Brief Facts:- Several writ petitions were filed with the Delhi High Court, questioning the legality, and validity of Notification No. 24 / 2007 –ST dated May 25, 2007 (which exempts from service tax, the taxes paid on property from the gross value charged for renting of immovable property) and Central Board of Excise and Customs (CBEC) Circular No. 98/1/2008 – ST dated January 1, 2008 (which clarified that right to use immovable property is leviable to service tax). The petitions questioned the levy of service tax on renting out of immovable property per se since the taxable services contemplated under Section 65(105)(zzzz) of the Finance Act, 1994 (as amended) were services provided “in relation to renting of immovable property”.

An alternative plea was also taken by the petitioners that the levy of service tax on renting of immovable property would be unconstitutional since it would amount to a tax on land and would therefore fall outside the legislative competence of the Parliament.

 Contentions of the Petitioners

The important contentions made by the various petitioners can be summarized as under:

1. Renting of immovable property services as per service tax provisions refers to services in relation to renting of immovable property and not to the activity of renting itself. The taxable service provided must be something which is distinct and different from the transaction of renting.

2. Although Section 65(105)(zzzz) does not mention renting of immovable property as a taxable service, the subject Notification grants the exemption considering the taxable service to be renting of immovable property itself.

3. The subject Circular clarifying that the right to use immovable property is leviable to service tax, travels beyond the provisions of the Act and contemplates levy of service tax on renting itself.

4. Service Tax is a value added tax and therefore only the value addition is liable to be taxed by way of service tax.

5. The use of the expression „in relation to? is with a clear intention of distinguishing the actual renting of the property from the services to be rendered in relation to such renting.

6. The Supreme Court in the case of T N Kalyana Mandapam Association Vs. Union of India & Others2 held that a mandapkeeper provided a bundle of services and it was not a case of mere permission to use a particular property.

 Contentions of the Respondents: The contentions of the Respondents were as under:

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1. The transfer of right to use a particular property for commercial or business purposes was itself the service contemplated in Section 65 (105) (zzzz).

2. The definition of renting of immovable property is an all inclusive definition.

3. The expression „in relation to renting of immovable property? also covered the act of renting of immovable property.

4. Letting out the property or permitting another person to use the same by itself constitutes an act which could be classified as a service.

5. The expression „in relation to? must be given an expansive meaning of the widest amplitude to cover renting as well.

6. The Supreme Court decision in the case of T N Kalyana Mandapam Association (referred above) stated that merely making a mandap available, with or without other services could in itself be regarded as a service exigible to service tax.

 Observations of the Hon’ble Delhi High Court : The Delhi High Court observed the following:

1. The services provided by a mandap keeper are entirely different from the services covered under „renting of immovable property? as the latter contemplates the transfer of possession of immovable property. Accordingly, the decision of the Supreme Court in the case of TN Kalyana Mandapam Association (referred above) cannot be extended to the facts of the present case.

2. Service tax is a tax on the value addition provided by a service provider. If there is no value addition, there is no service.

3. Renting of immovable property, by itself, does not entail any value addition and therefore cannot be regarded as a service. If there is some other service provided along with renting of immovable property, then such other service would be covered by Section 65 (105) (zzzz).

4. The context of the usage of expression „in relation to? determines the ambit of the taxable services. If the expression „in relation to? is used in the context of a service, then such expression covers the service itself and services in connection with the same. If the expression „in relation to? is not used in the context of a service, the usage should be limited to have reference only to some services in connection with the same.

 Conclusion

Renting of immovable property would not by itself constitute a taxable service and be exigible to service tax. The interpretation placed by the subject Notification and Circular is incorrect and accordingly they are ultra vires the Act.

The alternative plea taken by the Petitioners with regard to the legislative competence of the Parliament to levy tax on land / building has not been examined by the High court in the present case.

Source:

1. Delhi High Court decision in the matter of Home Solution Retail India Ltd & Others Vs. Union of India & Others dated April 18, 2009

2. Supreme Court decision in the case of TN Kalyana Mandapam Association Vs. Union of India & Others (2004) 5 (SCC) 632

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0 responses to “Delhi High Court held levy of service tax on Commercial Rent Unconstitutional”

  1. Anashwar Chopra says:

    Supreme Court on 10th January, 2011, has stayed the operation of the Delhi High Court’s Order in the case of Home Solutions Retails India Ltd. vs. Union of India & Others dated 18/5/2010 in WP(C) No. 3398/2010, inspite of the validation amendment in 2010 with retrospective effect. The definition itself was amended to declare renting per se as a taxable service and to nullify the Delhi High Court’s judgement of 18-4-2009 in the case of Home Solutions Retails India Ltd. vs. Union of India & Others in W.P. (C) No. 1659/2008.

