Renting of immovable property
JOINTLY OWNED PROPERTY: - ELIGIBILITY FOR EXEMPTION SCHEME
- CA SUDHIR HALAKHANDI
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The article was written by me in 2007 and it is a published article and the name of Journal is …….???
- CA SUDHIR HALAKHANDI
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Renting of immovable property for commercial purpose has been made taxable service w.e.f. 1st. June 2007 but since the threshold limit has been increased from Rs.4 lakhs to Rs. 8 lakhs hence the small property holders are not affected by this levy. The service tax is payable @ 12.36 percent including education cess and Senior and Higher education cess.
Some of the properties are jointly owned by more than one person with their determined share of ownership and if the total rent received from the jointly owned property exceeds Rs. 8 Lakhs than there is confusion about claim of exemption as per Notification 6/2005 – ST dated 1-3-2005 available to the small service providers. Let us try to understand this problem with the help of an example: -
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One commercial property is owned by A and B. The total rent for the property for a financial year is Rs. 15 lakhs. Out of this Rs. 7.50 Lakhs is received by A and B respectively . Suppose this is the total rent due and received for the period for which the service is taxable in the Financial Year 2007-08. Now what is the tax liability for the Financial year 2007-08 and what will be the status of the Service provider for the Financial year 2008-09 with respect to Exemption scheme as provided in Notification No. 6/2005- ST dated 1-3-2005.
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There are two totally different views on this problem.
One view is very simple that since the rent received is more than Rs.8 Lakhs hence the service in the first year will be taxable over this amount of Rs. 8 lakhs and since the collection is Rs. 15 lakhs hence service tax is payable on Rs.7 Lakhs in the Financial year 2007-08 and since the services rendered during the Financial year 2007-08 is more than Rs. 8 lakhs hence exemption on first collection of Rs. 8 Lakhs will not be available for the Financial year 2008-09. Here the joint ownership has been disregarded while considering the provision of service and calculating the exemption limit.
For the revenue point of view this version is beneficial and will result in more revenue.
But there is one more angle to this problem and according to this since two owners own the property hence both are service providers providing the service individually and can claim exemption individually and in that case the individual exemption up to Rs. 8 lakhs can be claimed. Let us study this angle of the problem for the benefit of joint owners of the property.
The exemption is service provider based exemption
The exemption as mentioned in the Notification No.6/2005 – ST dated 1-3-2005 is a service provider based exemption and this is available on the taxable service or services provided from one or more premises by a service provider. The eligibility to the exemption scheme is also supporting this view and let us see the particular clause in this respect: -
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The aggregate value of taxable service rendered by a provider of taxable service from one or more premises, does not exceed Rs. Eight Lakh in the preceding financial year.
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Hence it is clear from the exemption scheme as provided in Notification No.6/2005-ST dated 1-3-2005 that the Exemption scheme is based on service provider and not based on the service receiver or individual service. Hence both the joint owners can claim exemption Individually and separately.
Here see the side effects of the Service provider based exemption scheme: -
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Mr. Ray, an Individual owning 10 Shops in a complex and the rent of per shop is Rs. 10000.00 per Month received by him from different shop keepers hence the total rent received is 10x12x Rs.10000.00= Rs. 1200000.00. Here the exemption as provided by Notification 6/2005- ST dated 1-3-2005 is not available because the rent received has crossed the basic exemption Limit of Rs.8 Lakhs. Since service tax is an indirect tax and it’s ultimate burden has to be born by the service receiver and here the service receiver is tenant hence a person i.e. small shop keeper paying Rs.10000.00 per Month as rent may have to pay service tax under these circumstances only for the reason that the total receipt of his landlord is higher than the exemption limit.
Mr. Sahay, a another Individual having a big showroom place and receiving rent of Rs. 50000.00 per Month from “Footstep trading company” and does not own any other property given on rent for use in the course or furtherance of Business or commerce. Here the total rent received is Rs. 600000.00 and since it is less than Rs. 8 lakhs hence no service tax is payable.
Here see the effect that a small shop keeper paying small rent as Rs.10000.00 per month has to pay service tax but a big showroom owner paying rent as much as Rs. 50000.00 per month is not required to pay any service tax.
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Renting of joint property is a service provided by two joint owners individually
If a jointly owned property is given on rent for commercial purpose then it is the service, which is provided individually by both the joint owners because in case of renting of property nothing has to be done except for renting the property and this is the service as per the fiction of the law then the service is provided by both the joint owners individually. If there are more than two joint owners then it can safely be said all the joint owners are separate service providers and in that case all the joint owners can claim separate exemption.
In the particular case mentioned above the rent received by A is Rs. 7.50 lakhs only hence he can claim the exemption from payment of service and on the same basis the other joint owner B can also claim exemption from the payment of service Tax.
In such a case since the value of service provided is more than Rs. 7 lakhs hence both these joint owners will require their separate registration as per the requirement of the Service Tax (Registration of Special category of persons) Rules 2005.
Since in the true sense “Renting of immovable property” can not be equated with the provision of any service and it is only due to a fiction created by our law makers the renting is equated to provision of a service hence made taxable and in that case the law makers should come forward with a suitable clarification in this respect to end this controversy to avoid confusion about the payment of service tax in this respect.
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