Whether Charitable Institution liable to pay service tax on renting of immovable property?

PJ/CASE LAW/2014-15/2458

Case:-M/s SOCIETY OF ST JOSEPH'S COLLEGEVs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, TIRUCHIRAPALLI

Citation:-2014-TIOL-2230-CESTAT-MAD

Brief Facts:- The applicant is running various Educational Institutions like St. Joseph's College, St. Joseph's Higher Secondary School, St. Joseph's School of Management. Apart from that, they are also having commercial complexes, which are given on rent to various commercial concerns. There is a demand of service tax of Rs.77,55,977/- along with interest and penalty for the period 01.06.2007 to 31.12.2011 under the category of “Renting of Immovable Property Services”. There is further demand of Rs.3,75,477/- along with interest and penalty for the period 01.04.2007 to 31.12.2011 under the category of “Sale of Space or Time for Advertisement”.

Appellant contentions:- The learned Counsel on behalf of the applicant submits that in view of the definition of “Renting of Immovable Property” under Section 65(90a) of the Finance Act, 1994, renting of immovable property by a religious body as per their Bye Laws and the Adjudicating authority erroneously proceeded on the basis of Income-tax Law, which cannot be considered in view of the Board's Circular No.96/7/2007-ST, dated 23.08.2007. He further submits that the benefit under Income-tax Act was availed for the period upto 27.01.2009. It is submitted that the applicant is a minority Institution. He submits that the demand is partly barred by limitation. The demand for normal period is about Rs.22.67 lakhs. He submits that on an identical issue the Hon'ble Calcutta High Court in the case of Infinity Infotech Parks Ltd. Vs Union of India reported in2013 (31) S.T.R. 653 (Cal.) held that prima faciedemand of tax for extended period of limitation would not apply. He also relied upon the decision of the Kerala High Court in the case of K.M. Building Tenants Association Vs Kuthuparamba Municipality reported in 2013 (30) S.T.R.237 (Ker.). He submits that the balance amount of demand of tax is about Rs.3,00,000/- relating to ‘deemed sale' and no service tax is leviable.

Respondent Contentions:- On the other hand, the learned Authorised Representative on behalf of the Revenue reiterates the findings of the Adjudicating authority. He submits that the Tribunal on an identical issue had consistently directed pre-deposit of the entire amount of tax, following the Interim Order of the Hon'ble Supreme Court in the case of P.K. Hospitality Services P. Ltd. Vs Union of India reported in 2012 (26) S.T.R.J. 142 (S.C.) . He further submits that the said Interim Order was not placed before the Hon'ble Kerala High Court and the Hon'ble Calcutta High Court. He further submits that the main issue in this case is that the applicant had given on rent the commercial complexes to the various commercial concerns and, therefore, such activities cannot be taken as an exclusion part of the definition. The applicant was not registered as a religious body under the Societies Registration Act. Regarding the normal period, he submits that it would be about Rs.30,95,469/- as per ST-3 returns.

Reasoning of Judgment:- After hearing both sides and on perusal of the records, we find that the applicant had given on rent various commercial complexes to various commercial concerns. It is noticed that the applicant declared themselves a Charitable Trust under Income-tax Act. The CBEC's Circular, dated 23.08.2007 clarified that the assessee is eligible for exemption under Income-tax Act on the ground of being a Charitable Institution and is of no consequence or has any relevance for service tax purpose. In the present case, the facts remain that the demand of service tax is on the commercial complexes which was given on rent to various commercial concerns. It is also noted that by Interim Order, the Hon'ble Supreme Court in the case of P.K. Hospitality Services P. Ltd(supra) directed pre-deposit. For the purpose of proper appreciation, the relevant portion of the said Interim Order is reproduced below:-

“Leave granted.

The appeal will be heard in SLP Paper Books. Additional documents, if any, may be filed by the parties. Having heard the learned counsel for the appellants on the question of stay with regard to the arrears of service tax due as on 30th September, 2011, we direct that on each of the appellant's clearing all the arrears as on the said date in three equated instalments, on or before 1st March, 2012, 1st May, 2012 and 1st July, 2012, no coercive steps shall be taken against the appellants for recovery of the said arrears. However, in the event of default on the part of the appellants in deposit of any one of the instalments by the due date, it will be open to the respondents to recovery the entire amount in arrears forthwith. We clarify that there is no stay of imposition of service tax under sub-clause (zzzz) of clause 105 of Section 65 read with Section 66 of the Finance Act, 1994 (as amended), insofar as the future liability towards service tax with effect from 1st October, 2011 is concerned. Tag with Civil Appeal No.83900 of 2011.”

The Tribunal consistently directed pre-deposit of the entire amount of tax following the decision of the P.K. Hospitality Services P. Ltd.(supra). The submission of the learned Counsel that the applicant is a religious body, would be considered at the time hearing of the appeal at length. Considering the overall facts and circumstances of the case and dispute relates to leviability of tax, we direct the applicant to make a pre-deposit of Rs.35,00,000/- (Rupees Thirty Five Lakhs only) within a period of eight weeks. Upon deposit of the said amount, pre-deposit of balance adjudged dues shall remain waived and stay recovery thereof till disposal of the appeal. To report compliance on 5th November, 2014.

Decision:-Pre deposit ordered.

Comment:- The essence of the case is that the assessee is eligible for exemption under Income-tax Act on the ground of being a Charitable Institution is of no relevance for service tax purpose. Furthermore, following the ratio of the decision given in P.K. Hospitality P. Ltd. case, the pre-deposit of Rs. 30 Lakhs was ordered.

PREPARED BY:MEET JAIN

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PJ/CASE LAW/2014-15/2458

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