption, they should not be liable for service tax. The Tribunal agreed with this argument, emphasizing that both co-owners should be treated as independent service providers. Consequently, the rent received by each co-owner individually is considered for the purpose of applying the exemption threshold, and not the aggregate rent received by all co-owners.

2. Applicability of Threshold Exemption Limit:
The appellants contended that the rent received individually by each co-owner is below the exemption threshold as per Notification No. 6/2005-ST and its amendment, Notification No. 8/2008-ST. The Tribunal noted that the total rent received by the appellants was Rs. 53,49,086/- over the period from 2008-09 to 2012-13. However, when divided equally between the co-owners, the individual amount received annually by each co-owner did not exceed the exemption limit. As a result, the Tribunal found that the service tax demand was unsustainable since each co-owner's individual receipts were below the threshold limit, thereby allowing them to avail the exemption.

3. Co-owners as "Association of Persons":
The Revenue's argument was based on treating the co-owners as an "association of persons," thereby aggregating the rent received for the purpose of service tax liability. The Tribunal rejected this argument, relying on precedents such as the case of Sarojben Khushalchand and others, where it was established that co-owners receiving rent in proportion to their share in the property should not be treated as an "association of persons." The Tribunal further clarified that merely owning property jointly does not automatically categorize co-owners as an association of persons for service tax purposes. The Tribunal's decision was consistent with previous judgments, which held that each co-owner should be assessed individually for service tax purposes, based on their respective share of rent received.

In conclusion, the Tribunal set aside the impugned orders and allowed the appeals, affirming the position that co-owners should be treated as independent service providers, thereby entitling them to the benefit of the threshold exemption limit individually. The Tribunal's decision aligns with established jurisprudence, emphasizing the importance of individual assessment for service tax liability in cases of jointly owned properties.