Renting of Immovable Property - Service Tax Practice Manual / Ready Reckoner - Service Tax

Chapter 1 Renting of Immovable Property Effective date: 1.7.2012 Scope of Declared Service - Section 66E (a) Renting of Immovable property Meanings and Definitions: Section 65B(41) - renting means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. Immovable property- Immovable property in ordinary legal sense covers land, buildings and land appurtenant to the building. According to General Clause Act, 1897 - immovable property shall include land, benefits to arise out land and things attached to the earth or permanently fastened to anything attached to the earth. Analysis: The word rent is defined in Black s Law dictionary as periodical payment for use of another s property . In this service only renting of immovable property is covered. The definition of renting covers all types of renting of immovable property. Along with renting, it covers letting, leasing, licensing and any other similar arrangements of immovable property. As per this service, use of immovable property has no relevance i.e. the service tax is payable even if immovable property is not used for business or commerce. The essential condition of this service is that there should be renting of immovable property i.e. renting, letting, licensing and any other similar arrangement should be of immovable property. As per above meaning of immovable property, even machinery may become immovable property if it is attached to the land or building permanently. However, where a machine or engine is attached to the earth only for its beneficial use, it will be regarded as movable property. In Triveni Engineering Industries Limited [2000 (8) TMI 86 - SUPREME COURT OF INDIA], it was held that turbo alternator which was installed and erected on the platform constructed on the land is immovable property. Immovable property does not include standing timber, growing crops or grass. Some types of renting of immovable properties have been covered in negative list and exemption notification i.e. there will be no service tax even if it includes renting of immovable property. So, a particular type of renting would be taxable or not has to be seen in the light of other exemption notifications and the Negative list of services. Clarification by the Board (Taxation Guide - Guidance Note -6 - Exemptions dated 20.06.2012) 6.1.1 Is renting of all kinds of immovable properties taxable? No. Renting of certain kinds of immovable properties is specified in the negative list. These are - renting of vacant land, with or without a structure incidental to its use, relating to agriculture renting of residential dwelling for use as residence renting out of any property by the Reserve Bank of India renting out of any property by a Government or a local authority to a non-business entity. Renting of all other immovable properties would be taxable unless covered by an exemption. 6.1.2 Are there any exemptions in respect of renting of immovable property? Yes. These are:- Threshold level exemption up to ₹ 10 lakh. Renting of precincts of a religious place meant for general public. Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent. Renting to an exempt educational institution 6.1.3 Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function be taxable? Yes. As per definition allowing or permitting usage of immovable property, without transferring possession of such property, is also renting of immoveable property. 6.1.4 Would activities referred to in column 1 of a table below be chargeable to service tax? S.No. Journey Taxability 1 Renting of property to an educational body Exempted if provided to an educational institution for the purpose of education which is exempt from the levy of service tax. 2 Renting of vacant land for animal husbandry or floriculture Not chargeable to service tax as it is covered in the negative list entry relating to agriculture. 3 Permitting use of immoveable property for placing vending / dispensing machines Chargeable to service tax as permitting usage of space is covered in the definition of renting. 4 Allowing erection of a communication tower on a building for consideration Chargeable to service tax as permitting usage of space is covered in the definition of renting. 5 Renting of land or building for entertainment or sports Chargeable to service tax as there is no specific exemption. 6 Renting of theatres by owner to films distributors(including under a profit-sharing arrangement) Chargeable to service tax as the arrangement amounts to renting of immovable property. 6.1.5 Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business or cultural functions fall within the scope of this declared list service? Halls, rooms etc. let out by hotels/restaurants for a consideration for organizing social, official or business or cultural functions are covered within the scope of renting of immovable property and would be taxable if other elements of taxability are present.