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INTRODUCTION

Immovable property is an immovable object, an item of property that cannot be moved without
destroying or altering it - property that is fixed to the earth, such as land or a house. In the United
States it is also commercially and legally known as real estate and in Britain as property. It is
known by other terms in other countries of the world.
Immovable property includes premises, property rights (for example, inheritable building right),
houses, land and associated goods, and chattels if they are located on, or below, or have a fixed
address. It is delimited by geographic coordinates or by reference to local landmarks, depending
on the jurisdiction.
In much of the world's civil law systems (based as they are on Romano-Germanic law, which is
also known as Civil law or Continental law), immovable property is the equivalent of "real
property"; it is land or any permanent feature or structure above or below the surface.
To describe it in more detail, immovable property includes land, buildings, hereditary
allowances, rights to way, lights, ferries, fisheries or any other benefit which arises out of land,
and things attached to the earth or permanently fastened to anything which is attached to the
earth. It does not include standing timber, growing crops, nor grass. It includes the right to
collect rent, life interest in the income of the immovable property, a right of way, a fishery, or a
lease of land.
Other sources describe immovable property as "any land or any building or part of a building,
and includes, where any land or any building or part of a building is to be transferred together
with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture,
fittings and other things also. Any rights in or with respect to any land or any building or part of
building (whether or not including any machinery, plant, furniture, fittings or other things
therein) which has been constructed or which is to be constructed, accruing or arising from any
transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative

society, or other association of persons) or by way of any agreement or any arrangement of


whatever nature, not being a transaction by way of sale, exchange or lease of such land, building
or part of a building."[citation needed]
Immovable property cannot be altered or remodeled, added to, or reconstructed without entering
into an agreement with and getting permission from its owner. Construction, alteration, and
demolition may also be subject to government regulation, such as the need to obey zoning laws
and obtain building permits.
Also, a property or an object, which can be moved by destroying it would be considered a
"destructible property" rather than an "immovable property".

SERVICE RELATING IMMOVABLE PROPERTY


Whilst most educational institutes were lucky to escape the service tax net when the Finance Act, 2010
sought to rest the raging controversy surrounding imposition of service tax on renting of immovable
property for commercial purposes in favour of the Revenue, their luck has finally run out.
Renting of immovable property to educational institutes will no longer be a service tax exempt service.
The Finance Act, 2012 ("FA 2012"), which has received Presidential assent on May 28, 2012, seeks to
overhaul the entire service tax regime by widening the ambit of India's service tax laws.
A paradigm shift is envisaged in the way services are proposed to be taxed in future. Taxation will be
based on what is popularly known as a "Negative List of Services", i.e., if an activity meets the
characteristics of a "service", it is taxable unless specified in the Negative List (which comprises of 17
heads listed in Section 66D of the FA2012) or otherwise exempted by a notification issued under the
Finance Act, 1994. Most of the 88 exemptions available at present, will be either rescinded, or modified
in some manner, or merged in a mega notification.
On and from the effective date of notification of the relevant provisions of the FA2012, any activity
carried out by a person for another for consideration, including 'declared services' but excepting those
specified in the 'Negative List' or exempted vide a specific notification (such as No.12/2012 dated March

17, 2012), shall be a 'service' and hence subject to service tax. The Government is expected to come out
with ten such exemption notifications including the one cited above. A gist of the proposed exemptions
has been provided in D. O. F. No 334/1/2012-TRU dated March 16, 2012 issued by Department of
Revenue, Ministry of Finance.
The exclusion granted to renting of immovable property to educational institutes imparting skill or
knowledge or lessons on any subject or field (other than commercial training or coaching centre) under
Section 65(90a) of the Finance Act, 1994, does not find mention, either under the 'Negative List' or under
the proposed exemption notifications referred to above.
In fact, what is interesting is that the Government, likely having learned from its previous harrowing
experience in defending the taxability of 'renting of immovable property', has included such services
within the definition of 'declared services' under Section 66E of the FA2012. 'Declared services' are
specifically included within the new all encompassing definition of 'service', to nip in the bud, any
controversies with respect to the taxability of such services.
The only breather likely to be available is the threshold level exemption upto Rs. 10 lacs (which is
anyway available vis--vis most services) and, possibly, deduction of property tax from the gross amount
charged for renting of immovably property.
Consequently, from the effective date of notification of the relevant provisions of the FA2012 relating to
service tax, all not-for-profit organizations such as a trust, society or a section 25 company, running
educational institutions will
have to cough up their share of service tax on leases/licenses/permissions obtained by them from real
estate entities (which are sometimes related parties and/or affiliates) for using immovable property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice
should be sought about your specific circumstances.

