Icai rajkot - real estate - 08.06.2014

K.VAITHEESWARANADVOCATE & TAX CONSULTANT

Flat No.3, First Floor,No.9, Thanikachalam Road,

T. Nagar, Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing, House of Lords,

15/16, St. Marks Road,Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876 E-mail : [email protected], [email protected]

SERVICE TAX ONREAL ESTATE TRANSACTIONS

Section 65B(44) defines “service” to mean any activity carried out by a person for another for consideration and includes a declared service, but shall not include –

(a) an activity which constitutes merely, - (i)a transfer of title in goods or immovable

property by way of sale, gift or in any other manner;(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

K.Vaitheeswaran - All Copyrights Reserved

Service includes a declared service but does not include an activity of transfer of title in immovable property by way of sale, gift or in any other manner.

Section 66E(b) while setting out declared services covers construction of a complex, building, civil structure or part thereof including a complex or building intended for sale to a buyer wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.

Sale of an immovable property is excluded Construction of a complex where monies are received

before issue of completion certificate is a declared service.


No more complex definition of construction of complex Whether Macro Marvel decision is still relevant? Notification No. 25/2012 dated 20.06.2012 w.e.f.

01.07.2012 exempts services by way of construction, erection, commissioning or installation of original works pertaining to a single residential unit other than as a part of a residential complex (Entry 14 (b)).

Residential complex is defined to mean “any complex comprising of a building or buildings having more than one single residential unit.”

Single residential unit means a self contained residential unit which is designed for use wholly or principally for residential purposes for one family.


Original works means: (i) all new constructions; (ii) All types of additions and alterations to

abandoned or damaged structures on land that are required to make them workable.

(iii) Erection, commissioning or installation of plant, machinery or equipment or structures whether pre- fabricated or otherwise.


Activity TaxabilityConstruction of a complex comprising of more than one residential unit

Taxable

Construction of a single bungalow of a size of 5000 sq. ft. meant for a family

Not taxable

Construction of a two unit building with separate floor plans and paid for separately by two brothers

Taxable?

Construction of 50 villas in a gated community

Taxable?

Alteration and re-modeling of an existing single residential unit

Taxable if not in the nature of original works


Earlier provision required a complex to have more than 12 residential units.

New provision creates a liability for any construction of complex unless it is a single residential unit.

Construction of a complex comprising of 6 apartments has started on 01.01.2012 and 30% of the monies have been received under agreements.

Martin Lottery decision. No tax position Proportionate tax position Can monies received earlier now be subjected to tax

based on Point of Taxation Rules ?


Determination of service tax liability for a developer who receives money before issuance of completion certificate.

In the earlier system developers were discharging service tax on 33% of the value without cenvat credit benefit under Notification No.1/2006.


DESCRIPTION OF TAXABLE SERVICE

PERCENTAGE CONDITIONS

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority.(a)For a residential unit satisfying both conditions namely carpet area being less than 2000 sft. and amount charged being less than Rs.1 crore.(b) Other than (a)

25

30

(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The value of land is included in the amount charged from the service receiver.


Joint VentureDifferent modelsMonetary share / share of

constructed area Is the contractor liable to pay

service tax on construction done for the land owner?


An agreement between the owner of a land and a builder for construction of apartments and sale of those apartments so as to share the profits may be a joint venture, if the agreement discloses an intent that both parties shall exercise joint control over the construction/development and be accountable to each other for their respective acts with reference to the project.

On facts there is a contract for construction of an apartment and there is consideration for such construction flowing from the land owner to the builder (in the form of sale of undivided share in the land and permission to construct and own the upper floors).

The land owner is the consumer, builder is the service provider.

Tax on same rate as charged on other buyers

Tax on average rate Tax on construction cost Tax payable by adopting value of UDS

transferred Decision of the Supreme Court – (Faqir Chand

Gulati Vs. Uppal Agencies Pvt. Ltd.) Consumer case.


Chennai Tribunal in the case LCS City Makers Vs. CST (2012) TIOL 618 has held that:

(a ) there is no infirmity in adopting value of the flats sold for value of flats allotted to land owners.

(b) guideline value of land cannot be adopted. (c) Contention that consideration received other

than in the form of money prior to 19.04.2006 not acceptable as substantial part of service was provided after valuation rules were notified.


