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ST – Jointly owned property rented out – rent received by individual as per their share is taxable, no clubbing permitted: CESTAT

2019-TIOL-2526-CESTAT-AHM

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, AHMEDABAD
REGIONAL BENCH
COURT NO. III

Misc. Application No. ST/ORS/10066/2018-DB
[On behalf of Appellant]
In
Appeal No. ST/10248/2013-DB

Arising out of OIA-263-268/2012-STC-/SKS/COMMR-A-/AHD
Passed by Commr. of S.Tax. Ahmedabad

WITH

Appeal Nos. (i) ST/502/2012 (Manju Mukesh Garg & Gunjan Parvesh Garg) (ii) ST/10247/2013 (Ritaben Piyushkumar Doshi) (iii) ST/10473/2015 (Kishorbhai Pranjivandas Mandalia) (iv) ST/10474/2015 (Vipulkumar Zaverilal Mandalia) (v) ST/10475/2015 (Pranjivandas Mandalia) (vi) ST/10476/2015 (Chandreshbhai Zaverilal Mandalia) (vii) ST/10477/2015 (Bhanuben Pranjivandas Mandalia) (viii) ST/10478/2015 (Prafullaben Zaverilal Mandalia) (ix) ST/10923/2017 (Fenny Chandresh Mandalia) (x) ST/10924/2017 (Smt. Aruna Kishor Mandalia) (xi) ST/10925/2017 (Shri Shekhar Kanaiyalal Shah) (xii) ST/10926/2017 (Bhanuben Pranjivandas Mandalia) (xiii) ST/10927/2017 (Daksha Bharatkumar Mandalia) (xiv) ST/10928/2017 (Mrudula Kanaiyalal Shah) (xv) ST/10929/2017 (Sujata Shekhar Shah) (xvi) ST/10930/2017 (Hemali Vipul Mandalia) (xvii) ST/10931/2017 (Smt. Prafullaben Zaverilal Mandalia) (xviii) ST/11984/2016 (Fenny Chandresh Mandalia) (xix) ST/11985/2016 (Aruna Kishor Mandalia) (xx) ST/11986/2016 (Daksha Bharatkumar Mandalia) (xxi) ST/11987/2016 (Hemali Vipul Mandalia) (xxii) ST/12927/2014 (Zaverilal Virjibhai Mandalia)

Arising out of OIA-178/2012/STC/AK/COMMR-A-/AHD
Passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-263-268/2012-STC-/SKS/COMMR-A-/AHD 
Passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-AHM-SVTAX-000-APP-006-14-15
Passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-AHM-SVTAX-000-APP-086-14-15
Passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-AHM-SVTAX-000-APP-0184-16-17
passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-AHM-SVTAX-000-APP-0185-16-17
Passed by Commr. of S.Tax. Ahmedabad

Arising out of OIA-AHM-SVTAX-000-APP-062-065-16-17
Passed by Commr. of S.Tax. Ahmedabad

Date of Hearing: 16.04.2019
Date of Decision: 16.04.2019

M/s NEENABEN R DOSHI
22/539, SATYAGRAH CHHAVANI, OPP. ISRO
SATELLITE, AHMEDABAD

Vs

CST AND SERVICE TAX
AHMEDABAD, 7TH FLOOR, CENTRAL EXCISE BHAVAN
AMBAWADI, AHMEDABAD-380015

Appellant Rep by: Shri N K Tiwari, Consultant & Abhishek Doshi, CA 
Respondent Rep by: Shri G Jha Authorized Representative

CORAM: Ramesh Nair, Member (J)
Raju, Member (T)

