Case Law Details
Marthoma Cheriya Pally Vs Commissioner of Central Excise (CESTAT Bangalore)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore partly allowed the appeal filed by a religious church registered as a charitable trust against the Order-in-Appeal dated 23 February 2018, which had confirmed service tax demand on rental income from immovable properties for the period after 1 July 2012. The Commissioner (Appeals) had held that the appellant was not entitled to the benefit of Notification No. 25/2012-ST dated 20 June 2012 and had reduced the penalty under Section 78 of the Finance Act, 1994 to 50% of the service tax upheld.
The appellant argued that it was entitled to exemption under Clause 4 of Notification No. 25/2012-ST because it was registered under Section 12AA of the Income Tax Act, 1961 and charitable activities under the notification included advancement of religion. The Revenue contended that the appellant did not qualify for the exemption and relied upon an earlier Tribunal decision holding that service tax was payable on similar facts for the period after 1 July 2012.
The Tribunal examined the provisions of Notification No. 25/2012-ST, including the exemption available for services provided by entities registered under Section 12AA by way of charitable activities and for renting of precincts of a religious place meant for the general public. It noted that the appellant was a Jacobite Syrian Church registered under the Charitable and Religious Trust Act and Section 12AA of the Income Tax Act. It was undisputed that the church owned shopping complexes within its premises and had rented these commercial shops to tenants for business purposes. The Tribunal observed that renting of immovable property used for business or commerce was liable to service tax under the Finance Act, 1994, and since the premises were rented out as commercial shops, the activity was taxable.
While considering the exemption under Clause 4, the Tribunal held that mere registration as a charitable trust under Section 12AA was insufficient. The entity was also required to establish that it was engaged in charitable activities as defined in the notification. As nothing beyond the fact of registration had been placed on record to demonstrate such activities, the Tribunal concluded that the appellant was not entitled to the exemption under Clause 4.
The Tribunal also referred to its earlier decision concerning another church, where it had been held that service tax was not payable before 1 July 2012 because renting of immovable property by a religious body fell outside the levy during that period. However, after 1 July 2012, the exemption under Clause 5(a) relating to renting of precincts of a religious place meant for the general public did not extend to commercial shops rented to private persons for conducting business. Such premises were not considered to be meant for use by the general public as a religious place, and therefore rent received from commercial shops remained liable to service tax.
Applying the same reasoning, the Tribunal held that the appellant was not eligible for exemption under either Clause 4 or Clause 5 of Notification No. 25/2012-ST for the period after 1 July 2012. It observed that the appellant had not been liable to service tax before that date under the law then in force, but the liability arose after the amendment effective from 1 July 2012. Considering that the appellant had continued to claim exemption under a bona fide belief and that the transactions were duly reflected in its records, the Tribunal held that the extended period of limitation was not applicable. Accordingly, the demand was sustained only for the normal period, and all penalties were set aside. The appeal was partly allowed.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This appeal has been filed by the appellant M/s. Marathoma Cheriya Pally against Order-in-Appeal No. 37/2017-ST dated 23.02.2018 passed by the Commissioner (Appeals), Cochin.
2. Briefly the facts are that the appellant is a religious church registered as charitable trust, who are engaged in renting of immovable properties. Since renting of immovable properties is the service rendered by the appellant, show-cause notice was issued demanding service tax on the same. The Commissioner (Appeals) in the impugned confirms the demand only for the period post 01.07.2012 on the ground that the appellant is not eligible for the benefit of Notification No.25/2012-ST dated 20.06.2012 and reduces the penalty under Section 78 of the Finance Act, 1994 to the extent of 50% of the service tax amount upheld. Aggrieved by this order, the appellant is in appeal before us.
3. The Learned Counsel has submitted that they are entitled for the benefit of Notification No.25/2012 dated 20.06.2012. Referring to clause 4 of the above Notification and referring to the definition of charitable activities which includes religion, he submits that the benefit of Notification needs to be extended to the appellant.
4. The learned Authorised Representative reiterating the findings of the Commissioner (Appeals) submits that they are not eligible for the benefit of the said Notification as is held by the Commissioner (Appeals). He also submits that in a similar set of facts, this Tribunal vide Final Order No.20262 to 20264/2026 dated 04.03.2026 held that post 01.07.2012 they are liable to pay service tax, hence, the impugned order needs to be sustained.