The Chennai Tribunal in the case of Aswini Apartments (unreported) vide order dated 15.07.2013 on a similar issue remanded the matter back to the adjudicating authority to give a ruling on the legal issues raised. One of the legal issues raised was that in respect of land owner share the consideration would be the notional value received for the value of undivided share of land obtained from the land owner. This decision was rendered after the decision of LCS.

The Commissioner (Appeals), Chennai in the case of Navin Housing and Promoters Pvt. Ltd. in O-i-A No.209/2010 dated 10.12.2010 has held that where the land owner is given any constructed area as part of the joint venture, service tax is not applicable on landowner share.

Board Circular dated 151/2/2012 dated 10.02.2012 - the value of similar flats as are sold nearer to the date on which land is being made available

Developer is likely to recover the service tax in respect of the apartments allocated to the landowner.

If landowner markets these apartments prior to issue of completion certificate and receives money in advance, service tax exposure.

If landowner executes a single sale deed for the apartment and the land?


Where the document that is executed is in the nature of an agreement for transfer and possession is handed over as part performance as contemplated in Section 53A of the Transfer of Property Act, 1882 then there is a transfer and capital gains would arise immediately. This would be evident in a situation where the developer settles the consideration in the form of money or monies worth on an outright basis and the land owner has no relevance or say in the development work.


Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT (2003) 260 ITR 491, has in the context of development agreements held that the year of taxability is the year in which the contract is executed. The Court held that in the case of development agreement one cannot go by substantial performance of the contract and the year of chargeability would the year of execution.

The decision of the Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia was distinguished by the Bombay Tribunal in the case of ACIT Vs. Mrs. Geetha Devi Pasari (104 TTJ 375)

The Pune Bench of the Tribunal in the case of Mahesh Nemichandra Vs. ITO (2012) TIOL 408 has held that where the assessee forms a JV with a builder for development of property and enters into an irrevocable agreement the date of the Agreement would be the date of transfer .

The Mumbai Tribunal in the case of Hillside Construction Co. Vs. DCIT (2012) TIOL 516 has held that where developments rights were parted the entire amount became due on signing of the development agreement and handing over of possession of the land. Postponement of payment does not stop accrual of income.


Chennai Tribunal in Mount Mettur Pharmaceutical (2008 TIOL 657) has held that when vacant possession of undivided share of land Is handed over on 16.04.1996, the transfer took place on 16.04.1996.

AAR in Jasbir Singh Sarkaria (294 ITR 196) has ruled that for Section 2(47)(v) to apply there must be a transaction under which the possession of immovable property is allowed to be taken or allowed to be retained. What is contemplated is a transaction which has a direct and immediate bearing on allowing possession to be taken in part performance of the contract of transfer. It is at that point of time the deemed transfer takes place.

Hyderabad Bench of the Tribunal in the case of Akkineni Nagarjuna Rao (2012) 52 SOT 23 has held that where a plot of land was given for development to the developer under an agreement with a promise by the developer to handover 35% of the built up area, it is a case of transfer since possession of the land had been handed over.

Chennai Bench of the Tribunal in the case of Vijaya Productions (2012) 134 ITD 19 has held that when possession is not taken and the power is only to enable contractual obligations in planning and development there is no transfer.

(i) If possession is handed over to the developer on the date of signing the development agreement then in the light of the various decisions referred to above and in the absence of an alternative view emerging in a higher forum, transfer would take place on the date of execution of the development agreement.

(ii) If possession of property as well as the right to deal with the property in any manner is granted through a power of attorney at a later point of time and the agreement refers to this aspect as a specific future transaction to be consummated on the happening of an event, then the year of taxability would be the year in which the said transaction takes place.

(iii) Where transfer takes place by virtue of any of the trigger points, the land owner can take recourse to Section 50D and adopt the fair market value as the consideration for the purpose of calculating capital gains.

Date of possession Conflict between developer and

landownerPostponement of date of possession

from a capital gain perspective may result in higher service tax liability.

Section 65B(54) of the Finance Act, 1994 defines ‘works contract’ as under:-“ Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.”


In the earlier regime only select works contracts were covered under the service tax levy.

In the new regime all works contracts are taxable.