    Subsequent interim order dated 18-5-2010 by DHC were primarily to grant stay from recovery, if the petitioner has approached the court in respect of property located in the jurisdiction of Delhi High Court (means within Delhi) or is assessed to Service Tax in Delhi Commissionerate (means Delhi+ Haryana)

    UOI’s appeal against above interim order in the Supreme Court in SLP (Civil) CC No. 16960/2010 was heard on 10-1-2011. There was a one-sided presentation by the Govt.’s Counsel on the orders of the Delhi High Court, seeking directions. The main warrior, Harish Salve who argued the case before Delhi High Court on 14.1.2010 was busy elsewhere. To the shock of the trade’s advocates present, Hon’ble Supreme Court granted an interim stay on the operation of the Delhi High Court order dated 18-5-2010 till the next date of hearing i.e., 20-1-2011. Implication being that the consequent stay orders granted by DHC also would stand vacated.

    Mr. Harish Salve then rushed before the same 3-member Bench in the late afternoon to make a mention, but by then it was too late.

    Noteworthy that the SLP filed by UOI against Delhi High Court’s earlier judgment and order dated 18-4-2009 is listed for hearing before the Supreme Court on 24-1-2011.

    Even the final hearing in this case challenging the amended validation provisions is also slated in Delhi High Court on 25-01-2011.

    [Copies of the Supreme Court Order dated 10.1.2010 and Delhi High Court Order dated 14.12.2010 are attached.]

    Delhi High Court had in its earlier order reported of 2009 had held that renting of immovable property by itself is not a service.

    In the backdrop of P&H High Court judgement favouring Revenue, against which an SLP would have been filed in Supreme Court, the anxiety amongst the assessees mounts, and the see-saw is leading to more uncertainity.

    The ST Department is like an elephant and will take its time to get up (react). It has to await instructions from the CBEC which deals directly with Supreme Court. Hardly any steps will be taken by the Department till some clarity emerges in hearings slated on 20th and 24th in Supreme Court and 25th in Delhi High Court.

    Otherwise also, not a single rupee has been returned anywhere in India against refund claims filed by assessees after the favourable Delhi High Court judgement.

    If the Supreme Court decides against Revenue on the main issue that renting is not a service, validation provisions will die a natural death consequently.

    Will the determined Govt. backdown then or will it this time bring an amendment to the Constitution itself ?

    Headache mounts for the trade.

  2. Harikrishna Somayaji says:

    What is latest verdict on service tax on immovable property from high court/supreme court

  3. govind says:

    sir,
    this is not good to collect the service tax on total rental income of the person.
    you can pet a maximum limit and can collect the service tax later.
    for example upto 10 lakhs of rental income no service tax
    and above 10 lakhs service tax should be collected on the excess of 10 lakhs only.
    according to me this procedure will help the government in collecting the income tax and also the service tax.

  4. S.N.KAPUR says:

    Few day back I read that the petitioners had submitted rejoinder before Delhi High Court in the matter relating to service tax on renting of commercial property. I also read that the Honble High Court Bench has reserved the judgement in the matter and likely to pronounced the judgement before summer vocations.Had the judgement been pronounced the matter? Please let me know if yes then what?

    SNKAPUR

  5. Ruchi says:

    please tell if supreme court has given any decision regarding Renting of Immovable Property service after October 2010

  6. Prasenjit Dass says:

    Gathered the information that the supreme court has given judgement in favor of the service tax authorities and is effective, but no information is available with the service tax authorities. Its better to collect service charge including backlog if stopped collection for one’s own safety.

  7. CHANDER MOHAN AGGARWAL says:

    I AM CONFUSED REGARDING PAYING OF SERVICE TAX.MY RENTAL INCOME IS 75000.00 PER MONTH. BUT IT WILL BE 100000.00 PER MONTH SHORTLY.WHAT’S ABOUT STAY ON SERVICE TAX BY COURTS (ON COMMERCIAL PROPERTY ON RENT.)IS THERE IS ANY AMENDMENT IN LAW ON SERVICE TAX ON RENT OF COMMERCIAL PROPERTIES.

  8. sanjay bhandari says:

    kindly intimate whether service tax has to be charged from the tenants from commercial building as the tenants
    have stopped paying the same because of some supreme court judgement. please give the details of judgement.

  9. RAJBIR SINGH says:

    Please send the latest update on rent service tax

  10. Thomas kurian says:

    Inform there is any decision on service tax for rent by supreme court. give details

  11. Thomas kurian says:

    Kindly reply to the above matter
    also inform the recent decision of supreme court on the same

  12. Vipin Kumar says:

    Ours is a Pvt Ltd Company We had taken office premises on rent. We had stopped payment of Service Tax on Office Rent wef 01.01.2009. Now the landlord has sent letter asking for the Service Tax on Rent @ 10.3% on rent from June,2010, stating that Govt has placed an ammendment in Parliament which further go on to state that no further suit/action would lie in any court in respect of this levy.

