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TMI Blog2020 (9) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... titution in Bangalore. The Contract is on the basis of the reserved monthly rent of Rs. 1.50 lakhs or Annual Rent of Rs. 18.00 Lakhs and also refundable caution deposit of Rs. 500 Lakhs, which shall be returned without interest on the termination of the tenancy. Further, since the applicant is required as per law to refund the advance caution deposit, the same does not in anyway determines the quantum of rent. 2.1 The Applicant discharge the statutory taxes levied by the BBMP (Bruhut Bengaluru Mahanagar Palike) and also deposits, which is as per the contract. These taxes being paid on the property and such deduction are legal in respect of valuing the actual receipt of rent under the contract. 2.2 The applicant do not have any taxable activity other than the activity of leasing out Immovable Property commercial spaces and hence they are at present claiming exemption since their turnover is less than Rs. 20 Lakhs. 2.3 In view of the above, the applicant sought for advance ruling in respect of the following questions: i. For the purpose of arriving at the value of rental income, whether the applicant can seek deduction of property taxes and other statutory levies. ii. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, for the purpose of arriving at the taxable value, that only the rent determined has to be taken up for consideration and not the refundable deposit. Further, since the taxes levied on the immovable property by the local corporation is not related to the service of giving the property on rent, the same cannot form a part and parcel of the taxable value. Further as per the definition of consideration is concerned, as per the proviso, the deposit given in respect of supply of services shall not be considered unless the supplier applies such deposit as consideration for the said supply. Even, as per this provision, deposit or interest will not be treated as consideration under the rental service. 5.3 The applicant further relies on Authority on Advance Ruling in the case of M/s. E-Square Leisure Pvt Ltd [2019 (24) GSTL 125 (AAR-GST)] = 2019 (4) TMI 805 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, in the case of M/s. Avadh Infratech Ltd [2016 (45) STR 580 (AAR)] = 2016 (9) TMI 145 - AUTHORITY FOR ADVANCE RULINGS and CESTAT Order in the case of M/s. Ashiana Maintenance Services LLP [2019 (24) GSTL 47 (Tri. Del)] = 2019 (3) TMI 184 - CESTAT NEW DELHI. 6. DISCUSSION & FINDINGS: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient of the supply are not related and the price is the sole consideration of the supply". It is observed that in the instant case, the supplier (applicant) and the recipient are not related; price is the sole consideration of the supply and monthly rent is the price payable. Thus the monthly rent is the transaction value and the same would be the value of supply of the impugned service of RIS. In view of the above, we conclude that the property tax is not deductable from the value of taxable supply of "Renting of Immovable Property" service. 6.5 The second question is whether notional interest on the security deposit should be taken into consideration for the purposes of arriving at total income from rental. In this regard we examine relevant clauses of the draft rental agreement furnished by the applicant, which are as under: 2. The lessee shall pay a monthly rent of Rs. 1,50,000/- (Rupees One Lakh Fifty Thousand only) plus applicable taxes, subject to deduction of tax as may be applicable. 3. The lessee shall pay to the lessor, an interest free refundable security deposit of Rs. 5,00,000/ -Rupees Five Crore Only) which will be returned to lessee upon vacation of schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case laws supra, that the order of Hon'ble Supreme Court in the case of Commissioner v. I.S.P.L. Industries Ltd. 2003 (154) E.L.T. 3 (S.C.) = 2003 (4) TMI 99 - SUPREME COURT has been followed in all the cases. The Apex Court in the said case, which is a similar case & is related to notional interest on security deposits in relation to goods, held that notional interest on advances taken by the assesse from the buyers cannot be added to the assessable value of the goods cleared, unless there is evidence to show that the interest free deposit taken has influenced the price. Therefore to decide the instant issue two things are required to be considered i.e. whether the notional interest on security deposit is in relation to the supply of RIS and whether the said notional interest influences the value of the supply i.e. the monthly rent. 6.10. The security deposit is taken invariably in all cases and it is a general practice that wherever the quantum of deposit is higher the rent charged is less and vice-versa. The applicant is collecting the security deposit as their property is being leased. Had the property has not been leased, the applicant would not have been collected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security deposit becomes part of consideration along with monthly rent, if it influences the value of the supply. Therefore, in view of the submission made by the applicant that they have no other business besides what they have submitted to this Authority, we find that they are entitled for the general exemption for registration purpose, subject to the condition that their annual total turnover which includes monthly rent and notional interest, if it influences the value of supply, does not exceed the threshold limit. 8. In view of the foregoing, we pass the following RULING 1. The applicant can't deduct the property taxes and other statutory levies for the purpose of arriving at the value of rental income. 2. The notional interest on the security deposit shall be taken into consideration, for the purposes of arriving at total income from rental, only if it influences the value supply of RIS service i.e. monthly rent. 3. The applicant is entitled for exemption of tax under the general exemption of Rs. 20 lakhs, subject to the condition that their annual turnover, which includes monthly rent and notional interest, if it influences the value of supply, does not exceed the thre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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