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Service Tax on Joint property holders
08 February, 2012 Ahmedabad :
Service Tax on Joint property holders

As Interest is more dear than the Principle, so is the Rental Income in respect of the Capital Investment. Current recession period has made it far more important source of steady and safe income. As the issue of Service Tax on Renting of Immovable properties has almost settled in favour of the revenue department, it becomes more imperative to understand the probable grey areas so as to avoid any future litigations . Government has always encouraged the small scale sector, as it has played a significant role in the industrial growth of the Indian economy as well as the GDP. Unlike manufacturing, the service sector does not require capital intensive investments, hence the Small scale service provider account for major portion of service sector. Minimum threshold limit to attract taxes, have been a prudent practice worldwide. Accordingly in our country the small scale industries (SSI) have a special exemption under Service Tax law in order to keep them out of tax compliance hassles. The benefit is extended based on the turnover of the SSS ( small scale service providers). In this regard with a bona fide intention the Board had issued Notification No. 6/2005-S.T. dated 01.03.2005 which exempted taxable services of aggregate value not exceeding Rs.4 Lakh in any financial year from the whole of the service tax. Then later on limit of being such small service providers extended to Rs.10 Lakhs vide Notification No. 08/2008-S.T., dated 01.03.2008.

The situation becomes a bit complex when One Service Provider is providing services from Many Premises or vice versa. Taxable services upto an aggregate value of Rs. 10 lakhs is exempted from payment of service tax. This is subject to a condition that the aggregate value of the taxable services, rendered by a service provider, from one or more premises, shall not exceed Rs. 10 lakhs, during the preceding financial year. It may be observed that if a person is rendering several services, the value of all such services shall be clubbed, for the purpose of determining this eligibility limit of Rs. 10 Lakhs. Therefore, the exemption limit of Rs.10 Lakhs is not independent for different services and different locations. In case of One Premises and Many Service Providers the notification is silent. Under Central Excise, parallel Notification No. 08/2003-C.E, dated 01.03.2003. is crystal clear about such scenario as it contemplates that if more than one manufactures clears goods from one factory that the limit will not be available to individual manufacturer and their clearance will be clubbed for the purpose of SSI limit. However , Service Tax is assessee based tax or person specific and not premises specific. To determine place of provision of service under Service Tax is not as simple as to determine the clearance of goods in central excise. For example , If a retail store has taken a property on rent from 5 different persons having 5 adjoining shops, all the persons can enjoy individual threshold exemption limit. Another scenario, if a single property where there are joint owners who lease out a single property, the lease rent for individual owner is below Rs.10 Lakhs but in total it fetches more than 10 Lakhs, in such situation to the individual will be entitled to enjoy the threshold exemption limit upto10 lakhs each provided their lease agreement clearly spells out the conditions and ownership details of individuals.

A possible solution for such grey area may be determined based on the property income shown in the Income Tax Return. However the scenario is altogether different under Income Tax provisions which clubs income of property in the name of Minor with the income of mother or father having higher income among them, unless the property is earned out Minor’s own income. Government is expected to bring a paradigm shift in the approach to service tax this budget . With negative list in service tax round the corner, such grey areas and futile litigations are bound to be on a decline.

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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