Service tax on Renting of Building for Hotel

Renting of a building for a hotel, is not liable to Service tax under ‘Renting of immovable property’ services

Jai Mahal Hotels (P.) Ltd. (the Appellant) entered into a joint venture agreement dated August 28, 1985 with Indian Hotels Company Limited (IHCL) for running hotel business at immovable property owned by the Appellant. The Department contended that the Appellant had provided the taxable service namely ‘Renting of immovable property’, defined in erstwhile Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 (the Finance Act). Accordingly, demand of Service tax along with interest and penalty was confirmed against the Appellant for the period from June, 2007 to March, 2010.

Being aggrieved, the Appellant filed an appeal before the Hon’ble CESTAT, Delhi arguing that ‘hotel buildings’ were not covered under taxable service in view of the exclusion clause under Section 65(105)(zzzz) of the Finance Act and even otherwise, there was no provision of service, as there was a joint venture.

The Hon’ble CESTAT, Delhi after analyzing exclusionary and inclusionary clauses under Explanation I to the erstwhile Section 65(105)(zzzz) of the Finance Act, held that as per Explanation 1(d) to erstwhile Section 65(105)(zzzz) of the Finance Act, ‘immovable property’ does not include buildings used for purpose of accommodation, including hotels. Hence, buildings used for, or as, hotels do not amount to immovable property.

Therefore, renting of a building for a hotel i.e. buildings used for purpose of accommodation including hotels is covered by exclusion clause and does not fall within ambit of taxable service namely ‘Renting of immovable property’.

The alternative argument of the Appellant as regards joint-venture was not discussed and the matter was decided in favour of the Appellant relying upon the provisions under Section 65(105)(zzzz) of the Finance Act.