RENTING OF IMMOVABLE PROPERTY


.

INTRODUCTION
Renting of Immovable property has been taxed under the earlier tax regime vide Section 65
(105) (zzzz). Renting of immovable property has been brought into tax net vide Notification No.
23/2007-ST dated 01.06.2007. But After 1.7.2012, the transition involves shift from taxation of
119 service-specific descriptions to a new regime whereby all services will be taxed unless they
are covered by any of the entries in the negative list or are otherwise exempted. Accordingly as
per clause (44) of section 65B of the Act it has also been stated that service includes a declared
service. And Renting of Immovable property is the part of declared service.
2.

Renting of immovable property

(i) Only amount which is received in the nature of rent in respect of immovable property are covered
under declared service and accordingly service tax is applicable on such amount. So that I would like to
discuss that meaning of Renting which has been defined in Section 65B of finance Act, 1994.
(ii) If Security amount is received in respect of immovable property to service provider and such amount
is refundable amount then such amount shall not be treated as the part of service and accordingly service
tax is not applicable on such security amount.
(iii) But if Security amount is adjusted against the amount of rent then in such amount shall be treated as
the part of service and accordingly service tax is applicable on such adjusted amount.
(iv) If Electricity Charges is received in respect for supplying electricity in flats/shops (Charged on actual
basis) then such amount shall not be treated as the part of service and accordingly service tax is not
applicable on such electricity amount.
(v)

If Service provider also provides service of maintenance Service towards maintenance of

building/complex then in such case such service is treated as another service and accordingly service tax
is applicable on such service.

4.

Valuation

As Per N/N 29/2012, the taxable service of renting of an immovable property, from so much of the
service tax leviable thereon under section 66B of the said Finance Act, as is in excess of the service tax
calculated on a value which is equivalent to the gross amount charged for renting of such immovable
property less taxes on such property, namely property tax levied and collected by local bodies. Provided
that any amount such as interest, penalty paid to the local authority by the service provider on account of

delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes
of deduction from the gross amount charged. Provided further that wherever the period for which property
tax paid is different from the period for which service tax is paid or payable, property tax proportionate to
the period for which service tax is paid or payable shall be calculated and the amount so calculated shall
be excluded from the gross amount charged for renting of the immovable property for the said period, for
the purposes of levy of service tax.

Analysis
VALUE OF TAXABLE SERVICE= Gross Amount PROPERTY TAXES( On Proportionate
Basis)NOTE- INT AND PENALTY NOT DEDUCTIBLE
Example:Property tax paid for April to September = Rs. 12,000/-Rent received for April = Rs. 1, 00,000/-Service
tax payable for April = Rs. 98,000/- (1, 00,000 -12,000/6) * applicable rate of service tax 5. If Person
Liable to pay service tax has paid excess amount of service tax on account of non-availment of deduction
of Property tax Paid.
In Such Case, as per sub rule (4C) of Rule 6 of service tax rules, 1994 Where the person liable to pay
service tax in respect of services of renting of immovable property has paid to the credit of Central
Government any amount in excess of the amount required to be paid towards service tax liability for a
month or quarter, as the case may be, on account of non-availment of deduction of property tax paid in
terms of notification No. 29/2012 ice Tax , dated the 20th June, 2012, from the gross amount charged for
renting of the immovable property for the said period at the time of payment of service tax, the assessee
may adjust such excess amount paid by him against his service tax liability within one year from the date
of payment of such property tax and the details of such adjustment shall be intimated to the
Superintendent of Central Excise having jurisdiction over the service provider within a period of fifteen
days from the date of such adjustment.

