2018 (10) TMI 595 - AAR - GST

Renting of immovable property service - Small Business Exemption - Co-owners - Whether small business exemption under Section 22 of the GST Act is available to all owners separately in case of jointly owned property? Whether engaging a co-owner to collect and distribute rent among all the owners for administrative convenience will have any implication on the business exemption under Section 22 of the GST Act for individual co-owners? Held that - The rent collected from joint property is equally distributed among the co-owners. Each co-owner received a rent income of below ₹ 20 Lakhs, which is below the threshold limit under GST. By mere joining of hands of two or more persons, a different and distinct legal entity or legal personality does not come into existence, unless there is an intention to do so. A co-owner holding immovable property jointly with other co-owners, but receiving lease rent separately, in proportion to his share in the property, is eligible for the benefit of threshold exemption. There is also Judicial pronouncement under Service Tax that clubbing of rent amount received by each co-owner, as per their share in jointly owned rented property, is not permissible - refer case ANIL SAINI, KABAL SINGH, NEELAM SAINI, SURINDER KAUR, JASWINDER SINGH, PARMOD KUMAR CHAUDHARY, SUKHJEET JODHA VERSUS CCE, CHANDIGARH-I 2017 (1) TMI 101 - CESTAT CHANDIGARH . Ruling - Small business exemption, provided under Section 22 of the GST Act, is eligible to the co-owners separately in the case of jointly owned property, where the rent is collected together, but divided equally and transfered to the respective co-owner. Engaging a co-owner to collect and distribute rent among all the owners for administrative convenience has no implication on the business exemption under Section 22 of the GST Act for individual co-owners.

Summary

Issues involved:
1. Availability of small business exemption under Section 22 of the GST Act to co-owners of jointly owned property.
2. Implication of engaging a co-owner to collect and distribute rent among all owners on the business exemption under Section 22 of the GST Act for individual co-owners.

Analysis:

Issue 1: Availability of small business exemption under Section 22 of the GST Act to co-owners of jointly owned property:
The petitioner, a co-owner of a jointly owned immovable property, sought an advance ruling on whether the small business exemption under Section 22 of the GST Act is available to all owners separately in the case of jointly owned property. The authorized representative argued that under the GST scenario, renting of immovable property is considered a service attracting 18% GST. However, Section 22 of the GST Act exempts a supplier from registration if their aggregate turnover does not exceed ?20 Lakhs in a financial year. The representative highlighted that in cases of jointly owned properties, each joint owner is assessed separately for their share under the Income Tax Act, making them eligible for individual exemptions. The rent collected from the joint property was distributed equally among the co-owners, with each co-owner receiving an income below the GST threshold limit.

Issue 2: Implication of engaging a co-owner to collect and distribute rent among all owners on the business exemption under Section 22 of the GST Act for individual co-owners:
The ruling clarified that a co-owner holding immovable property jointly with others and receiving lease rent in proportion to their share is eligible for the benefit of the threshold exemption under the GST Act. It was emphasized that the clubbing of rent amounts received by each co-owner, based on their share in jointly owned rented property, is not permissible. The ruling confirmed that engaging a co-owner to collect and distribute rent among all owners for administrative convenience does not affect the business exemption under Section 22 of the GST Act for individual co-owners. Each co-owner's liability to register under the GST Act arises only if their individual receipts from all businesses, including renting of immovable property, exceed ?20 Lakhs in a financial year.

In conclusion, the Authority for Advance Rulings in Kerala issued rulings stating that the small business exemption under Section 22 of the GST Act is available to co-owners separately in the case of jointly owned property where rent is collected together but divided equally among the respective co-owners. Furthermore, engaging a co-owner for rent collection and distribution among all owners for administrative convenience does not impact the business exemption eligibility for individual co-owners under Section 22 of the GST Act.