2018 (10) TMI 476 - AT - Service Tax

Renting of immovable property - Co-ownership - Association of persons - inherited property - SSI Exemption - clubbing of clearances - Held that - The demand has been raised on all the co-owners to treat them as association of person and levy service tax on the amount of rent received by them. 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 co-owners of an immovable property renting it out for commercial purposes can be treated as a single entity for the purpose of service tax liability.
2. Whether the rental income received by individual co-owners, when combined, exceeds the threshold limit for service tax.
3. Whether the co-owners can be considered as an association of persons for the purpose of service tax assessment.

Analysis:

Issue 1:
The case involved a dispute where the department considered three co-owners of an immovable property as a single entity, alleging that the combined rental income crossed the threshold for service tax liability. The appellant argued that co-owners cannot be treated as an association of persons, citing relevant case laws. The Tribunal considered previous judgments and observed that the co-owners did not hold absolute ownership of identifiable parts of the property, and each co-owner could not lease their share independently. The Tribunal noted that the concept of association of persons is distinct for income tax assessment and does not directly apply to service tax matters. The Tribunal found that the co-owners providing the service of renting the property should not be considered as an association of persons for service tax purposes.

Issue 2:
The department's contention was that since the property was indivisible and not specifically allocated to individual co-owners, the service tax should be levied on the total rent received without apportioning it based on individual shares. However, the Tribunal disagreed with this argument, stating that service tax is levied on the service provided, which is intangible, and does not require physical demarcation of the property against individual co-owners. The Tribunal referred to previous cases where co-owners jointly providing the service of renting immovable property were allowed the benefit of exemption based on their individual shares in the property.

Issue 3:
Based on the arguments presented and the precedents cited, the Tribunal concluded that the demand for service tax on the co-owners as a single entity could not be sustained. The impugned order was set aside, and the appeal was allowed, providing consequential relief as necessary. The Tribunal's decision was based on the principle that co-owners renting out property should be assessed based on their individual shares rather than being treated as a collective entity for service tax liability.