ST – The property is jointly owned by two or more persons and same is rented out – The rent is received by individual as per their respective share in the property – The case of department is that the joint owners of one property should be considered as association of person (AOP) and renting share of two or more persons shall be clubbed together – Accordingly, the values of the consideration were exceeding the thresh-hold limit of exemption of 4 lakhs and 8 lakhs as the case may be and the same is liable for service tax – Though in respect of one property, there are joint owner but each joint owner is independent in respect of ownership of respective shares, therefore, whatsoever consideration received by an individual, it is the subject matter of taxation in respect of that individual person either as per income tax or as per service tax – Rental income of other co-joint owner cannot be considered – Therefore, receipt of rental income by every individual is only subject to liability of service tax – If the value is below thresh-hold exemption limit in case of any individual, the same will not be taxable being exempted under Notfn 06/05-ST – At the same time in case of any individual person if the thresh-hold limit exceed in financial year, the same will be liable for service tax – This issue has been considered by Tribunal in case of Sarojben Khushalchand 2017-TIOL-2284-CESTAT-AHMwherein the Tribunal dealt with the absolute identical issue – In view of decision on the identical issue, the issue in hand is no more under dispute, hence settled – Accordingly, the impugned order is set aside: CESTAT

Appeal allowed

Case laws cited:

Sarojben Khushalchand – 2017-TIOL-2284-CESTAT-AHM… Para 2

Deoram Vishrambhai Patel – 2015-TIOL-1936-CESTAT-MUM… Para 2

Anil Saini Vs. CCE-Chandigarh-I – 2017-TIOL-1234-CESTAT-CHD… Para 2

N K Patni & others [(1998) 234 ITR 12 (all)]… Para 2

CIT Vs. Devdasan & others [(1967) 63 ITR 569 (KER)]… Para 2

CIT Vs. Shiv Sagar Estates (AOP) [(1993) 201 ITR 953 (Bom)]… Para 2

Anita Sing Vs. CGST CC & CE, Dehradun – 2018-TIOL-2164-CESTAT-DEL… Para 2

T. Parivallal & others – 2019-TIOL-499-CESTAT-MAD… Para 2

FINAL ORDER NOS. A/10712-10734/2019

Per: Ramesh Nair:

The brief facts in all the appeals are that the property is jointly owned by two or more persons and same is rented out. The rent is received by individual as per their respective share in the property. The case of the department is that the joint owners of the one property should be considered as association of person (AOP) and renting share of two or more persons shall be clubbed together. Accordingly, the values of the consideration were exceeding the thresh-hold limit of exemption of 4 lakhs and 8 lakhs as the case may be and the same is liable for service tax.

2. Sh. N.K. Tiwari Ld. Consultant & Sh. Abhishek Doshi Ld. CA appeared for the appellant. They submit that even though the property is owned by two or more persons each person is individually separate owner in the share of the property, therefore, the rental income of one person cannot be clubbed with other joint owner. The relationship between the joint owners is not of any commercial concern such as association of person, therefore, the proposal of clubbing of rental income by the department is not legal and correct. He submits that the such type of arrangement has also been established in income tax matter that the joint owner of the property do not fall under the category of association of person, accordingly, the individual income is subject to assessment in respect of that individual and the same is not clubbable with the other joint owner of the property. He submits that the issue is squarely covered by various judgments. He placed reliance on the following judgments:

– Sarojben Khushalchand 2017 (4) GSTL 159 (Tri.Ahmd.) = 2017-TIOL-2284-CESTAT-AHM

– Deoram Vishrambhai Patel – 2015-TIOL-1936-CESTAT-MUM

– Anil Saini Vs. CCE-Chandigarh-I Final Order Nos. 61723-61729/2016 Chandigarh CESTAT = 2017-TIOL-1234-CESTAT-CHD

– N K Patni & others [(1998) 234 ITR 12 (all)]

– CIT Vs. Devdasan & others [(1967) 63 ITR 569 (KER)]

– CIT Vs. Shiv Sagar Estates (AOP) [(1993) 201 ITR 953 (Bom)]

– Laxmi Chaurasia Final Order No. A/71214-71221/2016 Delhi CESTAT

– Anita Sing Vs. CGST CC & CE, Dehradun Final Order No. 52131-52134/2018 Delhi CESTAT = 2018-TIOL-2164-CESTAT-DEL