5. Heard both sides. To examine whether the appellant is eligible for the benefit of Notification No. 5/2012-ST dated 20.06.2012 the same is extracted below:
Notification No. 25/2012-S.T., dated 20-6-2012
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Act) and in supersession of notification number 12/2012-Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210(E), dated the 17th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66B of the said Act, namely :-
1. Services provided to the United Nations or a specified international organization;
2. Health care services by a clinical establishment, an authorised medical practitioner or para-medics;
3. Services by a veterinary clinic in relation to health care of animals or birds;
4. Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities;
k) “charitable activities” means activities relating to –
(i) public health by way of –
a. care or counselling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
b. public awareness of preventive health, family planning or prevention of HIV infection;
(ii) advancement of religion or spirituality;
(iii) advancement of educational programmes or skill development relating to,-
a. abandoned, orphaned or homeless children;
b. physically or mentally abused and traumatized persons;
c. prisoners; or
d. persons over the age of 65 years residing in a rural area;
(iv) preservation of environment including watershed, forests and wildlife; or
(v) advancement of any other object of general public utility up to a value of,-
a. eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12;
b. twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;
5. Services by a person by way of –
a. renting of precincts of a religious place meant for general public; or
b. conduct of any religious ceremony;
5.1 In the present case the undisputed facts are the appellant is a Jacobite Syrian Church which is a religious body and is registered under the Charitable and Religious Trust Act and under Section 12AA of the Income Tax Act 1961. It is also not in dispute that within the premises of the Church various shopping complexes owned by the appellant were rented-out to tenants for business based on the consideration. The only issue to be decided is whether the rent received by the appellant is liable to service tax since the premises herein is used for commercial purposes. There is no dispute that renting of immovable property is liable to service tax under Section 65(90a) of the Finance Act, 1994 as long as it is used for business or commerce. In the instant case since shops have been rented-out, the same is liable to service tax.
5.2 The claim of the appellant is that they are eligible for the benefit of Notification No.25/2012-ST dated 20.06.2012 and Clause (4) needs to be examined. From the Notification extracted above, we find that it is not sufficient that the appellant is registered as a Charitable Trust under Section 12AA of the Income Tax Act, 1961, they should also be engaged in the charitable activities as defined therein. We do not find anything placed on record except for stating that they are registered as a Charitable Trust. Therefore, they are not eligible for the benefit of notification No. 25/2012-ST (Clause-4) dated 20.06.2012.
5.3 This Tribunal in the case of M/s. Saint Patrick’s Church Vs. The Commissioner of Service Tax, Bangalore, in a similar set of facts, had demanded service tax for the period post 01.07.2012. The observations of the Tribunal vide Final Order No.20937/2016 dated 04.03.2026 are extracted below:
“7. The contention of the appellant is that for the period prior to 01.07.2012, being a religious body, the activity of renting of commercial premises fall under the exclusion clause of the definition of ‘Renting of Immovable Property’ provided under Section 65(90a) of the Finance Act, 1994. The relevant provision reads as follows:
Section 65(90a) “Renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include —
i. renting of immovable property by a religious body or to a religious body; or
ii. renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;
Explanation.- For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;
Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this clause “renting of immovable property” includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property.
8. Further, it is their claim that after 01.07.2012, renting of the said premises covered under Clause 5(a) of the exemption Notification No. 25/2012-ST dated 20.06.2012, which reads as follows:-
5. Services by way of –
a. renting of precincts of a religious place meant for general public; or
b. conduct of any religious ceremony;
It is their claim that their activity of renting of the shops in the said premises for commercial purposes fall under sub-clause (a) i.e. “renting of precincts of a religious place meant for general public”.
9. We find that the Tribunal in the case of Diocese of Tanjore Society (supra) interpreting various provisions relating to Societies Registration Act, 1860, meaning and scope of religious body etc. pertaining to both the periods, observed that the appellant are liable to pay service tax only w.e.f. 01.07.2012 and not before that. The Tribunal analysing the principles laid down by the Hon’ble Supreme Court and the definition of religious body held as follows:-
5.3 The definition of a ‘religious body’ has to be broader than that of a ‘religious denomination’. A religious denomination is a subgroup within a religion. Religious body can be a part of a religion or a religious denomination and established with the objective of propagating religion and primarily serving the members of its community. Religions are generally propagated and administered with the help of organizations within its domain that are closely integrated with society. These organisations are understood in common parlance to be ‘religious bodies’ as distinct from religion per se or a religious denomination. Hence, they are recognised by the public and societal institutions as a religious body. In the absence of any definition of a ‘religious body’ in law, the common understanding would have to be taken into consideration. By definition a Diocese is a district under the pastoral care of a Bishop of the Christian Church. As per the Cambridge Dictionary a Diocese is ‘an area controlled by a bishop’. As per the Merriam-Webster Dictionary it is ‘the territorial jurisdiction of a bishop’. From the facts stated at para 5.1 and the discussions herein it is clear that in the context of service tax levy, the Diocese is found to be infused with the character of a religious body. It has been held by the Hon’ble Supreme Court in Plasmac machine Mfg. Co. (P) Ltd. v. Collector of Central Excise, [1991 supp. (1) SCC 57] = 1991 (51) E.L.T. 161 (S.C.), that ‘where definition of a word has not been given, it must be construed in its popular sense”. So also, in M/s Indo International Industries v. Commissioner of Sales Tax, Uttar Pradesh, [1981 (2) SCC 528] = 1981 (8) E.L.T. 325 (S.C.), it has been held that “if any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted”.