Repair and maintenance is also considered as a works contract.


Value of service portion = Gross amount charged for the works contract Less the value of property in goods transferred in the execution of the said works contract.

Gross amount shall not include VAT. Value shall include labour, amount paid to sub-contractor

for labour and services, charges for planning, design, architect, hire, cost of consumables, cost of establishment, similar expenses and profit relatable to supply of labour and service.

Where VAT has been paid on the actual value of the property in goods transferred in the course of execution of WCT then such value adopted for VAT shall be taken as value of property in goods for determination of value of services.


CATEGORY VALUEWCT for execution of original works

40% of the total amount charged

WCT for maintenance or repair or reconditioning or restoration or servicing of any goods.


Other WCTs not covered above including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tile, installation of electrical fittings of an immovable property.


Cenvat credit is not available on inputs.


When Section 65B(44) excludes specifically transfers referred to in Article 366(29A), can Rule 2A create a higher liability including the goods portion.

For certain contracts under the VAT Law, 85% is accepted as goods portion and 15% is accepted as labour portion. For the same contract, under the Service Tax Law, labour portion is 40%.

For maintenance contracts, 70% is adopted as service value under service tax law and VAT law adopts 70% as material value.


The Supreme Court in the case of Raheja Development Corporation had observed that an agreement entered into by a developer before the construction is complete is a works contract.

This decision was doubted by the Supreme Court and the matter was referred to the Larger Bench in the case of Larsen & Toubro Ltd. Vs. State of Karnataka.

The Larger Bench vide decision dated 26.09.2013 has rendered a landmark decision which will have far reaching implications for the real estate industry.

Raheja Development entered into development agreements with landowners.

Raheja Development entered into agreements of sale with intended purchasers.

The agreements provided that on completion of construction the residential apartments or commercial complexes would be handed over to the purchasers who would get an undivided interest in the land also.

The owners of the land would then transfer the ownership directly to the society formed under the Karnataka Ownership Flat (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972

The definition of works contract included any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.

Three conditions must be satisfied for the levy namely

(a) There must be a works contract(b) The goods should have been involved in

the execution of the works contract(c) The property in those goods must be

transferred to a third party either as goods or in some other form.

If the developer has received or entitled to consideration all the three conditions are fully met.

In the performance of the contract for construction, the goods are intended to be incorporated in the structure even though they lost their identity as goods.

Where a contract comprises of both works contract and transfer of immovable property such contract does not alter the status of being a works contract.

A contract may involve both a contract of work and labour and a contract for sale.

Even if the dominant intention is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contracts.

Taxing the sale of goods element in WCT is permissible even after incorporation of goods provided the tax is directed on the value of goods and does not purport to tax the transfer of immovable property. The value of goods which can constitute the measure for levy of tax has to be the value of goods at the time of incorporation of the goods in the works even though the property passes as between the developer and the flat purchaser after incorporation of goods.

It is not correct to say that the work is undertaken by the developer for himself and for the owner and the construction is not carried on for and on behalf of the purchaser.

If at the time of construction and until construction is completed there is no contract for construction of the building with the flat purchaser, the goods used in construction cannot be deemed to have been sold by the builder since at that time there is no purchaser.

The expression ‘in any other form’ is of utmost significance. Goods which have by incorporation become part of immovable property are deemed as goods.

The ultimate transaction between the parties may be sale of flat but it cannot be said that the characteristics of WCT are not involved in that transaction. When the transaction involves the activity of construction factors such as, the flat purchaser has no control over the materials to be used or he does not get a right to monitor construction or has a say in design or layout are not of significance.

It cannot be said to be an absolute proposition in law that ownership of the goods must pass by way of accretion or exertion to the owner of the immovable property to which they are affixed or on which the building is built.

In the light of this decision, the argument that the developer is providing only a self service becomes questionable.

If the construction agreement between the developer and the purchaser is a works contract, what will happen to the disputes for the period prior to 01.07.2010.

Prior to 01.07.2010, Department has issued show cause notices under ‘construction of complex’ and not under ‘works contract’.

If agreement between developer and purchaser is a WCT for VAT purposes based on decision of L&T then it is also WCT for service tax purposes.

Service tax at the rate of 12.36% on 40% of the construction agreement?

