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TMI Blog2021 (1) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... d - Section 15(2) of the CGST Act, provides for certain inclusions to the value of supply. One such inclusion is that all taxes levied under any law in force will be included in the value. The only taxes which qualify for exclusion from the value are the CGST, SGST, IGST, UTGST and Compensation Cess which are levied under the respective Acts. Even in respect of these taxes, they can be permissible deductions subject to the condition that the supplier charges them separately in the invoice. Other than the above levies, no other statutory levy can be deducted from the value of supply. All taxes levied under any law in force are to be included in the value of the renting of immovable property service supplied by the Appellant. Therefore, the property tax paid to the Municipal Authority (BBMP) cannot be deducted from the monthly rental income for arriving at the value of supply. Whether the notional interest on the security deposit is to be included for the purpose of calculating the total rental income? - HELD THAT:- This is a concept which has been deliberated at length by many Courts with respect to the Income Tax Act. As far as GST law is concerned, the issue is to be exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Polymers Pvt Ltd, 3, 3rd Cross, Lalbagh Road, Near Garuda Maruthi Showroom, Bangalore 560027(herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 48/2020 dated: 16 th Sept 2020 = 2020 (9) TMI 784 - AUTHORITY FOR ADVANCE RULING, KARNATAKA . Brief Facts of the case: 3. The Appellant is engaged in the business of renting of commercial property on monthly rents and allied business. The Appellant intends to enter into a commercial agreement of renting of immovable property with educational institution in Bangalore. The contract is on the basis of the reserved monthly rent and also refundable caution deposit/security deposit. As per the terms of the contract, the deposit received shall be returned without interest on the termination of the tenancy. The refund of the advance caution deposit does not in any way determine the quantum of rent or enhance the services. The Appellant also discharges the statutory taxes levied by the BBMP on the property and the property tax so paid is no way related to the supply of services. 4. In this regard, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that notional interest cannot be added unless and until there is evidence to prove that the interest free deposit taken has influenced the price. This evidence right now is very difficult to prove since in the lease agreement there is clear mention to the effect that the deposit shall be refunded without interest at the time of vacating the schedule premises. Since the Appellant is required as per law to refund the advance caution deposit, the same does not in any way determine the quantum of rent. The Appellant also submitted that apart from the activity of leasing of immovable property for commercial activity, they have no other taxable activity. Hence they are at present claiming exemption since their turnover is less than ₹ 20 lakhs. PERSONAL HEARING 7. The appellant was called for a virtual hearing on 17thNovember 2020. The hearing was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant was represented by their Advocates Mr Ramesh Ananthan and Mr Sundar Raman. 7.1. On the issue of property tax, they submitted that the lower Authority has held that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant pays the property tax on the said property to the Municipal authority i.e BBMP which is a statutory levy by the said Authority. In the above background, there are two issues which are before us for determination: a) Whether the property tax paid by the Appellant to the Municipal Authority can be deducted from the monthly rental income received? b) Whether the notional interest on the security deposit should be taken into consideration for determining the total income from rental service? 10. As regards the first issue, the value of supply of goods and services is governed by Section 15 of the CGST Act which states that the value of supply shall be the transaction value, which is the price actually paid or payable for the said supply, where both the supplier and the recipient are not related and price is the sole consideration for sale. In this case, the fact that the supplier and the recipient of the service (i.e lessee) are not related and that the rent is the sole consideration for the service of renting of immovable property, are not in dispute. It is seen from the draft rental agreement that the lessee is required to pay monthly rental of ₹ 1,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rore which will be returned to lessee upon vacation of the scheduled property. This security deposit is no doubt linked to the supply of the renting service. However, to determine whether the security deposit is a consideration for the renting service or not, one has to refer to the definition of 'consideration' as given in Section 2(31) of the CGST Act which is reproduced below: Consideration in relation to the supply of goods or services includes (a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, whether or not voluntary , in respect of in response to, or for the inducement of the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: PROVIDED that a deposit, given in respect of the supply of goods or services or both shall not be considered as payment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of monthly rental is not influenced by the security deposit given by the lessee or the notional interest earned on such security deposit. Therefore, we disagree with the findings of the lower authority on this aspect and hold that the notional interest earned on the security deposit is not to be included to the total rental income. 16. In view of the above discussion, we pass the following order ORDER We modify the advance ruling No KAR ADRG 48/2020 dated 16-09-2020 = 2020 (9) TMI 784 - AUTHORITY FOR ADVANCE RULING, KARNATAKA and answer the questions raised by the Appellant in the original advance ruling application and in this appeal, as follows: 1. For the purpose of arriving at the value of rental income, the Appellant cannot deduct the amount paid as property tax to the Municipal Authority or any other statutory levies levied under any law for the time being in force, other than the CGST, SGST, IGST and Compensation Cess, subject to the condition that it is charged separately by the Appellant. 2. For the purpose of arriving at the total rental income, the notional interest earned on the security deposit is not to be taken into consideration. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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