Analysis

SELF- ADJUSTMENT OF S.TAX WITHIN 1 YEAR from the date of payment of such

property tax IF EXCESS S.TAX PAID DUE TO NON DEDUCTION OF PROPERTY TAX. The
details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction
over the service provider within a period of fifteen days from the date of such adjustment.

6.

Rate of Service Tax

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve percent. On the
value of all services, other than those services specified in the negative list, provided or agreed to be

provided in the taxable territory by one person to another and collected in such manner as may be
prescribed.

7.
6.

Abatement value
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for

residential or lodging purposes 60%

40%

CENVAT credit on inputs and capital goods, used for

providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
8.

Place of Provision of Service Rule

In this service place of provision of service is depends upon the following


situation:(i) Where Service Provider and Service receiver is situated in taxable-territory. As per Rule 8 of
Place of Provision of Service Rules, 2012 (Place of provision of services where provider and recipient
are located in taxable territory).- Place of provision of a service, where the location of the provider of
service as well as that of the recipient of service is in the taxable territory, shall be the location of the
recipient of service.
(ii) Where any one is (i.e. either Service Provider or Service receiver) is situated in non-taxable
territory and Renting Service is availed only for one Immovable Property. As per Rule 5 of Place of
Provision of Service Rules, 2012

(Place of provision of services relating to immovable property).The place of provision of services provided directly in relation to an immovable property, including
services provided in this regard by experts and estate agents, provision of hotel accommodation by a
hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable
property, services for carrying out or co-ordination of construction work, including architects or interior
decorators, shall be the place where the immovable property is located or intended to be located.
(iii) Where any one is (i.e. either organizer or Service receiver) is situated in non-taxable territory
and Renting Service is availed for more than one Immovable Property.
As per Rule 7 of Place of Provision of Service Rules, 2012
(Place

of provision of services provided at more than one location).- Where

any service referred to in rules 4, 5, or 6 is provided at more than one location, including a location in the
taxable territory, its place of provision shall be the location in the taxable territory where the greatest

proportion of the service is provided.

CASE 1:- if Service shall not be treat as import of service.

As per Rule 3 of Point of

Taxation Rules, 2011


Determination of point of taxation.- For the purposes of these rules, unless otherwise provided, point of
taxation shall be,- (a) the time when the invoice for the service provided or to be provided is issued:
Provided that where the invoice is not issued within the time period specified in rule 4A of the Service
Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service; (b) in a
case, where the person providing the service, receives a payment before the time specified in clause (a),
the time, when he receives such payment, to the extent of such payment. Provided that for the purposes of
clauses (a) and (b), (i) in case of continuous supply of service where the provision of the whole or
part of the service is determined periodically on the completion of an event in terms of a contract, which
requires the receiver of service to make any payment to service provider, the date of completion of each
such event as specified in the contract shall be deemed to be the date of completion of provision of
service; (ii)Wherever the provider of taxable service receives a payment up to rupees one thousand in
excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at
the option of the provider of taxable service, shall be determined in accordance with the provisions of
clause (a). Explanation .- For the purpose of this rule, wherever any advance by whatever name known,
is received by the service provider towards the provision of taxable service, the point of taxation shall be
the date of receipt of each such advance..

Covered Under Negative List


Renting of vacant land, with or without a structure + incidental to its use, relating to agriculture.
Renting of residential dwelling + for use as residence.
Renting out of any property by Reserve Bank of India.
Renting out of any property by a Government or a local authority to + a non business entity.
Sale of Space of Immovable Property for advertisement Purpose.
(ii)

Exempted Service

Covered Under Mega Exemption


Renting of precincts of a religious place meant for general public.
Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or
lodging purposes, having declared tariff
of a room below rupees one thousand per day or equivalent.
Renting to an exempt educational institution.

