Applicability of service tax on income received on account of referral of prospective real estate buyer to real estate agent

Relevant Judgment:

M/s. Prem Steels (P) Ltd. Versus CCE, Meerut-I - 2009 -TMI - 32717 - CESTAT, NEW DELHI

In real estate business it is normal that a person gets commission from the real estate agents for introducing him to the prospective buyers / sales; for example:

"A" [Ethnic Creations Pvt. Ltd.] is the prospective Buyer / Seller of the property

"B" [M/s. Polo Leasing and Finance Pvt. Ltd.] is a property dealer (real estate agent)

"C" [M/s. Prem Steels (P) Ltd., the appellant] introduces "A" to "B"

"B" makes payment to "C" because "C" has introduced him to "A"

It is well settled that payment made by "A" for buying / selling of property to "B" is taxable under the category of "real estate agent" [65(105)(v)] [Taxable Services].

But, whether the amount paid by "C" to "B" for introducing prospective buyer/ seller of property is also covered by the provisions of "real estate agent" [65(105)(v)]?

Appellant has contented that he is not the service provider, it is "B" who is actual service provider and therefore no service should be imposed on him within the provisions of the real estate agent of service tax.

Honorable CESTAT found that scope of real estate agent is wide enough to cover the above situation and amount received by "C" for introduction of prospective buyers / sellers is also liable to service tax.

M/s. Prem Steels (P) Ltd. Versus CCE, Meerut-I - 2009 -TMI - 32717 - CESTAT, NEW DELHI