2017 (9) TMI 298 - AT - Service Tax

Renting of immovable property Service - rent received from the lessee - repair and maintenance expenditure incurred by the lessee for the repair and maintenance of leased premises - Held that - As regards the demand on service tax on repair and maintenance expenditure, we find that this amount is not towards lease rent - the said expenditure cannot be considered as extra consideration towards the lease rent. Lease rent is the only amount which is received by the appellant on account of lease of the premises to the lessee. Therefore, the demand on expenditure towards repair and maintenance is not sustainable. Lease rent - Held that - According to agreement there is a lease rent fixed between the appellant as a lessor and the lessee. Therefore, the arrangement is nothing other than renting of immovable properties. The process of recovery of dues is in accordance with the SERFAESI Act, 2002 through rental income against the property of the defaulter of the loan of the appellant. There is no provision in the Finance Act, 1994 for granting any exemption in respect of receipt of service charges, which is towards the recovery of outstanding loan. Therefore, the arrangements of lease is squarely covered under the services of renting of immovable property - demand upheld. Appeal allowed - decided partly in favor of appellant.

Summary

Issues involved:
1. Whether service tax is applicable on rent received from lessee and repair/maintenance expenditure.
2. Liability to pay service tax on lease rent for recovery of outstanding dues.
3. Verification of service tax payment by lessee for one property.

Analysis:

Issue 1: Service tax on rent and repair/maintenance expenditure
The appellant, a State Co-Op. Bank, leased out properties to recover outstanding dues from borrowers. The department raised a demand for service tax on rent received and repair/maintenance expenditure by lessee. The appellant argued that rent for recovery of dues is not service charges under SERFAESI Act, 2002. The Tribunal found repair/maintenance expenditure by lessee not as part of lease rent, hence not taxable. However, rent received for leasing property is considered taxable under renting of immovable property services.

Issue 2: Liability for service tax on lease rent
The appellant contended that lease rent for recovering outstanding dues should not be taxed. The Tribunal disagreed, stating the lease agreement fixed rent between the parties, making it taxable under renting of immovable property services. The appellant claimed service tax was paid by lessee for one property, which needs verification. The matter was remanded for proper verification and possible reduction of liability if found correct.

Conclusion:
The Tribunal set aside the service tax demand on repair/maintenance expenditure by lessee but remanded the matter regarding service tax on lease rent for further verification. The decision highlights the distinction between lease rent and repair/maintenance expenses in the context of service tax liability, emphasizing the importance of proper documentation and verification in tax matters.

This detailed analysis provides a comprehensive understanding of the judgment's key issues, arguments presented by both parties, and the Tribunal's decision, ensuring clarity on the application of service tax in the context of leasing properties for recovery of outstanding dues.