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Renting: The Confusion Prevails
25 July, 2012 Ahmedabad :
Renting: The Confusion Prevails

Renting of immovable property is one area which has always been in news since service tax was imposed on it. Interestingly, even today, this activity is not free from ambiguity as it finds mention in both the Negative list as well as the declared list. As per the new definition under Section 65B (41); "renting" means as allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. Renting includes letting, leasing, licensing or other similar arrangement for right-to-use an immovable property for a consideration. However, as per the new regime of service tax, Immovable properties excluded from the scope of this service are

(1) Renting of vacant land, with or without a structure incidental to its use, relating to agriculture. (2) Renting of residential dwelling for use as residence (3) Renting out of any property by Reserve Bank of India (4) Renting out of any property by a Government or a local authority to all non-business entity.

This finds mention in the Declared Services as well. These are activities that have been specified in Section 66E of the Act. When such activities are carried out by one person for another in the taxable territory for a consideration then such activities are taxable services. There are nine such activities and renting is one of them.

Ironically, in the negative list under section 66D(m), Services by way of renting of residential dwelling for use as residence are covered in the negative list. Apart from that as per Exemption Notification No 25/2012 dated 20.06.2012 certain activities are exempted from service tax. This includes, (1) Renting of precincts of a religious place meant for general public. (2) Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt and Renting to an exempt educational institution.

Thus, renting finds mention in all three, negative list, declared list as well as Mega exemption notification. This has created confusion in the minds of the stake holders. And as such, it gives rise to many doubts and questions. Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function is taxable? If A house is given on rent one floor of which is to be used as residence and the other for housing a shop or office, what would be taxability? Is renting of open grounds for a spiritual or religious purpose taxable? Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business functions or letting out of halls for cultural functions fall within the scope of this declared list service?

Although the idea of introduction of Negative List in the Service Tax provisions was to do away with the issue of classification of services under different service classification headings, the presence of the above multi headed services in the provisions have not altogether eliminated the classification issues. This has necessitated a need for a mechanism to determine the classification of a service in the above categories and the manner of taxability of bundled services. Section 66F lays down the principles of interpretation of specified descriptions of services and bundled services. Though certain guidelines are drawn, but on the whole, it gives vast discretionary powers to the service tax assessing officer to interpret the same and with a pro revenue frame of mind and approach, the decision is bound to tilt in the departments favour.

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