Special Reports

Judgement of the Hon'ble High Court of Delhi - No Service tax on Renting

May 13, 2009

Sub:   Judgement of the Hon’ble High Court of Delhi  - No Service tax on Renting

Dear Sir/Madam,
 
Members may be aware that Hon’ble High Court of Delhi had delivered a landmark judgement on 18th April, 2009 in WP(C) 1659/2008 and others - Home Solution Retail India Ltd. and Ors. Vs. Union of India and in the matter of Service Tax of Immovable Properties. The Hon’ble Court  has held that the renting of immovable property for use in the course of furtherance of  business or commerce  would not by itself  constitute a taxable service and hence not subject to service tax under Section 65 (105) (zzzz) of the Finance Act 1994.
 
The High Court has considered a question whether renting of immovable property for  business or commerce by itself constitute a service and held that insofar as renting of immovable property for business or commerce is concerned, we are unable to discern in value addition, therefore, can not regarded as a service. However, the Hon’ble Court has held  if some other services such as air-conditioning service being provide along with renting of immovable property, then it would fall within Section 65(105) (zzzz)  of the Finance Act 1994.

The operative part of the judgment is reproduced below for your perusal:


35.From this analysis, it is clear that we have to understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service. There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to service tax. The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service. We have already seen that service tax is a value added tax. It is a tax on the value addition provided by some service provider. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value addition. Consequently, the renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of course, if there is some other service, such as air conditioning service provided along with the renting of immovable property, then it would fall within Section 65(105)(zzzz).

36.In view of the foregoing discussion, we hold that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se, they are set aside.

37.Before parting with this batch of cases, we would like to observe that we have not examined the alternative plea taken by the petitioners with regard to the legislative competence of the Parliament in the context of Entry 49 of List II of the Constitution of India. Such an examination has become unnecessary because of the view we have taken on the main plea taken by the petitioners as indicate above.

38.The writ petitions are allowed to the extent indicated above. The parties are left to bear their own costs.