04 June 2011
Mr. X, Director (Also owner) of a Company ABC (P) Ltd., is Managing Director (also owner) of another Company KLM Ltd. Company ABC owns a Office Flat as stock in trade and the office space is used by KLM free of cost w.e.f (say) day 50. Upto day 49, it was rented to some other company at Rs.100000/- per month (service tax was charged and paid on this receipt of rent). That other compnay has left that space on day 49 and shifted to some other location and KLM, belong to Mr. x started using that space free of cost. Whether any service tax is payble by ABC?., ABC does not do any business in its book except holding this property as stock in trade. If yes, than on what value? There is no other consideration involved for use of this property by KLM since both the company is owned by one and same individual Mr. x. Mr. X says that both are my company and why should I pay any service tax as ultimately I have not got any money from renting to my self. One can not provide any service to self. Because of legal issues, I am owning two companies. Ultimate owner is myself only. Kindly guide with your valuable opinion and suggestion.
06 June 2011
In the eyes of law, both the companies are different legal entities and therefore the claim of Mr.x does not legally sustain. But no service tax is payable on service provided free of consideration. Even if rent is charged, basic exemption is available up to Rs.10L.
09 June 2011
Thanks for your reply. I would like to know in the instant case that The property was earlier given on rent @ Rs.10/- lac per month and service tax was paid. The other party left the premises on completion of rent agreement and then it has been occupied by group company for free of rent. Can service tax authrotiy claim on notional rent the amount of service tax chageable as the market rate of valuation is available being rent charges till last month was Rs.10/- lacs per month. As informed in the query, there is no any other type of consideration given in any form. any case law on the subject?
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