– T. Parivallal & others Final Order No.42535-42537/2018 Chennai CESTAT = 2019-TIOL-499-CESTAT-MAD

3. Sh. G. Jha Ld. Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

4. Heard both the sides and perused the records. We find that though in respect of one property, there are joint owner but each joint owner is independent in respect of ownership of respective shares, therefore, whatsoever consideration received by an individual, it is the subject matter of taxation in respect of that individual person either as per income tax or as per service tax. Rental income of other co-joint owner cannot be considered. Therefore, in our considered view receipt of rental income by every individual is only subject to liability of service tax. If the value is below thresh-hold exemption limit in case of any individual, the same will not be taxable being exempted under Notification No. 06/05-ST dated 01.03.2005. At the same time in case of any individual person if the thresh-hold limit exceed in financial year, the same will be liable for service tax. This issue has been considered by this Tribunal in the case of Sarojben Khushalchand (Supra) wherein the Tribunal dealing with the absolute identical issue passed the following order:

9.We find force in the contention of the ld. Advocates representing the respective appellants inasmuch as ‘association of persons’ has been considered as a separate legal entity under the Income-tax Act for assessment and provided separate PAN number different from the PAN number possessed by individual co-owners; who joined together to form an ‘association of persons’. In the present case, the show cause notices were issued in many cases to one person among the Joint owners and in other cases to all the persons who had jointly owned the immovable property provided on rent. Needless to mention, the Service Tax Registration of individual assessees for collection of Service Tax is PAN based, hence, collection of Service Tax from one of the co-owners, against his individual Registration for the total rent received by all co-owners separately, is neither supported by law nor by laid down procedure. Thus, it is difficult to accept the proposition advanced by the Revenue that all the co-owners providing the service of renting of immovable property be considered as an association of persons and the Service Tax on the total rent be collected from one of the co-owners. Another argument of the Revenue is that since the property is indivisible and not earmarked against each of the co-owners, hence the Service Tax is leviable on the total rent received against the said property without apportioning against each of the co-owners in proportion to their share. We find fallacy in the said argument of the Revenue. Conceptually Service Tax is levied on the service provided, which is an intangible thing and hence it is not necessary to be identified with physical demarcation of the immovable property given on rent against individual co-owners. Once the value of service provided by a service provider is ascertainable Service Tax is accordingly charged. This Tribunal in similar facts and circumstances in the cases of Deoram Vishrambhai Patel, Anil Saini & Others and Luxmi Chaurasia (supra) after considering the issues raised, rejected the contention of the Revenue and allowed the benefit of exemption Notification No. 6/2005-S.T., dt.1-3-2005 as amended to individual co-owners who jointly owned the property and provided the service of renting of immovable property, and received the rent in proportion to the shares in the immovable property.

10. In the result, the impugned orders are set aside and the appeals are allowed with consequential relief, if any, as per law.

In the case of Deoram Vishrambhai Patel (Supra), Tribunal has passed following order:

6. We have considered the submissions made by both sides and perused the records. The issue that needs to be decided in this case is whether the respondent and his brothers are to be treated as association of persons or other vise and service tax liability on it arises, should be confined without the benefit of the Notification No. 6/2005-S.T.

7. It is undisputed that the property which has been rented out by the respondent and his brothers is jointly owned property; Service Tax liability arises on such renting of property.

8. On deeper perusal of impugned order, we find that the first appellate authority has considered all the angles in the dispute and came to the correct conclusion. The findings of first appellate authority is as under.

