N Devarajan Vs Commissioner of CGST & Central Excise (CESTAT Chennai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, allowed the appeal and set aside the service tax demand, interest, and penalties relating to rental income from a property claimed to be used for residential purposes. The appellant, a registered service provider of renting of immovable property, had leased multiple properties, including one property (AL-61, Anna Nagar, Chennai), which was claimed to have been rented for residential use and therefore not liable to service tax.
The department initiated proceedings on the basis of income tax records and alleged that the property was rented for commercial purposes to a company, thereby attracting service tax. A show cause notice proposed demand of service tax along with interest and penalties, alleging that the declaration under the Voluntary Compliance Encouragement Scheme (VCES) was substantially false. The adjudicating authority confirmed a revised demand and imposed penalties, holding that the lease agreement mentioning residential use was artificial and intended to avoid tax.
The appellant contended that the property was leased for the residential use of the Managing Director of the company, as explicitly stated in the lease agreement dated March 30, 2009. A notarised affidavit from the Managing Director confirmed that the premises were used for residential purposes until March 31, 2011. The appellant argued that rental income from such use is excluded from the definition of taxable “immovable property” under Section 65(105)(zzzz) of the Finance Act, 1994.
