Whether service tax is applicable in giving up right on land

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2016 Hello,

Suppose say Mr. A enters in an agreement with Mr B for Land Sale. Mr. B already has a buyer for that land say Mr. C. Now all the three A, B and C enters in a tri-party agreement for land sale. Mr. A (Owner of land) will be paid say Rs. 10 Lacs by Mr. C (ultimate purchaser of land) and Mr. B will receive say Rs. 90 Lacs by Mr C for giving up his right on land.

Now the question is whether Service tax is applicable on Rs. 90 lacs received by Mr. B for giving up his right on the land under Refraining from an act service which is a declared service?
(note: the agreement specifies that Mr B. will receive Rs. 90 lacs as consideration for giving up his right on the said land)

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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13 February 2016 The Sale of Land or sale of any right of title to land per se is not a service as defined in Finance Act 1994 (as amended). What is a Declared Service as per Section 66E is the service of construction which as per the definition covers construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority. The term "construction" includes additions, alterations, replacements or remodeling of any existing civil structure.

From your query it appears that the sale is of land and land & civil constructions thereon. If there are no civil structures on the land,and the agreement to sell is not of residential flat / structure, the the transaction is not subject to service tax. Further if the sale is of a single residential unit, then too the service is not taxable. If the consideration of Rs.90 lakhs is only towards the right to land, then there is no service tax.

Before a complete and comprehensive opinion is possible, the above agreements have to be perused and only then can the final advice be given.

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Querist : Anonymous

Querist : Anonymous (Querist)

15 February 2016 Thank you so much sir for the information... But as per definition of service, it includes declared service. One of the declared service is "Refraining from an act". I am under the impression that the act of Mr. B of letting go the right on land will be covered under this service. Hence i feel that It will be covered under the definition of service.

Moreover this is just a transfer of land and there is no construction on it. Also Mr. B is acting as an intermediary under this tri-party agreement. Land is neither transfered to Mr B, nor there is any part of share of him in the land.

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Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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15 February 2016 Transfer of land is not a service. The right though legally "Refraining from an act" cannot be deemed a service. Further, since Mr.B is acting on his own account and not on behalf of Me.A, he is neither an agent nor is he rendering any Business Support / Business Auxiliary Service to Mr.A. Since he is not an agent, the income is not commission income covered under Business Support Service. And since Mr.A has not asked Mr.B to find a buyer for the land, no service is rendered to Mr.A. Mr.C, being the purchaser has executed a Deed of Sale not an Agreement for Services, there is no service rendered to him either by Mr.A or Mr.B.

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