“6.2 On mere reading of the Order-in-Original, it is evident that the adjudicating officer has considered above named four persons as one person for determining tax liability and imposition of penalties without telling any legal basis for doing so. The appellants have contested the Order in Original mainly on the grounds that rented property belongs to four separate persons (all brothers) but the service tax has been demanded wrongly by the department from the appellants by clubbing the rent received by all the co-owners and, therefore, the demand off tax is not maintainable on this ground alone. In support they have produced a City Survey Extract as evidence regarding ownership of the rented property which shows that the said property was purchased in 2003 and is owned jointly by all the four co-owners. Further, the lease agreements with M/s. Max New York Life Insurance Co. Ltd., Oriental Bank of Commerce, Axis Bank, Kotak Mahindra Bank and HDFC Standard Life Insurance Ltd. are also entered into by the appellants in their individual capacity, as per SCN also, all four co-owners have obtained separate Registration Certificate on 10-4-2012 and all the four co-owners individually paid their Service tax liability along with interest on 14-2-2012. Thus, the ownership of the Property and providing of taxable renting of immovable Property by the four appellants in this case is in their individual capacity and, therefore, their tax liability should have been determined by considering their individual rental receipts and not collective one. From the various lease agreements made with above mentioned Commercial firms, it cannot be disputed that monthly rent was paid by the above named concerns to each appellant after deducting tax at their end.

6.3 From the show cause notice dated 19-10-2012, it is evident that the appellants had received rent as detailed below:-

Sr. No.PeriodAmount (Rs.)
12007-08 (1-6-2007 to 31-3-2008)Rs. 29,21,048/-
22008-09Rs. 36,27,024/-
32009-10Rs. 46,72,744/-
42010-11Rs. 52,63,304/-
52011-12Rs. 44,28,360/-

But as the rent was distributed equally among each of the appellant, it is evident that each of them received an amount lesser than Rs. 8 lakhs and 10 lakhs in the years 2007-08 and 2008-09 respectively which is below the exemption limit of eight lakhs and ten lakhs during the relevant period. The appellants were, therefore, not liable to pay service tax on the amounts received by them during these two years by virtue of Notification No. 6/2005-S.T., dated 1-3-2005. The appellant’s case is also supported by the Tribunal’s decision in the case of Dinesh K. Patwa v. CST, Ahmedabed which is referred in Para 3(ii) above. However, in the Financial Year 2009-10 and 2010-22, the receipt off rent by each appellant exceeded the statutory exemption limit of Rs. 10 lakhs and the appellants have paid service tax along with interest on their own before receipt of SCN. This fact is not disputed by the department also and no additional tax liability has been worked out for the said period in OIO.

6.4 Since the appellants were individually liable to pay service tax and eligible for the exemption under general exemption Notification 6/2005-S.T., dated 1-3-2005 during the period 2007-08 and 2008-09, no service tax was payable during the said period. Hence, the question of penalty under Section 76 for the said period does not arise. For the subsequent period i.e. 2009-10 & 2010-11, the appellants have already accepted their tax liability and paid Service tax along with interest on 14-2-2012. The said payment of service tax is certainly a delayed payment, but was made by the appellants on their own when they realized that their taxable value for renting of property had exceeded the exemption limit of Rs. 10 lakhs. The adjudicating authority has claimed in his order that the appellants paid service tax only after Department started investigation, but it is not supported by any evidence or the facts on record. The SCN or the OIO do not talk of any audit objection or Preventive action or any Inspection etc. on the basis of which not payment of service tax by the appellants was pointed out. Instead in the SCN, one statement of Shri Chandulal Vishrambhai Patel is only referred to which was recorded on 22-2-2012 which is 8 days after the appellants had paid service tax along with interest on their own. Thus, the claim of the appellant that they had paid service tax for the years 2009-10 and 2010-11 on their own initiative and there was no suppression of facts etc. on their part with any intention to evade service tax cannot be denied. Considering all these facts, I agree with the appellant’s contention that this case was squarely covered under sub-section (3) of Section 73 which provided not to issue any notice under sub-section (1) of Section 73 if the service tax not levied or paid was paid along with interest by the person concerned before service of notice on him and informed the Central Excise Officer of such payment in writing. Further in Explanation 2 of the said sub section it is also clearly provided that no penalty under any of the provisions of the Act or the Rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. Hence, in fact no SCN was required to be issued in this case for recovery of service tax and imposition of penalty and even when it has been issued, no penalty under Section 76 or 78 is imposable in this case for the period 2009-10 and 2010-11.”

