Rishi Chanan, Advocate
There are many cases coming for consideration regarding eligibility of SSI exemption to all co-owners of immovable property individually. The department is of the view that all co-owners fall under the definition of “Person” under Section 65B (37) and acting as association of persons and is of the view that though the immovable property is owned by more than one individual does not mean that individual service provider is also to be treated as more than one service depending upon the numbers of persons who own the property and for the provision of service can also be an “association of persons” even if the recipients of service divide the total consideration and make separate payments to individual owners. As the property is collectively owned the association of persons has to be treated as a single service provider and exemption of SSI can only be given to collective amount.
Following are some measure to deal with this situation:
Suppose, a property is owned by 3 persons with rights upto the extent of 1/3rd individually and having clause that the tenant will give payment to the co-owners as per their extent/ratio to the rights in property. It is emphasized that agreement has to be not made with the intention to receive a rent under a collective firm or association of persons.
1) The benefit of exemption under notification No. 6/2005 ST & 33/2012 ST can’t be denied on the ground that there is no specific provisions in Ntfn. No. 6/2005 ST or Finance Act, 1994 as rescinded by 33/2012 ST which debarres/speaks (i.e silent) about this situation.
2) An individual person has a legal personality and status recognized by virtue of natural persons’ rights and liabilities. A body of natural persons will retain their individual legal status and personality. They can collectively embark upon tasks they choose to undertake. By mere joining hands they do not bring about a different and distinct legal entity or legal personality unless there in intention to do so. For their individual and collective actions they would themselves be liable jointly and severally in their partnership pursuits only and not in the instant situation when they are receiving rent in individual capacity. When they constitute a partnership firm and adopt a firm name for their business, such firm name is not a name of any different and distinct juristic personality but only a convenient collective description of such body of individuals. It is the law alone that can create or recognize a juristic personality distinct from the constituent individuals as in the case of companies. Therefore, merely because definition of ‘person’ would include more than one person as a body of individuals, there is no automatic birth of a juristic person unless specifically so recognized by law with intention to do so.
3) That prior to July 2012, there was no definition of ‘Person’ in Finance Act, 1994. It was only introduced in the Finance Act, 2012. It is a settled law that when an Act does not have the definition of a particular word than it has to be borrow from the other legislations. As per Section 2(31) of Income Tax Act, 1962 the definition of ‘Person’ reads as follows:
2(31) “person” includes –
i) An individual
ii) A hindu undivided family
iii) A company
iv) A firm
v) As association of persons or a body of individuals, whether incorporated or not,
vi) A local authority, and
vii) Every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation:- For the purpose of this clause, an association of persons or a body of individual or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
The above definition of “Person” reveals that an association of persons can only be called person when they provide some collective activity. In the instant situation, the co-owners has not collectively given any property on rent, they have only given their 1/3rd share on rent. The co-owners are only liable for service tax on the rent received in the individual capacity, if they are below exemption limit of Rs. 10 Lac because their share in the property is ascertainable. This could not be the case of department that share’s of co-owners in the property are not ascertainable. The Section 26 of Income Tax Act, 1962 stipulates that where a property consisting of building and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, there such persons shall not in respect of such property be assessed as an association of persons. The point in the instant situation is every co-owner has to show his/her renting income individually in its income tax returns as per his definite share and not collectively with separate clauses in agreement.
4) Also, in the numerous cases the Hon’ble CESTAT has held that benefit of SSI exemption has to be given to every owner of the property in a separate manner. The citation of theses decisions are as follows:
2012-TIOL-1272-CESTAT-AHM, 2012-TIOl-1205-CESTAT-AHM, 2013(31) STR 239(Tri-Ahmd), 2013(31) STR 511 (Tri-Ahmd), 2013(31) STR 329 (Tri-Ahmd) & -2013(31) STR 325 (Tri-Ahmd)
5) Also, the there is neither any willful misstatement, concealment nor suppression with an intent to evade service tax in this situation because its a matter of interpretation as tax of renting of immovable property itself was made liable from 2007 by Finance Act, 2010 by retrospective amendment. Hence, no extended period and penalty provisions invocable in this situation.
Moreover, no decision on stay has been come in light which deals with the issue of fight between SSI Exemption and co-owners, of any other bench of CESTAT. If any facts will go to any other Bench of Hon’ble Tribunal then bench has to grant the unconditional stay or will refer the matter to Larger Bench as similar bench of other tribunal has already granted the stay on the same situation.
(Author can be reached at firstname.lastname@example.org or on cell no. Mobile No. 98158-28244 )