Whether Service Tax is Liable or Not

permitting usage of a property for a temporary purpose like conduct of a marriage or any other social
function

Service tax is Applicable

Renting of property to an educational body for the purpose of education Service tax is not applicable (As
Per Mega Exemption)
Renting of vacant land for animal husbandry or floriculture Service tax is not applicable (As Per Negative
List).
Permitting use of immoveable property for placing vending/dispensing machines Service tax is
Applicable
Allowing erection of a communication tower on a building for consideration. Service tax is Applicable
Renting of land or building for entertainment or sports

Service tax is Applicable

Renting of theaters by owners to film distributors (including under a profit-sharing arrangement) Service
tax is Applicable
Hotels/restaurants/convention centers letting out their halls, rooms etc. for social, official or business or
cultural functions Service tax is Applicable
Commercial Property For Commercial Use

Service tax is Applicable

Residential Property For Residential use

Service tax is not liable (As Per Negative List).

Residential Property For Commercial Use

Service tax is Applicable

I have a query.If a firm has charged rent p.a. Rs.7,00,000/- and taken a security deposit of Rs.70 lakhs.
The firm has given the only one property in rent and hence rent income is below thresold limit. Whether
the firm is liable to charge service tax from the tenant in view of higher amount of interest free security
deposit has taken ?
The applicability of the levy of service tax on renting of immovable property has generated a lot of
discussion and debate. The dispute on the propriety of the levy of such a service tax as contemplated by
the Finance Act, 2007 is sub- judice and is yet to be finally decided by the Supreme Court of India. In the
list of taxable services enumerated in the Bill was included service provided in relation to renting of
immovable property for use in the course or furtherance of business or commerce. Sub-clause (zzzz) of
Section 65 (105) The Finance Act, 2008 had inserted an explanation to the definition of immovable
property to clarify that renting of immovable property shall include allowing or permitting the use of
space in an immovable property, irrespective of the transfer of possession or control of such immovable
property. The explanation states that the amendment is for removal of doubts.

What is meant to be an immovable property has been defined in

Explanation-I to definition of taxable service in Section 65(105) .


Accordingly, immovable property for this purpose shall include building and part of building, and land
appurtenant thereto, land incidental to the use of building or its part, common or shared areas and
facilities relating thereto and in respect of buildings in a complex or industrial estate, all common areas
and facilities within such complex or estate. The expression, 'for use in course of or furtherance of
business or commerce' shall imply actual use in business or commerce as well as intended use for
furtherance of business or commerce.
Thus, for a transaction to be called a renting of immovable property, the following tests must be satisfied
- (a) the transaction should be renting, letting, leasing, licensing or any other similar arrangement. (b)
it must be in relation to immovable property except specified exclusions (c)

use of such immovable

property should be in course of or furtherance of business or commerce. (d) allowing use of space with
or without transfer of possession or control will also be covered
In line with the above definition, the Department of Revenue demanded service tax in the category of
Renting of immovable property service as per section 65(90a) of the Finance Act, in respect of premises
let out by members of the Retailers Association of India (Assessee). The said association on behalf of its
members challenged the said notification dated May 22, 2007 and contested the said demand of service
tax. The Honble Tribunal held that service tax was leviable on the service of renting of immovable
property and confirmed the said demand. The Assessees filed a writ petition in the Bombay High Court.
During the pendency of the writ petition, the Department of Revenue moved the Supreme Court seeking
transfer of all writ petitions pending before different high courts of India. The Honble Bombay High
Court observed while granting an interim order in the matter . . . . considering that the respondents have
moved the Honble Supreme Court of India for transferring these matters to the Honble Supreme Court
for hearing, therefore, we cannot take up these matters for final hearing and that other High Courts have
granted interim relief in relation to said statutory provision, in our opinion, following interim order would
meet the ends of justice. The Honble High Court stated In the event, demand of service tax being made
under the provisions of Section 65(90a), Section 65(105) (zzzz) and section 66 of the Finance Act, 1994
as amended by Finance Act, 2007 in respect of the Petitioner members premises, such members of the
Petitioners shall file undertaking in this Court stating that in the event the challenge is disallowed, they
shall make payment of service tax due and payable in accordance with the aforesaid provisions as may be
directed by this Court. It was further directed by the court that in case such undertaking is given, the
person who is submitting the undertaking shall not be entitled to transfer his interest in the property in
relation to which the demand of service tax is made without first giving two weeks prior notice of his
intention to transfer his interest and the nature of the transfer to the respondents. In case within the period
of two weeks, objection is raised on behalf of the respondents to the proposed creation or transfer of