9. It can be seen from the above reproduced findings of the first appellate authority, the conclusion arrived at is very correct, as co-owners of the property cannot be considered as liable for a Service Tax jointly or severally as Revenue has took identify the service provider and the service recipient for imposing service tax liability, which in this case, we find our individual. The conclusion arrived at by the first appellate authority is correct and he has confirmed the demand raised on the respondents by extending the benefit of Notification No. 6/2005-S.T. We do not find any reason to interfere in such a detailed order.

10. Since the respondents are not in appeal against the said impugned order against the imposition of penalty under Section 77 of the Finance Act, 1994 the order to that extent needs to be a upheld.

11. The appeal filed by the Revenue to the extent its challenges the impugned order is devoid of merit and liability to be rejected and we do so.

12. The appeal is rejected.

In case of Anil Saini Vs. CCE-Chandigarh-I (Supra) vide final order No. A/61723-61729/2016 = 2017-TIOL-1234-CESTAT-CHD the Tribunal observed as under:

“3.After hearing both the sides, considering the fact that the issue has already been dealt by this Tribunal in the case of CCE, Nasik v. Deoram Vishrambhai Patelreported in 2015 (40) S.T.R. 1146 (Tri.-Mumbai) = 2015-TIOL-1936-CESTAT-MUM, wherein this Tribunal observed as under :

We have considered the submissions made by both sides and perused the records. The issue that needs to be decided in this case is whether the respondent and his brothers are to be treated as association of persons or other vise and service tax liability on it arises, should be confined without the benefit of the notification No. 6/2005-S.T.

6. It is undisputed that the property which has been rented out by the respondent and his brothers is jointly owned property; service tax liability arises on such renting of property.

7. On deeper perusal of impugned order, we find that the first appellate authority has considered all the angles in the dispute and came to the correct conclusion. The findings of first appellate authority is as under.

8. On mere reading of the Order-in-Original, it is evident that the adjudicating officer has considered above named four persons as one person for determining tax liability and imposition of penalties without telling any legal basis for doing so. The appellants have contested the Order in Original mainly on the grounds that rented property belongs to four separate persons (all brothers) but the service tax has been demanded wrongly by the department from the appellants by clubbing the rent received by all the co-owners and, therefore, the demand of tax is not maintainable on this ground alone. In support they have produced a City survey Extract as evidence regarding ownership of the rented property which shows that the said property was purchased in 2003 and is owned jointly by all the four co-owners. Further, the lease agreements with M/s. Max New York Life Insurance Co. Ltd., Oriental bank of Commerce, Axis Bank, Kotak Mahindra Bank and HDFC Standar Life Insurance Ltd. are also entered into by the appellants in their individual capacity, as per SCN also, all four co-owners have obtained separate Registration Certificate on 10-4-2012 and all the four co-owners individually paid their service tax liability along with interest on 14-2-2012. Thus, the ownership of the Property and providing of taxable renting of immovable Property by the four appellants in this case is in their individual capacity and, therefore, their tax liability should have been determined by considering their individual rental receipts and not collective one. From the various lease agreements made with above mentioned Commercial firms, it cannot be disputed that monthly rent was paid by the above named concerns to each appellant after deducting tax at their end.