    Whether we are liable to pay Service Tax to the landlord on the basis of this ammendment in Parliament or shall Delhi High Court judgement striking down the Service Tax on Rent still hold good ?

  13. S.Ramaswamy says:

    The retrospective amendment of the law has nullified this judgment.

  14. jatin says:

    in the recent judgement on this issue passed on 18.05.2010, HC has also said that the new changes in the finance act for including renting of property for service tax is also ultra vires the act.

  15. radhe shyam says:

    I have to pay Service Tax on Rent of Comml.Property but I am confuse
    whether I am Liable for Payment of service tax Delhi High /Supreme court judgment not yet received.
    I have to pay service tax or not
    radheshyam

  16. Avinash Khandelwal says:

    Hi,
    Mr. Anashwar Chopra i’ll thankful to you for providing the full and proper details regarding the matter, but i have a query my tenants in consequence of the above order had not paid me the Service Tax and moreover i filed my service tax return for the said period as NIL. Pls let me know whether i did the right or I had to pay the tax as consider my rent to be insclusive of service tax?????
    Hoping an early reply.
    Once again thanks Sir.
    With Regards
    Avinash Khandelwal
    9811831242

  17. P C Sharma says:

    Please send all uptodate for service – tax on immovable property

  18. Prasenjit Dass says:

    I was a regular collector for service tax on rent realizing from the tenants which they have stopped making further payments since one year as I result I had to file nil return on service tax form. I enquired from service tax office who have instructed me to collect service tax and deposit. I am now at fix as to what to do and how to do! PLEASE HELP

  19. krantikumar sharma says:

    Classical economist David Ricardo had said rent arises when there is scarcity of farming lands. It would not arise when cultivable land is abundant in relation to people who wish to do farming. whatever arises out of scarcity and vanishes when abundance emerges, cannot be a service. Classical is that which stands out at all times, past as well as present.
    Dr.Krnatikumar sharma

  20. Abhilash says:

    Taxguru,
    Your posting times are not correct. Please check.

  21. Abhilash says:

    So,
    As per Anashwar , still the matter is pending at SC & no action is to be taken right now. Right ?

  22. Abhilash says:

    Can someone tell me is ST to be paid or not , as the landlord has started sending written notices for payment that also retrospective from june 2007

    • H singh says:

      I was a regular collector for service tax on rent realizing from the tenants which they have stopped making further payments since one year as I result I had to file nil return on service tax form. I enquired from service tax office who have instructed me to collect service tax and deposit. I am now at fix as to what to do and how to do! PLEASE HELP
      Reply

  23. imtiaz ahmed says:

    is the said judgement appliable to bombay ?

  24. poonam says:

    Please send the mail regarding the updates of services tax on rent-case ( Individuals) runnung in Delhi high court

    regards
    Poonam

    • Sandeep Kanoi says:

      Delhi high court given verdict in favour of the Assessee and now government filed an Appeal or is in the process of filing an appeal against the verdict with honorable Supreme Court.

  25. Kajal Kumar Mishra says:

    please send me all the updates regarding the matter of service tax on rent-case running in Delhi high Court.

    Regards

    Kajal Mishra

  26. prabhat mishra says:

    i have a little knowledge and want to know more about all returns like personal returns vat service tax tds etc

  27. Anashwar_Chopra says:

    The honourable court came to a conclusion that since lease or levy or license or any other similar arrangement in relation to immovable property does not amount to rendering of a service, no tax can be levied under the taxable entry of the said Section 65(105)(zzzz).
    The interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same is ultra vi res the said Act and to the extent that they authorised the levy of service tax on renting of immovable property per Se, they are set aside, the court said, striking down the notification. ruled the Judges. The court has allowed a time period of 90 days to the Government to file an appeal against its order.
    Kindly comment ?

  28. Anashwar Chopra says:

    The honourable court came to a conclusion that since lease or levy or license or any other similar arrangement in relation to immovable property does not amount to rendering of a service, no tax can be levied under the taxable entry of the said Section 65(105)(zzzz).
    The interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same is ultra vi res the said Act and to the extent that they authorised the levy of service tax on renting of immovable property per Se, they are set aside, the court said, striking down the notification. ruled the Judges. The court has allowed a time period of 90 days to the Government to file an appeal against its order.conty….Anashwar Chopra

