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TMI Blog2025 (2) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... el)] and Kagal Nagar Parishad vs. Commissioner of Central Excise, Pune [2018 (5) TMI 1363 - Cestat Mumbai] on the one hand, and City and Industrial Development Corporation of Maharashtra Ltd. vs. Commissioner of ST, Mumbai-II, VII [2019 (8) TMI 386 - CESTAT Mumbai] and Starcity Entertainment Private Limited vs. Commissioner of Service Tax [2019 (12) TMI 645 - CESTAT Mumbai] on the other hand and, therefore, referred the following issue to be resolved by a Larger Bench of the Tribunal. "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". 2. Service Tax Appeal No. 89766 of 2013 filed by City & Industrial Corporation of Maharashtra Limited [CIDCO] was earlier decided on 05.08.2019 by a Division Bench of the Mumbai Bench of the Tribunal. This order was assailed by CIDCO before the Bombay High Court in Writ Petition No. 1696 of 2021 (City and Industrial Development Corporation of Maharashtra Limited vs. Commissioner CGST and Central Excise, Belapur Commissionerate). The Writ Petition was disposed of by the Bombay High Court by a judgment dated 11.11.2022. The order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act defines "service" w.e.f. 01.07.2012 to mean any activity carried out by a person for another for consideration, and includes a 'declared service'. "Renting of immovable property" constitutes a 'declared service' under section 66E (a) of the Finance Act. 5. It would be necessary to first understand what "premium" or "salami" means and whether it is distinct from "rent". 6. The distinction between "premium" and "rent" was pointed out by the Judicial Committee in Raja Bahadur Kamakshya Narain Singh, of Ramgarh vs. Commissioner of Income-Tax, Bihar and Orissa [1943 May 13] in the following manner: "The Salami has been, rightly, in their Lordships' opinion, treated as a capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease. That general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account. But the royalties are on a different footing." (emphasis supplied) 7. The Supreme Court in Member for the Board of Agriculture Income Tax, Assam vs. Sindhurani Chaudhurani and Others [1957 April, 24] define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact for advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties." (emphasis supplied) 9. This issue was again examined by the Supreme Court in Maharaja Chintamani Saran Nath Sah Deo vs. The C.I.T., Bihar and Orissa [1971(2) Supreme Court Cases 521] and it was held: "4. xxxxxxxx. Salami is a single payment made for the acquisition of the right of the lessor by the lessee to enjoy the benefits granted to him by the lease. That general right may properly be regarded as a capital asset and the money paid to purchase it may properly be held to be a payment on capital account. But merely because a certain amount paid to the lessor is termed as Sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or royalties." (emphasis supplied) 11. It would be seen from the aforesaid decisions that premium or salami is a single payment made by the lessee for acquisition of the right of the lessor to enable the lessee to enjoy the benefits so granted. The main feature of premium or salami is that it is a single payment made prior to the creation of the tenancy. It is a consideration paid by a lessee for being let into possession and cannot, therefore, be rent. Rent, on the other hand, is a periodical payment made by the lessee for the continuous enjoyment of the benefits under the lease. 12. Consideration of the issue that has been referred to the Larger Bench would require essential facts to be first stated. RIICO 13. RIICO, which is promoted and fully subscribed by the Government of Rajasthan and is engaged in development of industrial areas, export promotion parks, electronic parks, gem parks, growth centers and special economic zone, has assailed the order dated 27.12.2016 passed by the Commissioner confirming the demand of service tax with interest and penalty. For the development of industrial areas, the Government of Rajasthan allotted vacant land on 99 years long-ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant portion of the order is as follows: "10.1 A lease is a transaction, which has to be supported by consideration. The consideration may be either premium or rent or both. The consideration which is paid periodically is called rent. As regards premium, the Apex Court in the case of Commissioner of Income Tax, Assam and Manipur v. Panbari Tea Co. Ltd. reported in (1965) 3 SCR 811 has made a distinction between premium and rent observing that when the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments for continuous enjoyment are in the nature of rent, the former is a Capital Income and the latter is the revenue receipt. Thus, the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event under Section 65(105)(zzzz) read with Section 65(90a) is renting of immovable property, Service Tax would be leviable only on the element of rent i.e. the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether this rent is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Corporation, a Division Bench of the Mumbai Tribunal held that service tax would be leviable on the premium amount. This decision of the Tribunal was assailed by CIDCO before the Bombay High Court. By a judgment dated 11.11.2022, the Bombay High Court set aside the decision of the Mumbai Tribunal and directed that this appeal be tagged with the appeal filed by RIICO and be heard by a larger bench of the Tribunal. 