Is there any difference between construction of complex as a category and works contract service since both categories are considered as declared services in terms of Section 66E?

Assuming land value is Rs.50 lakhs and construction consideration is Rs.1 crore, under construction of complex service, service tax is payable at rate of 12.36% on 30% of Rs.1.5 crores that is Rs.5,56,200/-.

Under works contract service, service tax is payable at the rate of 12.36% on 40% of Rs.1 crore that is Rs.4,94,400/-.

Cenvat credit effect is neutral in both systems since credit is available on capital goods and input services and not available on inputs.

Composite contract for manufacture, supply and installation of lifts in a building – whether it is a contract for sale of goods or a works contract.

A Five Member Bench of the Supreme Court in the case of Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu (2014) 34 STR 641 has held as under:-

Works contract is an indivisible contract but by legal fiction it is divided into two parts, one for sale of goods and the other for supply of labour and services.

The concept of dominant nature test for treating a contract as a works contract is not applicable.

Works contract under Article 366(29A) takes within its sweep all genre of works contract.

Once the characteristics of works contract are met in a contract, any additional obligation in the contract would not change the nature of the contract.

A lift is not a plant which is erected at site. Without installation the lift cannot be mechanically functional. Installation of lift in a building is a composite contract.

In L&T the Bench has held that the ultimate transaction between the parties may be the sale of a flat but it cannot be said that the characteristics of WCT are not involved in that transaction.

If the contract is a composite contract falling within the definition of WCT under Article 366(29A), the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract.

It is necessary to state that if there are two contracts namely purchase of the components of the lift from the dealer, it would be a contract for sale and similarly if separate contract is entered into for installation that would be a contract for labour and service. But a pregnant one, once there is a composite contract for supply and installation it has to be treated as a works contract for it is not a sale of goods / chattel simpliciter.

The Mumbai Bench of the Tribunal in the case of ITO Vs. Mrs. Chetana H. Trivedi (2012) TIOL526 has held that the right to construct building on the said plot of land by consuming FSI and the right as a receiving plot owner to load TDR over and above the normal FSI, are rights which accrue to the assessee by virtue of the development control regulation for Greater Bombay. These are rights over property, which are capital assets within the meaning of the definition of capital assets under section 2(14). The consideration received by the assessee was for transfer of rights over such asset and same would fall under Section 45.

The Mumbai Bench of the Tribunal in the case of ACIT vs. Ishverlal Manmohandas Kanakia ITA No. 3053 & 2650/Mum/2010 has held that the receipts on assignment of FSI including originating from the plot of land and/or married to it and right to load consume and use FSI credit by way of TDR which was the subject matter of transfer by the Assessee was a capital asset in respect of which the cost of improvement could not be ascertained and therefore the receipts of consideration for transfer of the said rights cannot be brought to tax as the said receipts will be capital receipts and not capital gain.

The Bombay High Court in the case of Chheda Housing Development Corpn., a Partnership firm Vs. Bibijan Shaikh Farid & Ors. (2007) (3) MHLJ 402 (Bom.) dealing with specific performance of Agreement for use of TDR held that FSI/TDR are benefits arising from the land consequently must be held as immovable property. The Court observed that an immovable property under the General Clauses Act, 1897 under section 3(26) has been defined as to include benefits arising out of land. Therefore, if there is any benefit which arises out of the land, then it is immovable property.

The Mumbai Bench of the Tribunal in the case of Jethalal D. Mehta Vs. DCIT (2005) 2 SOT 422 (Mum.), following the judgment of Apex court in CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) held that TDR granted by DCR, 1991 qualifying for equivalent F.S.I. having no cost of acquisition, sale thereof gives no rise to capital gains.

The Mumbai Bench of the Tribunal in the case of ITO Vs. Lotia Court Co-operative Housing Society Ltd. (2008) TIOL 404, held that the assignment of the TDRs to the developer and in turn the additional floors to be constructed and also repairs/renovation of the building to be carried out, does not result in to accrual of any income in the hands of the assessee society, who is not the owner of the plot. Even in the case of flat owners who owned the individual flats in the respective names, there is no question of taxability of receipt on account of sale of additional floor space index received by the assessee by virtue of transfer of TDRs under the Development Control Regulation for Greater Mumbai, 1991. Receipt on sale or assignment of rights to receive TDRs is held not liable to tax.

