CA Anish Goyal,   B.COM, A.C.A, IDT ICAI

Leviability of service tax has undergone a drastic change. From the list of 119 taxable services to a negative list and mega exemption has been introduced. With such a change from positive to negative list there are lots of issue which needs clarification. If no clarification is issued by CBEC it will lead to litigation.  Renting of space to an advertising agency who further sells the space for advertisements purpose is one of these issues which require clarification. The owners of malls/buildings charge monthly fixed rent from the Advertising Agency. The basic query in this regard is whether service tax will be applicable on providing/renting space to an advertising agency.

Let us examine the legal provisions in this regard:

 Firstly let us go through the Definition of “Renting”- Clause (41) of section 65B of Finance Act, 1994 as providing space in an immovable property falls under the definition of renting

‘renting’ as defined in clause (41) of section 65B of Finance Act, 1994 (amended by Finance Act, 2012).  The definition is being reproduced here under:

Renting’ means ‘‘allowing, permitting or granting access, entry, occupation, usage or any such facility, 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”

As evident from the above definition the service of providing space in an immovable property is chargeable to service tax as permitting usage of space is covered in the definition of renting. However there are certain kinds of property is specified in the negative list renting of which is not liable to service tax. These are:-

  • Renting of vacant land, with or without a structure incidental to its use, relating to agriculture.
  • Renting of residential dwelling for use as residence
  • Renting out of any property by Reserve Bank of India
  • Renting out of any property by a Government or a local authority to all non-business entity.

Renting of all other immovable properties would be taxable unless covered by a specific exemption. Thus, renting of space to an advertising agency is not covered under negative list or specific exemption.

Further selling of space for advertising is covered in the Negative list- Section 66D of the Finance Act, 2012 which reads as under:

 “Any sale of space or time slots for advertisement other than advertisements broadcast by radio or television” is covered under entry no. (g) of the negative list.

As evident from the negative list, selling of space for advertisement (other than radio or television) is not taxable. Therefore, there might be a view that as “there is no condition in the definition that the sale of space or time should be directly made to the advertiser”, therefore the service of providing space would also be covered by the negative list.

 For better understanding of the services mentioned in the negative list principles of Interpretation as stated clause (1) of section 66F of the Finance Act, 2012 as to be referred.

The said clause states that:

“Unless otherwise specified, reference to a service (hereinafter referred to as the “main service”) shall not include reference to a service which is used for providing the main service”

This rule can be best understood with few illustrations which are given in D. O. F. No 334/1/2012-TRU, dated 16th March, 2012. The same is reproduced here under:

  • Provision of access to any road or bridge on payment of toll’ is a specified entry in the negative list in section 66D of the Act. Any service provided in relation to collection of tolls or for security of a toll road would be in the nature of service used for providing such specified service and will not be entitled to the benefit of the negative list entry.
  • Transportation of goods on an inland waterway is a specified entry in the negative list in section 66D of the Act. Services provided by an agent to book such transportation of goods on inland waterways or to facilitate such transportation would not be entitled to the negative list entry.

Similarly, “As any sale of space or time slots for advertisement other than advertisements broadcast by radio or television” is a specified entry in the negative list in section 66D of the Act. Any service used by an advertising agency for providing specified service (as mentioned in the negative list) would not be entitle to the benefit of the negative list entry.

Moreover in Budget 2012: Changes in Service Tax, dated 13th July, 2012 issued by Ministry of Finance the reason for keeping the selling of space for advertisement other than radio & television outside the preview of service tax was given that the “said service is covered in the List II therefore due to legal Constraints no service tax is levied on the said services.

Therefore, the service of providing space in an immovable property is covered under ‘renting as defined under clause (41) of section 65B of Finance Act, 1994 and as per clause (1) of section 66F of the Finance Act, 2012 it can concluded that the service of providing space  will be liable to service tax. However, with no specific condition in negative list the sale of space or time should be directly made to the advertiser there might be a view that no service tax will be leviable on renting of space to an advertising agency.

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