interest, then no interest will be created or transferred without seeking leave of the Court. It goes without
saying that if the objection is not raised within the period of two weeks, the person shall be free to create
or transfer proposed interest in the property On the undertaking mentioned above, being filed by the
members of the petitioners, the High Court directed that no coercive steps shall be taken by the
respondent for recovery of service tax in respect of the premise of such members of the petitioners.
In the meanwhile, pursuant to the transfer petition filed by the Union of India in the apex court, the
Supreme Court directed all the writ petitions pending before different High Courts in India be transferred
to the Delhi High Court for single window adjudication.
Delhi High Court vide its order dated April 18, 2009, while disposing a bunch of over 20 writ petitions
referred to it by Supreme Court, in Home Solutions Retail India Ltd. v Union of India & Others, has held
that the levy of service tax on the renting of immovable property itself, in terms of the relevant
notification issued consequent to the introduction of the taxable service, was ultra vires the provision of
the Finance Act. Accordingly, the Courtstruck down the levy of service tax on renting of immovable
property as "unconstitutional", by a combined order and held that renting of immovable property for
furtherance of business or commerce, per se, is not a taxable service falling within the scope of section
65(105) (zzzz)of Finance Act, 1994. Aggrieved by the above order, the Union of India filed Special
Leave Petition No. 13850/2009 in the Supreme Court challenging the aforesaid judgment dated 18th
April, 2009 rendered by the Delhi High Court. In the Special Leave Petition the Supreme Court did not
grant any stay on the operation of that judgment.

The Update:

The Finance Act, 2010 has made the following important amendments relating to

Renting of Immovable Property Service: (Section 65 (105) (zzzz)) Renting activity itself regarded as
taxable service (Retrospectively amended from June 1, 2007). Renting of vacant land for construction of
building /temporary structure at later stage for furtherance of business or commerce regarded as taxable
service. Home Solutions Retailer of India and ors v. Union of India and Ors. (pending) [DELHI], again
challenged the validity of Section 65(105) (zzzz) of the Finance Act, 1994 which purports to levy service
tax on mere renting of immovable property for building or construction usage. This particular amendment
inserted by Finance Act, 2010 gave retrospective effect from June 1, 2007. It received the President
Assent on May 11, 2010.
The High Court upheld its earlier judgment regarding the same and provided an interim relief holding that
there shall be no recovery of service tax from the petitioner for renting of immovable property alone. The
case is still pending before this Honble High Court for final hearing. In the meanwhile, on January 13,

2011, the Supreme Court stayed an order of the Delhi High Court, which stopped the Centre from
recovering service tax on renting of immovable property for commercial use, including shops and malls,
from some firms. A Supreme Court bench comprising Justices Mukundam Sharma and A R Dave stayed
the interim order passed by the Delhi High Court on May 18, 2010. The Centre has challenged the order.
"There shall be an interim stay of the operation of the impugned judgment till the next date," said the apex
court, directing that the matter be listed for next hearing on January 20, 2011. Subsequently, on February
11, 2011, the Supreme Court maintained its stay on the Delhi High Court order .A bench comprising
Justices Mukundam Sharma and A R Dave said that the apex courts interim order of January 13, 2011
will continue until further orders. The bench said the order would continue till the High Court takes a
final decision on the matter.

Conclusion:
From the foregoing discussion, it is quite evident that the issue whether renting of immovable property
alone is taxable or not, is far from settled. Pursuant to the amendments inserted by the Finance Act, 2010,
a second round of litigation has commenced. Now one has to wait and watch how this act unfolds.

