2023 (10) TMI 1166 - AT - Service Tax

Levy of Service Tax - notional interest towards security deposit taken by the appellant against the rental property - April, 2007 to September, 2012 - HELD THAT - A perusal of decision of Division Bench of this Tribunal in Murli Realtors 2014 (9) TMI 461 - CESTAT MUMBAI reveals that since the consideration for leasing of the property is rent, so what can be levied to service tax is only rent and notional interest on the security deposit cannot be subjected to levy of service tax. Thus, it has to be held that service tax could not have been levied on the notional interest calculated by the department on the interest fee security deposit collected by the appellant from tenants. The orders impugned in the four orders passed by the Commissioner (Appeals) that have been assailed in the four appeals cannot be sustained - Appeal allowed.

Summary

Issues involved: Whether service tax can be charged on notional interest towards security deposit taken by the appellant against rental property.

The issue in these four appeals is whether the Department could have charged service tax on the notional interest towards security deposit taken by the appellant against the rental property. The appellant had rented out immovable properties and collected interest-free security amount from tenants, which was required to be refunded when tenants vacated the property. The Department believed that the notional interest earned by the appellant on the refundable deposit was liable to be included in the taxable value of services provided by the appellant u/s 67 of the Finance Act, 1994. The appellants contended that notional interest should not be considered as a consideration for service tax purposes. The Commissioner (Appeals) upheld the Department's decision, leading to the filing of appeals by the appellants.

The appellant argued that the advances received were interest-free security deposits and did not impact the rental charges collected. They relied on the provisions of section 67 of the Finance Act and a Division Bench decision of the Tribunal to support their contention. The authorized representative for the Department supported the decision of the Commissioner (Appeals) and argued against interference in the appeals. The Tribunal considered the submissions of both parties and examined section 67 of the Finance Act, which defines "consideration" for taxable services.

A Division Bench of the Tribunal in a similar case held that only consideration received in money for the service rendered is liable to service tax. The security deposit serves a different purpose and is not a consideration for leasing the property. Therefore, notional interest on the security deposit cannot be subject to service tax. Based on this precedent, the Tribunal concluded that service tax could not be levied on the notional interest calculated by the Department on the security deposit collected by the appellant. Consequently, the orders passed by the Commissioner (Appeals) were set aside, and the appeals were allowed.