2025 (1) TMI 629 - AT - Service Tax

Liability of appellants, as individual co-owners of a jointly owned immovable property to pay service tax - rent received from leasing the property - benefit of the threshold exemption limit under Notification No. 6/2005-S.T., dated 1-3-2005 - HELD THAT - Though, learned Authorized Representative submits that the impugned case is different from the cases decided by the Tribunal inasmuch as both the appellants are Kartas in the same HUF - It is found that this fact will not alter the position of the appellants being joint owners and receiving rent separately. This Bench has decided the issue in the case of RAMESH KUMAR CHAUDHARY, SANTOSH CHAUDHARY, SANJAY CHAUDHARY, VIJAY CHAUDHARY VERSUS COMMISSIONER OF SERVICE TAX, DELHI-IV 2024 (12) TMI 1025 - CESTAT CHANDIGARH where it was held that 'service tax cannot be recovered from the appellants in a combined fashion. If considered individually, the appellants are eligible for the benefit of exemption contained under Notification. No. 06/2005-S.T dated 01.03.2005.' Conclusion - i) The appellants are eligible for the service tax exemption individually; they are not an association of persons. ii) Co-owners receiving rent individually are entitled to separate threshold exemptions. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented and considered in this judgment are:

Whether the appellants, as individual co-owners of a jointly owned immovable property, are liable to pay service tax on the rent received from leasing the property, or whether they are eligible for the benefit of the threshold exemption limit under Notification No. 6/2005-S.T., dated 1-3-2005.
Whether the appellants can be considered as an "association of persons" for the purpose of service tax liability, thereby aggregating the rent received for tax calculation.
Whether the penalties imposed under Sections 77 and 78 of the Finance Act, 1994, are sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Threshold Exemption Limit

Relevant Legal Framework and Precedents: The relevant legal framework is Notification No. 6/2005-S.T., which provides a service tax exemption for taxable services of aggregate value not exceeding a specified limit in a financial year. Precedents include decisions by the Tribunal in similar cases, such as Sarojben Khushal Chand and others.
Court's Interpretation and Reasoning: The court interpreted that each co-owner receiving rent separately in proportion to their share in the property is eligible for the threshold exemption limit individually. The court found that the appellants, as individual service providers, should be assessed separately rather than collectively.
Key Evidence and Findings: The appellants received rent individually, had separate PAN numbers, and were assessed separately for income tax purposes, supporting their claim for individual exemption.
Application of Law to Facts: The court applied the exemption notification to the facts, concluding that the appellants are entitled to the exemption as individual service providers.
Treatment of Competing Arguments: The court rejected the Revenue's argument that the property being indivisible necessitated a collective assessment, emphasizing the individual nature of the service provision and rent receipt.
Conclusions: The appellants are eligible for the exemption individually, and service tax cannot be recovered from them in a combined fashion.

Issue 2: Association of Persons

Relevant Legal Framework and Precedents: The concept of "association of persons" as defined in tax law and interpreted by the Supreme Court in cases like CIT v. Indira Balkrishna.
Court's Interpretation and Reasoning: The court found that the appellants did not form an association of persons as they did not join together for a common purpose or action beyond owning the property.
Key Evidence and Findings: The lack of a joint enterprise or common purpose among the appellants in renting out the property supported the court's conclusion.
Application of Law to Facts: The court applied the legal principles of association of persons, determining that the appellants' situation did not meet the criteria.
Treatment of Competing Arguments: The court dismissed the Revenue's reliance on the definition of "person" under the General Clauses Act, emphasizing the individual nature of the appellants' actions.
Conclusions: The appellants are not an association of persons, and service tax should not be assessed collectively.

Issue 3: Sustainability of Penalties

Relevant Legal Framework and Precedents: Sections 77 and 78 of the Finance Act, 1994, which provide for penalties in cases of non-compliance with service tax provisions.
Court's Interpretation and Reasoning: Given the court's decision on the main issues, the penalties were deemed unsustainable.
Key Evidence and Findings: The court noted the appellants' compliance in other respects and their eligibility for exemption.
Application of Law to Facts: The court applied the law regarding penalties, finding no grounds for their imposition.
Treatment of Competing Arguments: The court did not find merit in the Revenue's justification for penalties.
Conclusions: Penalties imposed under Sections 77 and 78 are set aside.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "We are of the considered opinion that in the present appeals, service tax cannot be recovered from the appellants in a combined fashion. If considered individually, the appellants are eligible for the benefit of exemption contained under Notification. No. 06/2005-S.T dated 01.03.2005."
Core Principles Established: Co-owners receiving rent individually are entitled to separate threshold exemptions; they do not automatically form an association of persons for tax purposes.
Final Determinations on Each Issue: The appellants are eligible for the service tax exemption individually; they are not an association of persons; penalties are not sustainable and are set aside.

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