In Home Solutions Retail India Ltd v Union of India, Delhi High Court decided that renting immovable property for the furtherance of business or commerce in itself does not entail value addition, and therefore cannot be regarded as a service liable to service tax.
The category of “renting of immovable property service” was introduced by the Finance Act, 2007, which brought renting, letting, leasing, licensing and other similar arrangements of immovable property for business and commerce purposes within the service tax net with effect from 1 June 2007.
Retailers such as Shoppers Stop, Home Solutions Retail, Lifestyle International, Fun Multiplex, Barista Coffee, real estate development company BPTP, and Bata India challenged the constitutionality of service tax on rent by the Department of Revenue on two grounds: first, that renting does not involve any service; and second, that the central government is not empowered to tax the transfer of rights in immovable property, since this is a state subject under the schedule to the Constitution of India.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in, lbhasin@vsnl.com or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