The Mumbai Bench of the Tribunal in the case of New Shailaja CHS vs. ITO (ITA NO 512/M/2007.BENCH B dated 2nd Dec., 2008 (Mumbai) wherein the assessee, a Co-op. Housing Society became entitled, by virtue of the Development Control Regulations, to Transferable Development Rights (TDR) and the same were sold by it for a price to a builder, it was held that though the TDR was a ‘capital asset’, as there was no ‘cost of acquisition’ for the same, the consideration could not be taxed as capital gains.

Can TDR be considered as goods? The Supreme Court in the case of Yasha Overseas Vs.

Commissioner of Sales Tax (2008) TIOL 97 SC-CT has held that DEPB like REP license clearly goods within the meaning of sales tax laws and it sale exigible to tax.

The Commissioner under Section 85 of the Delhi VAT Act has issued a Ruling to the effect that Certified Emission Reductions (CER) commonly known as ‘Carbon Credit’ are goods.

If TDR is considered as immovable property, there is no service tax.

If TDR is considered as goods there is no service tax but VAT / CST applicability has to be addressed.

The Tribunal in the case of Nitesh Estates Limited Vs. Commissioner of Central Excise (2012) 26 STR 587 has held that construction of residential complex for their clients namely ITC Ltd who in turn allotted the apartment to its employees for residential use prima facie is not liable to service tax.

In terms of Section 65B(44) service means any activity carried out by a person for another for consideration and includes a declared service. In terms of Explanation 3, an unincorporated association or body of persons as the case may be and a member thereof shall be treated as distinct persons.

The principles of mutuality are yet to be tested in the new regime. However if the society does not recover anything more than the amounts paid to the contractors whether service tax is still payable by the society?

Stamp duty and registrationService taxVATVAT - TDSTDS under Section 194-IA

Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958;

(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;(e) pipeline, conduit or plant for

(i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act.

Original works means (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

Residential complex means any complex comprising of a building or buildings, having more than one single residential unit.

“Governmental Authority means an authority or a board or any other body:

(a) set up by an Act of Parliament or a State Legislature; or

(b) established by Government;with 90% or more participation by way of equity or control to

carry out any function entrusted to a municipality under Article 243W of the Constitution

Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-

(a) a road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

(c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961 and meant predominantly for religious use by general public;

(d) a pollution control or effluent treatment plant, except located as a part of a factory; or

(e) a structure meant for funeral, burial or cremation of deceased;

Services by way of construction, erection, commissioning, or installation of original works pertaining to,-

(a) an airport, port or railways, including monorail or metro;(b) a single residential unit otherwise than as a part of a

residential complex;(c) low- cost houses up to a carpet area of 60 square metres per

house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

(e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;Single residential unit means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family.Residential complex” means any complex comprising of a building or buildings, having more than one single residential unit.

Section 68(2) provides that in respect of such taxable services as may be notified the Government may specify that the tax shall be paid by such person in such manner at the rate specified in Section 66B and all the provisions of this Chapter shall apply to such person as if he is a person liable for paying service tax.

The proviso provides that the Government may notify the service and the extent of service tax payable by such person and the remaining part shall be paid by the service provider.

Nature of

Service

Status of Service Provider

Status of Service

Receiver

Percentage of Service Tax Payable

byService Provider

Service Receiver

Service portion in execution of works contract.

Individual / HUF /

Partnership Firm whether registered or not, including AOP located in the taxable territory to a business entity registered as a corporate located in the taxable territory.

Business entity registered as a body corporate.

50% 50%*

*The service recipient has the option of choosing the valuation method as per choice independent of the valuation method adopted by the provider.

Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

Activity Material + LabourPosition in VATSection 194CPast period VAT TDS

It is to be noted that the tax liability for the service provider and the service receiver respectively are independent. This is not like a TDS mechanism and would require discharging of the identified percentage of service tax.

Assuming, the reverse charge mechanism is applicable in respect of works contract service provided by a non-corporate body (individual or AOP or HUF or Partnership firm) and the bill is for Rs.1 lakh, the Company can calculate value as 40% and the service tax liability of the Company under reverse charge mechanism would be 50% of 12.36% calculated on 40% of the WCT value.

