Service tax on renting of immovable property

The levy of service tax on the renting of immovable property for commercial use has been an issue of incessant controversy and litigation in India. It has been a subject matter of scores of writ petitions filed in various high courts and has caused a great deal of uncertainty for lessors and lesees of commercial properties.

Background

The levy of service tax on the renting of immovable property for commercial use was first introduced by the Finance Act, 2007, where services provided “in relation to” the renting of immovable property for use in the course or advancement of business or commerce were made liable to tax.

In this regard, Delhi High Court in Home Solutions Retail India Limited v Union of India had held that as service tax was a value added tax and since there is no value addition in renting a property, the renting of immovable property for business or commercial use was neither a service nor a taxable service. The high court had relied on the decision of the Supreme Court in All India Federation of Tax Practitioners v Union of India, and held that if some other service, such as air conditioning service, is provided along with the renting of immovable property, then it alone would be a taxable service and not the activity of renting per se.

Darshan Bora is an associate with Economic Laws Practice in Mumbai. He can be reached at darshanbora@elp-in.com