  29. Anashwar Chopra says:

    Shoppers Stop, Lifestyle International, and 24 other retailers, who had challenged the provisions of Section 65(105)(zzzz) of The Finance Act of 2007, which sought to levy service tax on renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce must have heaved a sigh of relief when a division bench of the Delhi High Court comprising Justice B D Ahmed and Justice Rajiv Shakdher passed the order that the renting premises for business will not invite levy of service tax. A major part of any big or small retailers operating expenditure consists of rent component. This could depending on location, size, format, etc, could vary from 5 to 15 per cent of total costs. We hold that law does not in terms entail that renting out of immovable property for use in the course of furtherance of business or commerce would by itself constitute a taxable service and be eligible to service tax, Justice Ahmed said, disposing of the petitions.
    cont…Anashwar Chopra

  30. Anashwar Chopra says:

    It is open for the Government to prefer an appeal before the Supreme Court of India, challenging the decision of the Delhi High Court. The judgment however delivers great relief to the business by helping liquidity in the current timesetailer heave a sigh of relief as Delhi High Court rules against levy of service tax on rented premises….cont….Anashwar Chopra

  31. Anashwar Chopra says:

    To avoid multiplicity of litigation, the Union of India preferred a transfer petition to the Supreme Court of India seeking transfer of all writ petitions pending before different HighCourts of India, to the Delhi High Court for single window adjudication.cont…..Anashwar Chopra

  32. Anashwar Chopra says:

    Delhi, Gujarat, Andhra Pradesh, Kolkata and Chennai reportedlygranted interim reliefs to the petitioners from payment of service tax until final disposal of theirmatters. The stays were however granted subject to undertakings by the petitioners, mainlytenants, to deposit the service tax amount with the Government if the tax was ultimately heldconstitutional. The Delhi High Court however is the first High Court to deliver the final orderin the matter that would have persuasive value for the other High Courts.The detailed order of the Delhi High Court is expected to be available within the next couple ofworking days. One issue that needs to be seen is whether the Delhi High Court has expresslylimited the applicability of its judgment to its territorial jurisdiction. Notably, while grantinginterim orders, the Delhi High Court had expressed that the stays would be operative within theterritorial jurisdiction of the Court.Consequently, a number of petitioners, having operations in multiple states, were constrainedto knock at the doors of the other High Courts.

  33. Anashwar Chopra says:

    Alishan Naqvee, Advocate, LexCounsel Law Offices, who represented his clients in two of thepetitions disposed off today, tells that the category of renting of immovable property servicewas introduced by the Finance Act of 2007. This, in effect brought renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business and commerce, within the service tax net with effect from June 1,2007. This new levy severely impacted business models across India as most of the rentarrangements did not even stipulate it beforehand.The businesses across India opted to en masse challenge the constitutionality of levy of servicetax on rent, on the primary grounds that renting does not involve any service, and the CentralGovernment is not empowered to tax consideration for transfer of rights in immovable property, being a state subject as per the Constitution of India. Few High Courts, including the High Court of Mumbai, cont…..Anashwar Chopra

  34. Anashwar Chopra says:

    Service Tax on Commercial Rent Held Unconstitutional (Delhi High Court)

    The Delhi High Court has on April 18, 2009 struck down the levy of service tax on renting of immovable property as unconstitutional.

    For_Immediate_Release:

    The Delhi High Court has today struck down the levy of service tax on renting of immovableproperty as unconstitutional, while deciding 26 writ petitions of different petitioners, by combined order. The division bench of the Delhi High Court comprised of Mr. Justice BadarDurrez Ahmed and Mr. Justice Rajiv Shakdher observed that service tax shall not be levied onrenting of immovable property.

    Cont…….Anashwar Chopra

  35. Anashwar chopra says:

    Request you to look into this matter refer above and cooent.

  36. anashwar_chopra says:

    The honourable court came to a conclusion that since lease or levy or license or any other similar arrangement in relation to immovable property does not amount to rendering of a service, no tax can be levied under the taxable entry of the said Section 65(105)(zzzz). The interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same is ultra vi res the said Act and to the extent that they authorised the levy of service tax on renting of immovable property per Se, they are set aside, the court said, striking down the notification. ruled the Judges. The court has allowed a time period of 90 days to the Government to file an appeal against its order.Matter is still panding. for service tax on rent.Under sign is not party to any case,and matter is subdues.what is my libilty to pay service tax ?Request you to look into this matter and comment.
    Anashwar Chopra

  37. Anashwar Chopra says:

    Shoppers Stop and 24 other retailers, who had challenged the provisions of Section 65(105)(zzzz) of The Finance Act of 2007, which sought to levy service tax on renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce must have heaved a sigh of relief when a division bench of the Delhi High Court comprising Justice B D Ahmed and Justice Rajiv Shakdher passed the order that the renting premises for business will not invite levy of service taxWe hold that law does not in terms entail that renting out of immovable property for use in the course of furtherance of business or commerce would by itself constitute a taxable service and be eligible to service tax, Justice Ahmed said, disposing of the petitions. .cont
    Anashwar Chopra

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