5.4 Having found that the Diocese is found to be infused with the character of a religious body the question which arises is whether a ‘religious body’ can also be a ‘public charitable and educational society’. A similar matter came up before the Hon’ble Supreme Court in Hindu Public v. Rajdhani Puja Samithee, (supra). The Hon’ble Court stated the law as follows:
“14. In our opinion, this contention is not well founded. More than ninety years ago, such a contention raised under Act 21 of 1860 was negatived by the Allahabad High Court in Anjuman Islamia of Muttra v. Nasiruddin. It was contended in that case that the registration of a society called “Anjuman Islamia” under Act 21 of 1860 was not permissible as the society was formed for “religious purposes only” and not for charitable purposes. The Allahabad High Court rejected the said contention and held that a society for religious purposes would ordinarily be a society for charitable purposes. A similar question arose before the Madras High Court in Khaji Muhammad Hussain Sahib v. Majiday Mahmood Jamait Managing Committee. A Division Bench consisting of Wadworth. and Venkataramana Rao, JJ. held that Act 21 of 1860 was passed in 1860 when according to English Law, a gift for the advancement of religion or promotion of religious worship was treated as a charitable purpose and, therefore, a society formed for such a purpose would be a charitable society under Act 21 of 1860. The only condition was that it should be for the benefit of the public. No doubt, in some statutes enacted subsequent to Act 21 of 1860, the Legislature used the words “charitable” and “religious” but the definition of these words was expressly stated to be for the. purposes of those, Acts. The subsequent legislation, the Madras High Court held, would not be helpful in interpreting the word “charitable” in Act 21 of 1860. The real question was: “What did the term mean in 1860?” We are in agreement with the view of the Allahabad and Madras High Courts. In fact, Lord McNaughten in his celebrated judgment in CIT v. Pemsel said that charitable purposes which came within the language and spirit of the statute of Elizabeth (43 Eliz Ch. 4) could be grouped into four heads (i) relief of poverty, (ii) education, (iii) advancement of religion, and (iv) other purposes beneficial to the community not coming under any of the preceding heads. The words in Act 21 of 1860 are, therefore, to be understood as including religious purposes also. Point 1 is held against the society.”
(emphasis added)
The judgment of the Hon’ble Supreme court has clarified the position that charitable purposes is to be understood as including religious purposes also.
5.5 The onus of proof of fulfilment of condition subject to which an exemption may be admissible lies on the assessee or upon a party claiming benefit under a notification, but in the case of subjecting an activity to levy under a taxing statute, the onus is on Revenue. Merely because the Diocese is registered under the Societies Registration Act, 1860, it cannot be said that it automatically means that the Diocese is not a religious body. In the light of the discussions above Revenue has failed to establish that the Diocese is not a religious body and will be covered by the definition under section 65(90a) of the Finance Act 1994. Hence, we find that the appellant will be subject to levy under service tax for renting of immovable property only from 01/07/2012 and not before that date. The appellant also agrees that they are liable to pay service tax from 01/07/2012.
10. On going through the documents placed before us relating to the incorporation as trust and functioning of the St. Patrick’s Church, which is more or less similar to the one discussed in the aforesaid case; the renting of the premises prior to 01.7.2012 shall be covered under the scope of the expression “renting of immovable property by a religious body or to a religious body” hence, confirmation of service tax for the period up to 30.06.2012 cannot be sustained.
11. For the period post 01.7.2012, the learned Chartered Accountant interpreting the expression ‘renting of precincts meant for general public’ would argue that renting of the commercial shops situated within the premises of the Church being for general public fall under the scope of Clause 5(a) of the said Notification. We do not find merit in the said argument. In the present case the commercial shops are given to private persons on rent for use of the said tenants in selling various merchandise in pursuing their business, such a service cannot be said to be meant for general public for their use by religious body. Consequently, we agree with the conclusion of the Tribunal in the aforesaid case that after 01.07.2012, service tax is payable on the rent proceeds of the commercial space even though situated in the precincts of the Church.”
12. In view of the above, we find that the appellant is not eligible for the benefit of Notification No.25/2012-ST dated 20.06.2012 with reference to clauses 4 & 5 of the above notification as discussed in the previous paras. It is a fact that prior to 01.07.2012 the appellant was not liable to service tax in view of the provisions at the relevant point of time. Only after the amendment w.e.f. 01.07.2012 the appellant was liable to pay service tax which is not been upheld. However, taking into consideration that the appellant under bona fide belief continued to avail the exemption, we also note that the Commissioner (Appeals) records that the transactions are reflected in the specify records of the appellant based on which he has reduced the penalty. Considering the above factors we do not find any reason to sustain the demand beyond the normal period; hence the demand is upheld only for the normal period. All penalties are set aside.
Appeal is partly allowed.
(Order pronounced in Open Court on 01.06.2026.)
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