20. The Division Bench of the Tribunal, while referring the issue to the Larger Bench also noticed one more decision of the Tribunal in Starcity Entertainment which held that service tax would be leviable on the premium amount received on lease of land. RELEVANT PROVISIONS 21. In Service Tax Appeal filed by RIICO, the period involved is from 01.10.2014 to 30.06.2015. 22. The period involved in Service Tax Appeal filed by CIDCO is from 01.06.2007 to 31.03.2012. 23. It would, therefore, be appropriate to reproduce the relevant portion of section 65(90a) and section 65 (105) (zzzz) of the Finance Act, as they stood prior to 30.06.2010 and w.e.f. 01.07.2010. They are as follows: Prior to 30.06.2010 Section 65(90a) "renting of immovable property" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to another and collected in such manner as may be prescribed. Section 66D. The negative list shall comprise of the following services, namely xxx xxx Section 66 E. The following shall constitute declared services, namely:- (a) renting of immovable property; xxx xxx 25. The two periods namely prior to 01.07.2012 and w.e.f. 01.07.2012 shall be separately examined. Prior to 01.07.2012 26. This period is relevant for the purposes of the appeal filed by CIDCO, as the period involved in this appeal is from 01.06.2007 to 31.03.2012. 27. "Renting of immovable property" is defined under section 65(90a) of the Finance Act to include renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. The taxable service under section 65(105)(zzzz) of the Finance Act is any service provided or to be provided to any person, by any other person, in relation to renting of immovable property for use in the course of or for furtherance of, business or commerce. 28. It is seen that "renting of immovable property", amongst others, includes leasing or other similar arrangement of immovable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes both premium and periodical rent. 32. The Division Bench of the Tribunal in Kagal Nagar Parishad merely followed the earlier decision of the Tribunal in Greater Noida Industrial Development Authority. 33. In view of the fact that 'lease', as defined under section 105 of the Transfer of Property Act, includes both the one time premium amount and the periodical rent amount, it has to be held that the one time premium amount received by the lessor from the lessee for transfer of interest in the property would be leviable to service tax under section 65(105)(zzzz) of the Finance Act. 34. It is, therefore, not possible to accept the view expressed by the two Division Benches of the Tribunal in Greater Noida Industrial Development Authority and Kagal Nagar Parishad. 35. The view expressed by the Division Bench of the Tribunal in CIDCO has been set aside by the Bombay High Court. 36. The Division Bench of the Tribunal in Starcity Entertainment placed reliance upon a judgment of the Tripura High Court in Hobbs Brewers India Pvt. Ltd. vs. Union of India [2016 (45) S.T.R. 60 (Tripura)] to hold that premium, which is a lump sum one time payment, is also taxable under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is called premium. 39. Learned special counsel for the department, however, submitted that premium is included in the definition of "renting of immovable property" and, therefore, service tax would be leviable on the amount received towards premium. 40. It is not possible to accept the contention advanced by the learned counsel for the appellant. As noted above, premium is a consideration paid for being let into possession prior to the creation of the tenancy so as to enable the person to enjoy the benefits so granted. It has been repeatedly held that when the interest of the lessor is parted for a price, the price paid is called premium, while rent is the periodical payment for the continuous enjoyment of the benefits under the lease. Under section 105 of the Transfer of Property Act, lease has been defined to include both the one time premium amount and the periodical rent amount. No doubt premium amount is paid prior to the execution of the lease deed, but in view of the definition of 'lease' under section 105 of the Transfer of Property Act, this amount would also be included since the definition of "renting of immovable property" under section 65(90a) of the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word "title" means right to ownership of property, and property really includes and means the totality or the bundle of rights which constitute the ownership, there is really no distinction between the passing of title and the passing of the property in the goods. 45. Learned special counsel appearing for the department, however, refuted the aforesaid contentions advanced by the learned counsel for the appellant and submitted that "premium" would also be exigible to service tax from 01.07.2012. 46. The contention of the learned counsel for the appellant that "renting of immovable property" is excluded from leviability of service tax by virtue of sub-clause (a)(i) of section 65B (44) of the Finance Act cannot be accepted. It needs to be noted that "renting" has been defined in section 65(41) of the Finance Act to mean allowing, permitting or granting access, entry, occupation, 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. 47. "Premium" is a payment for being allowed to take possession of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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