2019 (1) TMI 1109 - AT - Service Tax

Renting of immovable property - Co-ownership - Association of persons - inherited property - SSI Exemption - clubbing of clearances - Held that - The demand on co-owners jointly cannot be sustained. This Bench itself in the case of Shri. S. V. Janardhanam Vs. Commissioner of G.S.T. & Central Excise Salem 2018 (10) TMI 476 - CESTAT CHENNAI relied upon another Tribunal decision in the case of Sarojben Khusalchand 2017 (5) TMI 240 - CESTAT AHMEDABAD and held that such co-owners are receiving rents separately in proportion to their share and are also being assessed separately under income tax law. The service tax liability will require to be quantified individually for the co-owners provided they exceed the threshold limit for taxability under service tax. Penalty u/s 77 and 78 of FA - Held that - Since the very edifice of the demand made jointly on the co-owners has crumbled, there will not be any penalty imposable on these appellants. Hence, the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are set aside. The matter is remanded to the Original Authority who will re-work the service tax liability after taking into account the value of taxable service relative to each of the co-owners and after giving the benefit of threshold limit for taxation to each of them - appeal allowed by way of remand.

Summary

Issues:
1. Whether service tax liability on co-owners jointly providing taxable service is valid.

Analysis:
1. The case involved four appellants who jointly purchased land and constructed a Commercial Complex leased to various parties. The Department alleged that the co-owners collectively constituted a single entity providing taxable service, resulting in a service tax liability of ?14,93,577 on lease amounts received. The Commissioner (Appeals) upheld this view, leading to the appeal.

2. The appellant's argument was that service tax on "Renting of Immovable Property Services" should be levied on individual persons, not jointly on co-owners. They contended that joint ownership without demarcation does not imply joint provision of service. The appellant cited various cases supporting the treatment of co-owners as individuals for tax purposes and claimed that they have always been assessed individually by the Income Tax Department.

3. The Tribunal agreed with the appellant, stating that the demand on co-owners jointly was unsustainable. They referenced previous cases and their own decision, emphasizing that co-owners receive rents separately based on their share and are assessed individually for income tax. The Tribunal directed the Original Authority to re-calculate the service tax liability for each co-owner, considering the threshold limit for taxability under service tax.

4. Consequently, the penalties imposed on the appellants under Sections 77 and 78 of the Finance Act, 1994, were set aside due to the collapse of the joint demand on co-owners. The appeals were allowed, and the matter was remanded for individual assessment of service tax liability for each co-owner.