2013 (6) TMI 608 - HC - Service Tax

Renting of immovable property - levy of service tax - dispute between landlord and tenant - tenant refused to pay as per the terms of contract - Held that - it is apparent that the first defence taken in the preliminary objection No.1 that the tenant was not liable to pay service tax is a defence prohibited by law inasmuch as service tax on commercial rented properties is an indirect tax and the jurisprudence on indirect tax tells us that the primary liability of the landlord to pay the tax to the Income Tax Authorities can be passed on to the tenant, for the reason as per the law it is the commercial use by the tenant which enhances the utility to the tenant with respect to the property which attracts service tax on commercial properties. Section 108 of the Transfer of Property Act, 1882 enlists the rights and liabilities of the lessor and the lessee. Suffice would it be to state that clause (l) thereof, casts a legal duty on the lessee to pay or tender the agreed rent at the proper time and proper place. Thus, notwithstanding there being or there not being a term in the lease deed, it certainly would be the duty of every tenant to pay the rent to the landlord as per the agreement. - Decided against the tenant.

Summary

Issues:
1. Delay in filing the appeal condonation.
2. Default in payment of rent and possession decree sought.
3. Defence under Section 114 of the Transfer of Property Act.
4. Liability of tenant for service tax.
5. Admissibility of notices served to the tenant.
6. Forfeiture of lease due to non-payment of rent.

Issue 1: Delay in filing the appeal condonation
The court allowed the condonation of a four-day delay in filing the appeal despite no reasonable cause shown for the delay. The respondent did not object to the condonation, leading to the allowance of the appeal.

Issue 2: Default in payment of rent and possession decree sought
The suit involved a dispute over non-payment of rent by the tenant, leading to continuous defaults despite multiple notices sent by the landlord. The plaintiff sought a decree for the accumulated rent, ejectment of the tenant, damages for unauthorized occupation, and interest.

Issue 3: Defence under Section 114 of the Transfer of Property Act
The defendant raised a defence under Section 114 of the Transfer of Property Act, claiming relief against forfeiture for non-payment of rent. However, the court noted that the defendant failed to pay the outstanding rent as required by the Act, leading to the dismissal of the defence.

Issue 4: Liability of tenant for service tax
The defendant argued that they were not liable to pay service tax as it was the landlord's responsibility. The court clarified that the primary liability for service tax on commercial properties lies with the landlord, but it can be passed on to the tenant. The court deemed the defence regarding service tax as prohibited by law.

Issue 5: Admissibility of notices served to the tenant
The plaintiff provided evidence of serving notices to the tenant through registered AD post, supported by postal receipts and acknowledgment cards. The court acknowledged the service of notices, emphasizing the legal obligation of the tenant to pay rent after receiving such notices.

Issue 6: Forfeiture of lease due to non-payment of rent
The court highlighted the lease agreement's clause stating that non-payment of rent for two consecutive months would lead to automatic forfeiture of the lease if the tenant failed to tender the rent after receiving a notice. The court upheld the landlord's right to seek possession due to the tenant's continuous default in rent payment.

In conclusion, the court dismissed the appeal, upholding the possession decree in favor of the landlord due to the tenant's admitted default in rent payment and failure to comply with the legal obligations outlined in the lease agreement and the Transfer of Property Act.