2018 (6) TMI 810 - AT - Service Tax

Renting of immovable property - joint ownership - SSI exemption - Clubbing of clearances - threshold limit of 10 lakhs under SSI exemption N/N. 8/2008 dated 01/03/2008 in each case - Held that - The ownership title of the property which is on lease with M/s ICICI Bank Ltd. is individually in the name of the four appellants who has entered into a joint lease agreement with the tenant namely M/s ICICI Bank Ltd. and the amount of rent on monthly basis has also been received by them separately and individually - As per the Income Tax Act all the four appellants who are recipient of the rent proceeds have to show their income in the individual name and has to pay rent under the Income Tax Act 1962 accordingly. The SSI exemption N/N. 8/2008 dated 01/03/2008 (previously 6/2005 dated 01/03/2005) shall be available for individual owner of the above property for considering the taxable value of the service received by the individual owners - clubbing of value of service (rent in this case) of all the four individual co-owners of property is legally not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on co-owners of a property leased to a single tenant.
2. Interpretation of SSI exemption Notification No. 8/2008 dated 01/03/2008.
3. Clubbing of rental income for service tax liability assessment.

Analysis:

Issue 1: Liability of service tax on co-owners
The case involved four co-owners of a property leased to M/s ICICI Bank Ltd. individually. The Department alleged that the co-owners structured the lease to evade service tax by staying below the threshold limit. The Original Adjudicating Authority held that the liability for service tax lies with the firm/company owning the property, not with individual co-owners. However, the Commissioner (Appeals) held the co-owners collectively liable for service tax as they provided the service jointly to the tenant. The Tribunal disagreed, citing the Income Tax Act and Supreme Court precedent, emphasizing that each co-owner is individually liable for their rental income.

Issue 2: Interpretation of SSI exemption Notification
The Tribunal analyzed the applicability of SSI exemption Notification No. 8/2008 dated 01/03/2008 to the individual co-owners. It referenced case laws like Anil Saini vs. CCE, Chandigarh, highlighting that each co-owner's rental income should be considered individually for service tax assessment. The Tribunal concluded that the clubbing of rental income for all co-owners was legally unsustainable, allowing the individual owners to avail of the SSI exemption.

Issue 3: Clubbing of rental income
The Tribunal rejected the clubbing of rental income for service tax liability assessment, emphasizing that each co-owner should be treated separately. It noted that the co-owners received rent individually, paid income tax accordingly, and should be assessed for service tax on their individual rental receipts. The Tribunal set aside the Commissioner (Appeals) order, allowing the appeals of the co-owners.

In conclusion, the Tribunal ruled in favor of the co-owners, holding that each co-owner should be assessed for service tax individually based on their rental income. The Tribunal emphasized the importance of treating co-owners separately for tax purposes and upheld the applicability of the SSI exemption Notification to individual owners.