13 points about service tax on renting of immovable property


1. Security or Rental Deposit Service Tax is not applicable to any amount that is refundable and

collected from the tenant as security or rental deposit. However, non-refundable deposit is
subject to service tax.
2. Reimbursement of actual Electricity Charges are not subject to tax provided the exact/actual
amount is collected as a pure agent. In case any markup (extra amount) is done on the bill or a
lump sum amount is collected towards electricity charges, it is subject to ST.
3. Maintenance Charges towards the building is subject to service tax.
4. Renting of Vacant Land say, for parking or for temporary shed for marriage or for social
function is subject to service tax except if the land is used for agriculture or agriculture related
activities such as horticulture or floriculture or animal husbandry.
5. Renting of Residential House if used for residential purpose is exempt from service tax.
However, renting of residential house for commercial purpose is subject to ST.
6. Renting of Hotel, Inn, Guest House, Club, campsite or other commercial places meant for
residential or lodging purposes having declared tariff of a room below Rs.1000 per day or
equivalent is exempt from Service tax.
7. Rent from space provided to Mobile Towers Service tax is applicable.

8. Rent from space provided for Vending Machines in a shop or complex service tax is
applicable.
9. Renting of Convention Center Service tax is applicable.
10. Service Tax Rate at 12.36% on the gross rent. The land owner can raise an invoice every
month mentioning the rent plus service tax.
11. Deduction from Rental Income No expense such as security charges, electricity charges are
allowed to be deducted from the gross rent, except property (municipal taxes) paid.
12. Liability of payment of tax Service recipient / tenant is liable to pay service tax. It is the
responsibility of the land owner to collect it from the tenant and remit it to the department.
13. Payment of Tax the tax so collected has to be remitted to the department within due date
[5th of the subsequent month/quarter depending upon the nature of the assessee; 6th of the
subsequent month/quarter, if the payment is made electronically through internet banking].
Delayed/ non-payment attracts hefty interest and penalty.
GIFT OF IMMOVABLE PROPERTY
As per Regulation 6 of the Foreign Exchange Management (Export and Import of Currency)
Regulations, 2000, you are permitted to send foreign exchange to India without any limit in any
form other than currency notes, bank notes and travellers cheques. From a tax perspective, where
any individual receives money in excess of Rs.50,000 in any financial year without any
consideration, it will be taxed as income from other sources in the hands of the recipient. But
this rule does not apply to money received by a relative (which includes spouse, brother, sister,
brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or
descendant of yourself or your spouse). Accordingly, money sent as gift to your family being
relatives as defined above, would not be taxable in India. I have inherited a flat from my great
aunt through a Will in the UK. Now I want to sell it. What would be the tax implications in India
considering I have not paid or invested any money. I am an Indian resident. What type of tax will
be applicable and on what amount, from the day the property was transferred to me or from the
day that my great aunt acquired it? Sahil Duggal Gains arising from the sale of capital asset
(house property) located in India or abroad by a tax resident of India would be subject to tax in
India. Depending on the period of holding the same would be taxed either as long-term capital
gain (LTCG), or as short-term capital gain (STCG). Taxable gain from sale of a building is

computed by deducting the cost of acquisition and cost of improvement, expenditure incurred
wholly and exclusively in connection with the transfer from the sale consideration. In your case,
since the apartment was received through inheritance, the cost of acquisition of the asset shall be
deemed to be the cost at which your aunt acquired it as increased by the cost of any improvement
incurred either by you or your aunt. If the building has been held for more than 36 months prior
to its sale, the capital gain arising would be taxable as LTCG at the rate of 20% (plus applicable
surcharge and education cess). If it is held for less than 36 months, the capital gains would be
taxable as STCG at the rate of 30% (plus surcharge and education cess). You will not be liable to
pay tax on receipt of the property from your great aunt as any immovable property received
without consideration from a relative is not treated as income. Relative has been defined to
include brother or sister of either of the parent of the individual receiving the immovable
property.
Taxation of transactions in immovable property without consideration or for an inadequate
consideration, if registration not done within 30th September, 2009
:
The newly inserted provisions of section 56(2)(vii) have been made applicable from 1st October,
2009 in case the property is received by any individual or a HUF.
These provide
a) Where immovable property or any other property is received without any consideration and
the stamp duty value (in case of immovable property)/ fair market value (in case of any other
property) of such property exceeds Rs.50,000, the entire stamp duty value or fair market value
(as the case maybe) of such property would be taxable as income from other sources.
b) Where immovable property or any other property is received for a consideration and such
consideration is less than the stamp duty value (in case of immovable property)/ fair market
value (in case of any other property) of the property by an amount exceeding Rs.50,000, the
stamp duty value/ fair market value reduced by the consideration received, would be taxable as
income from other sources.
2. Cases in which provisions will not be applicable -

