2020 (5) TMI 221 - AAR - GST

Computation of aggregate turnover for the purpose of GST registration - Supply or not - sources of income - Interest income received from different sources - Partner s salary received as partner from applicant s partnership firm - Salary received as Director from a Private Limited Company - Rental income on Commercial Property - Rental income on Residential Property - Reverse charge mechanism. Interest income received from different sources - HELD THAT - The interest earned by the applicant out of the deposits/loans/advances extended amounts to consideration and is exempted. Therefore in the instant case extending the deposits/loans/advances by the applicant is nothing but exempted service and the actual amounts of deposits/loans/advances become the value of the service. Thus these amounts are to be included in the aggregate turnover for registration under the provisions of GST Act. Partner s salary received as partner from applicant s partnership firm - HELD THAT - The applicant has not furnished any documents relevant to the issue such as copy of agreement appointment order etc. so as to decide whether the applicant is an employee of the partnership firm or not. In case. if the applicant is a working partner and is getting salary then the said salary is neither supply of goods nor supply of service in terms of clause 1 of Schedule III of CGST Act 2017. Further in case if the applicant is in receipt of the amount towards his share of profit from the said partnership firm then also the said income is not under the purview of GST as the share of profit is nothing but application of money and hence the said salary is not required to be included in the aggregate turnover for registration under the provisions of GST Act. Salary received as Director from a Private Limited Company - HELD THAT - The remuneration received by the applicant as Executive Director is not includable in the aggregate turnover as it is the value of the services supplied by the applicant being an employee. Further if the applicant receives the remuneration as a Non-Executive Director such remuneration is liable to tax under reverse charge mechanism under section 9 (3) of the CGST Act 2017 in the hands of the company under entry no. 6 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. Thus the value of the said services of the applicant being a Non-Executive Director are includable in the aggregate turnover as it is the value of the taxable services supplied by the applicant though the tax is discharged by the private limited company under reverse charge mechanism. Rental income on Commercial Property - HELD THAT - The transaction of rental/lease of commercial property amounts to supply; applicant receives periodical income towards the impugned supply of service 86 the same is in the course or furtherance of business and hence the said transaction amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017. Thus it is a taxable supply of service having SAC 997212 and therefore the value of such supply is to be included in the aggregate turnover for registration. Rental income on Residential Property - HELD THAT - Services by way of renting of residential dwelling for use as residence classified under SAC 997211 are exempted from the tax (GST) in terms of entry number 12 of the Notification No. 12/2017 dated 28.06.2017. Thus the impugned supply of service of renting of residential property becomes an exempted supply. Aggregate Turnover includes the value of the exempted supplies also. Therefore the income received by the applicant towards rent of residential property is to be included in the aggregate turnover. Receipt of income out of maturity proceeds of life insurance policies dividend on shares and capital gain/loss on sale of shares - HELD THAT - In the instant case the dividend on shares capital gains/losses on sale of shares are relevant to the shares (securities) and the income earned in this relation is nothing but application of money. Therefore this income earned out of shares which are excluded from the definition of goods or services also gets excluded from the said definition old goods / services. Therefore they are not relevant to the aggregate turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act. Receipt of income out of maturity proceeds of life insurance policies - HELD THAT - The insurance premium of policies is taxable under GST being the consideration for the services provided by the insurance companies. Therefore on completion of the said contract / maturity of the policy there would not be any service involved between the policy holder and the insurance company. Therefore the amounts received on maturity of the insurance policies are not relevant to the aggregate turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act. Thus the incomes received towards (i) salary/remuneration as a Non-Executive Director of a private limited company (ii) renting of commercial property and (iii) renting of residential property and (iv) the values of amounts extended as deposits/loans/advances out of which interest is being received are to be included in the aggregate turnover for registration - the income received from renting of residential property is to be included in the aggregate turnover though it is an exempted supply.

Summary

Issues Involved:
1. Inclusion of various income sources in Aggregate Turnover for GST registration.
2. Classification of income sources as supply under GST law.
3. Applicability of GST on different types of income.

Issue-wise Detailed Analysis:

1. Inclusion of Various Income Sources in Aggregate Turnover for GST Registration:
The applicant sought to determine which types of income should be included in the Aggregate Turnover for GST registration. The definition of "Aggregate Turnover" under Section 2(6) of the CGST Act, 2017, includes the aggregate value of all taxable supplies, exempt supplies, exports, and inter-State supplies, excluding inward supplies on which tax is payable on a reverse charge basis and certain taxes and cess.

2. Classification of Income Sources as Supply under GST Law:
The judgment examined whether each type of income received by the applicant constitutes a supply under Section 7(1)(a) of the CGST Act, 2017, which requires the transaction to involve a supply of goods or services, for consideration, and in the course or furtherance of business.

3. Applicability of GST on Different Types of Income:

Interest Income from Various Sources:
Interest income from deposits, loans, and advances is considered an exempt service under Entry No. 27(a) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Therefore, these amounts are included in the Aggregate Turnover for registration.

Partner’s Salary from Partnership Firm:
If the applicant is a working partner receiving a salary, it is not considered a supply of goods or services under Schedule III of the CGST Act, 2017. If the salary is a share of profit, it is also not under the purview of GST. Thus, it is not included in the Aggregate Turnover.

Salary as Director from a Private Limited Company:
The judgment distinguishes between an Executive Director (employee) and a Non-Executive Director (independent contractor). If the applicant is an Executive Director, the salary is not considered a supply of services. If a Non-Executive Director, the remuneration is taxable under reverse charge mechanism and is included in the Aggregate Turnover.

Rental Income on Commercial Property:
Rental income from commercial property is considered a taxable supply of service and is included in the Aggregate Turnover.

Rental Income on Residential Property:
Rental income from residential property is an exempt supply but still included in the Aggregate Turnover as per the definition of Aggregate Turnover, which includes exempt supplies.

Maturity Proceeds of Life Insurance Policies, Dividend on Shares, and Capital Gains/Losses on Sale of Shares:
These incomes are related to securities, which are excluded from the definition of goods and services under the CGST Act. Therefore, they are not included in the Aggregate Turnover.

Ruling:
1. Incomes from salary/remuneration as a Non-Executive Director, renting of commercial property, renting of residential property, and interest from deposits/loans/advances are included in the Aggregate Turnover for registration.
2. Income from renting residential property is included in the Aggregate Turnover, even though it is an exempt supply.