Assuming, reverse charge mechanism is applicable in respect of manpower services or security services provided by a non-corporate body and the bill is for Rs.1 lakh the service tax liability of the Company under reverse charge mechanism would be 75% of 12.36% on Rs.1 lakh.

10 Lakh exemption not available Payment should be made only by cash and not

through cenvat Amount paid can be taken as credit if otherwise

eligible and the challan is the cenvatable document

Payment by the provider in full may not insulate the receiver from liability to the extent of the receiver’s portion of tax

If service tax due on transportation of a consignment has been paid or is payable by a person liable to pay service tax, service tax should not be charged for the same amount from any other person, to avoid double taxation.

There is no dispute that service in question has suffered tax. The only dispute is the person who shall pay the service tax. When the treasury has not been affected by virtue of collection of service tax from the service provider as is the case of the Revenue and there is no legal infirmity in the decision of the learned Commissioner (Appeals) there cannot be double taxation of same service. But it is fact that realization of the service tax has been made from the service provider while the recipient of service of GTA has liability under the law. Finding no loss of revenue, as has been held by the learned Commissioner (Appeals), Revenue’s appeal is dismissed.

The Mumbai Bench of the Tribunal has held that once the amount of service tax is accepted by the revenue from the provider of GTA service it cannot be demanded again from the recipient of the GTA service.

The definition of ‘service’ excludes transfer of title in immovable property by way of sale, gift or in any other manner.

Immovable property not defined. Immovable property in terms of General Clauses Act

includes land, benefits to arise out of land, things attached to the earth or permanently fastened to anything attached to the earth.

Joint Development – Landowner / Developer perspective Can the transaction be seen as barter of land for

constructed apartments? Can the transaction be seen as a transfer of title in

immovable property from both sides?

Section 118 of the Transfer of Property Act provides that when two persons mutually transfers the ownership of one thing for the ownership of the other, neither thing or both things being money only, the transaction is called ‘an exchange’.

The Supreme Court in the case of CIT Vs. Motor & General Stores Pvt. Ltd. has held that a transaction in which the consideration for the transfer of certain properties are shares in a limited company is an exchange.

The Supreme Court in the case of CIT Vs. Rasiklal Maneklal (1989) 177 ITR 198 has held that an exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another.

Whether the flats to be exchanged exist at the time of the land being handed over?

Relinquishment of rights in immovable property. Whether it can be considered as merely transfer

of title in immovable property by way of sale, gift or in any other manner.

Scope of Section 66E(e) dealing with agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act.

Renting of immovable property The Supreme Court in the case of Member Board of Agricultural

Income Tax Vs. Sindhurani Chaudhurani (1957) 32 ITR 169 has held that salami in the form of a lump sum non-recurring payment made by a prospective payment to the landlord as a consideration for the settlement of agricultural land, paid anterior to the constitution of relationship of landlord and tenant is not ‘rent’.

The Mumbai Bench of the Income Tax Appellate Tribunal in the case of ITO Vs. Shah Group Builders Ltd. (2013-TIOL-751) has held that lease premium paid to CIDCO is not in the nature of rent contemplated under Section 194-I and the assessee was not liable to deduct tax at source.

The Chennai Bench of the Tribunal, however has taken a contrary position in the case of Foxconn and has held that Section 194-I is applicable. However, the Chennai Bench has not considered the angle that the development charges is not ‘rent’ but the consideration for the transfer of right to use the land. The provisions of Section 194-I would be attracted provided what is paid is in the nature of rent and rent is defined to mean any payment for the use of any land or building, etc.

In the context of service tax when tax was imposed on renting of immovable property through Section 65(105)(zzzz) of the Finance Act, 1994, the Tribunal at the stage of Stay Petition in the case of Greater Noida Industrial Developmental Authority Vs. CCE (2014) 33 STR 464 has observed that the ordinary meaning of ‘renting’ would not cover under long term leasing. The definition of renting to include letting, licensing, leasing, would suggest that leasing would not cover long term leasing where a property is given to a person with rights to transfer, assign and mortgage the rights. Developing a township according to a plan which would be conducive to society at large and maintaining municipal functions in such township has to be considered as a sovereign function of a Government and not a commercial activity of the Government.

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