2025 (2) TMI 211 - AT - Service Tax

Taxability of the value of premium or salami for the period prior to 01.07.2012 and w.e.f. 01.07.2012 under renting of immovable property - Whether premium or salami can be subjected to levy of service tax under renting of immovable property defined under section 65(90a) of the Finance Act? - HELD THAT - Premium is a payment for being allowed to take possession of the immovable property. It is a price paid for a transfer of a right to enjoy the property. The lessor who owns and possesses the property transfers the possession to another for a price. There can therefore be no doubts that premium is the amount received for renting of immovable property. Section 65B (44) of the Finance Act defines service to mean any activity carried out by a person for another for consideration and includes a declared service . It is seen that consideration is received in the form of premium which would be included in the definition of renting . Renting of immovable property is a declared service under section 66E of the Finance Act. Once renting of immovable property is a declared service and so taxable under section 66B of the Finance Act it cannot be contended by the appellant that it will also be included in those services which are excluded under section 65B (44) of the Finance Act for it can never be the intention of the legislature to include a service as exigible to service tax and at the same time also exclude that service from taxability. The contention of the appellant that it is excluded from taxability under sub-clause (a)(i) of section 65B(44) of the Finance Act cannot also be accepted for this reason. Conclusion - The value of premium or salami is exigible to service tax under renting of immovable property for the period prior to 01.07.2012 under section 65(105)(zzzz) of the Finance Act and from 01.07.2012 under section 66B of the Finance Act. The two appeals may now be placed before the respective Division Benches of the Tribunal for deciding them on merits.

Summary

The judgment addresses the core legal question of whether "premium" or "salami" can be subjected to service tax under "renting of immovable property" as defined under section 65(90a) of the Finance Act. This issue arose due to conflicting decisions by different benches of the Tribunal, prompting a referral to a Larger Bench for resolution.

The Tribunal considered the legal framework under the Finance Act, 1994, and the definitions provided therein. Prior to 01.07.2012, "renting of immovable property" was defined under section 65(90a) and made taxable under section 65(105)(zzzz). From 01.07.2012, "service" was defined under section 65B(44), and "renting of immovable property" was included as a "declared service" under section 66E.

The Court examined precedents, including decisions by the Supreme Court and High Courts, to understand the distinction between "premium" and "rent." The Supreme Court in various cases, such as Panbari Tea Co. Ltd. and Maharaja Chintamani Saran Nath Sah Deo, clarified that "premium" or "salami" is a single payment made for acquiring the right to enjoy the benefits of a lease, whereas "rent" is a periodical payment for continuous enjoyment of the lease benefits.

In the case of RIICO, the Tribunal noted that RIICO collected both economic rent and premium from allottees of land. The department demanded service tax on these charges, particularly focusing on the premium. Similarly, CIDCO collected a one-time premium and periodical rent from lessees, and the department sought service tax on the premium amount.

The Tribunal analyzed conflicting decisions from previous cases. In Greater Noida Industrial Development Authority, the Tribunal held that service tax could not be charged on the premium amount, considering it a capital receipt rather than a revenue receipt. This view was followed in Kagal Nagar Parishad. Conversely, in City and Industrial Development Corporation, the Tribunal held that service tax was applicable on the premium amount, a decision later set aside by the Bombay High Court. The Tribunal in Starcity Entertainment also held that service tax was applicable on the premium, relying on a Tripura High Court judgment in Hobbs Brewers India Pvt. Ltd.

The Tribunal concluded that the definition of "renting of immovable property" under the Finance Act includes leasing, which encompasses both premium and rent as per section 105 of the Transfer of Property Act. Therefore, the one-time premium amount is taxable under section 65(105)(zzzz) for the period prior to 01.07.2012 and under section 66B for the period from 01.07.2012.

The Tribunal rejected the argument that premium should be excluded from service tax on the basis that it is paid for an "agreement to lease" rather than a lease itself. It emphasized that premium is a consideration for being let into possession and is part of the leasing arrangement, thus falling within the ambit of "renting of immovable property."

For the period from 01.07.2012, the Tribunal noted that "renting of immovable property" is a "declared service" under section 66E, and premium received as consideration falls within this definition. The Tribunal dismissed the contention that leasing of immovable property constitutes a transfer of title and is therefore excluded from the definition of "service" under section 65B(44).

In conclusion, the Tribunal held that the value of "premium" or "salami" is exigible to service tax under "renting of immovable property" for both periods in question. The appeals were directed to be placed before the respective Division Benches for decision on merits.