“6.2 From the show cause notice dated 19-10-2012, it is evident that the appellants had received rent as detailed below:

6.3

Sr. No.PeriodAmount (Rs.)
1.2007-08 (1-6-2007 to 31-3-2008)Rs. 29,21,048/-
2.2008-09Rs. 36,27,024/-
3.2009-10Rs. 46,72,744/-
4.2010-11Rs. 52,63,304/-
5.2011-12Rs. 44,28,360/-

But as the rent was distributed equally among each of the appellant, it is evident that each of them received an amount lesser than Rs. 8 lakhs and 10 lakhs in the years 2007-08 and 2008-09 respectively which is below the exemption limit of eight lakhs and ten lakhs during the relevant period. The appellants were, therefore, not liable to pay service tax on the amounts received by them during these two years by virtue of Notification No. 6/2005-S.T., dated 1-3-2005. The appellant’s case is also supported by the Tribunal’s decision in the case of Dinesh K. Patwa v. CST, Ahmedabed which is referred in para 3(ii) above. However, in the Financial Year 2009-10 and 2010-22, the receipt of rent by each appellant exceeded the statutory exemption limit of Rs. 10 lakhs and the appellants have paid service tax along with interest on their own before receipt of SCN. This fact is not disputed by the department also and no additional tax liability has been worked out for the said period in OIO.

Since the appellants were individually liable to pay service tax and eligible for the exemption under general exemption Notification 6/2005-S.T., dated 1-3-2005 during the period 2007-08 and 2008-09, no service tax was payable during the said period. Hence, the question of penalty under Section 76 for the said period does not arise. For the subsequent period i.e. 2009-10 6.4 & 2010-11, the appellants have already accepted their tax liability and paid Service tax along with interest on 14-2-2012. The said payment of service tax is certainly a delayed payment, but was made by the appellants on their own when they realized that their taxable value for renting of property had exceeded the exemption limit of Rs. 10 lakhs. The adjudicating authority has claimed in his order that the appellants paid service tax only after Department started investigation, but is not supported by any evidence or the facts on record. The SCN or the OIO do not talk of any audit objection or Preventive action or any inspection etc. on the basis of which not payment of service tax by the appellants was pointed out. Instead in the SCN, one statement of Shri Chandulal Vishrambhai Patel is only referred to which was recorded on 22-2-2012 which is 8 days after the appellants had paid service tax along with interest on their own. Thus, the claim of the appellant that they had paid service tax for the years 2009-10 and 2010-11 on their own initiative and there was no suppression of facts etc. on their part with any intention of evade service tax cannot be denied. Considering all these facts, I agree with the appellant’s contention that this case was squarely covered under sub-section (3) of Section 73 which provided not to issue any notice under sub-section (1) of Section 73 if the service tax not levied or paid was paid along with interest by the person concerned before service of notice on him and informed the Central Excise Officer of such payment in writing. Further in Explanation 2 of the said sub section it is also clearly provided that no penalty under any of the provisions of the Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. Hence, in fact no SCN was required to be issued in this case for recovery of service tax and imposition of penalty and even when it has been issued, no penalty under Section 76 or 78 is imposable in this case for the period 2009-10 and 2010-11.”

It can be seen from the above reproduced findings of the first appellate authority, the conclusion arrived at is very correct, as co-owners of the property cannot be considered as liable for a Service Tax jointly or severally as Revenue has identify the service provider and the service recipient for imposing service tax liability, which in this case, we find our individual. The conclusion arrived at by the first appellate authority is correct and he has confirmed the demand raised on the respondents by extending the benefit of Notification No. 6/2005-S.T. We do not find any reason to interfere in such a detailed order. 9.

4.We further take note to the fact that for the subsequent period the appellants have been granted the benefit of the Notification No. 06/2005-S.T., dated 1-3-2005 ibid.

5.In that circumstances, we hold that the demand of service tax is not sustainable as the appellants are entitled for benefit of Notification No. 06/2005-S.T., dated 1-3-2005 ibid, therefore, the impugned orders are set aside. The appeals are allowed with consequential relief, if any.”

5. In view of decision on the identical issue, the issue in hand is no more under dispute, hence settled. Accordingly, we set aside the impugned orders and allow the appeals in the above terms. MA also stand disposed of.

(Operative Portion of the order pronounced in the open court)

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