2018 (10) TMI 400 - AT - Service Tax

Renting of immovable property - Joint ownership - clubbing of clearances - SSI Exemption - Department was of the view that since co-owners have an undivided share in the property, all the co-owners have to be treated as an association of person and the rental income has to be combined together - case of appellant is that that the department cannot consider all the four co-owners as an association of person so as to demand service tax by combining the rent by each co-owners. Held that - When the co-owners are treated individually, the amounts undoubtedly fall below the threshold exemption. The Tribunal in the case of Sarojben Khulsanchand & Ors. Vs. Commissioner of Service Tax, Ahmedabad 2017 (5) TMI 240 - CESTAT AHMEDABAD , had considered the similar issue and held that The service Tax Registration of individual assessees for collection of service tax is PAN based, hence, collection of service tax from one of the co-owners, against his individual Registration for the total rent received by all co-owners separately, is neither supported by law nor by laid down procedure. Thus, 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. The demand cannot sustain and requires to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the rental income received by four co-owners of a property should be combined for service tax liability.
2. Whether the co-owners can be treated as an association of persons for service tax purposes.
3. Application of small scale exemption limit to individual co-owners.

Analysis:

Issue 1: Rental Income Combination
The Department contended that since the co-owners had an undivided share in the property, all co-owners should be treated as an association of persons, leading to a combined rental income exceeding the threshold for service tax liability. The original authority confirmed a demand for service tax on the appellants. The Commissioner (Appeals) upheld this decision.

Issue 2: Association of Persons
The appellant argued that each co-owner had individual rights over the property and should not be considered an association of persons. The consultant provided a breakdown of rental income for each co-owner, showing amounts below the threshold exemption limit. The Tribunal referred to previous cases and observed that co-owners should be treated individually for service tax purposes, not as an association of persons.

Issue 3: Small Scale Exemption
The consultant demonstrated that when considering each co-owner's taxable value, it fell below the small scale exemption limit. The Tribunal cited previous judgments to support the view that service tax should be levied on individual co-owners based on their share in the property, not as a combined entity. The Tribunal set aside the demand for service tax, ruling in favor of the appellants.

This judgment clarifies that co-owners of a property should be assessed individually for service tax liability based on their respective shares, rather than being treated collectively as an association of persons. The Tribunal emphasized the importance of considering each co-owner's rights and taxable income separately, especially in cases where rental income is involved. The decision provides clarity on the application of small scale exemption limits and reinforces the principle of individual assessment for service tax purposes.