The above provisions will not be applicable where property is received from a relative or on
occasion of marriage of the individual or under a will or inheritance or contemplation of death of
the donor or from local authority, approved fund or trust.
The above provisions will also not be applicable where property is received by a company,
partnership firm or any person other than an individual or HUF. That means the provisions are
applicable only if the property is received by an individual or HUF.
The above amendment will take effect from 1 October 2009, so these will not hit to the cases in
which the immovable property has been received on or before 30th September, 2009.
3.

Situations where property was purchased prior to 1st October, 2009 but not registered :

In such cases, there is a possibility that some officials of the department may try to take a plea
which is favourable to revenue and may say that in case of immovable property transfer takes
place when it is registered.
However there are some provisions, which may be of help to the taxpayers. These are given
below :
a) Section 2(47)(v) of the Income Tax Act states "Transfer in relation to capital assets, include " any transaction involving the possession of any immovable property to be taken or retained in
part performance of a contract of the nature referred to in section 53A of the Transfer of Property
Act"
b) Section 53A of the Transfer of Property Act Where any person contracts to transfer for consideration any imovable property by writing
signed by him or on his behalf from which the terms necessary to constitute the transfer can be
ascertained with reasobale certainty, and the transferee has, in part performance of the contract,
taken possession of the property or any part thereof, or the transferee, being already in
possession, continues in possession in part performance of the contract and has done some act in
furtherance of the contract; and the transferee has performed or is willing to perform his part of
the contract, then notwithstanding that where there is an instrument of transfer, that the transfer
has not been completed in the manner prescribed therefor by the law for the time being in force,
the transferor or any person claiming under him shall be debarred from enforcing against the
transferee and persons claiming under him any right in respect of the property of which the

transferee has taken or continued in possession, other than a right expressly provided by the
terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration who
has no notice of the contract or of the part performance thereof.
4. Conclusion :
It is important to note that the new provisions are applicable to properties received by Individuals
or HUFs on or after 1st October 2009. This suggests that whatever property is received
(purchased or possession received) before 1st October 2009 will not come under the purview of
new provisions. This view is supported by the definition of transfer contained in section 2(47)
read with section 53A of the Transfer of the Property Act if the necessary stipulations are
fulfilled.
Receive in lay-mans language means signing the agreement, paying the consideration and
taking the possession.
The existing provision and also the new provision does not state that the date of receipt of
immovable property means date of its registration.
Under the above circumstances, I am of the opinion, that if one fulfills the stipulations of section
2(47) of the Income Tax Act, 1961 read withSection 53A of the Transfer of Property Act , then
there is good ground to defend in case of property purchased before 1.10.2009.
So we can conclude that property which is received/ purchased before 1st October 2009 though
not registered will not be hit by the provisions of section 56(2)(vii), provided the stipulations as
mentioned above are fulfilled.
However in view of the prevailing confusion, I suggest that the Central Board of Direct Taxes
may also kindly issue a clarification on this issue to help the taxpayers.
Govt has also issued a press release regarding above issue which is reproduced hereunder
Provision regarding taxability of any Gift-in-kind, value of which exceeds Rupees Fifty
Thousand

The Income Tax Act 1961 (the Act) has been amended with effect from 1st October 2009 to
provide that any gift-in-kind, being an immovable property or any other property, the value of
which exceeds Rs.50,000 (rupees fifty thousand), will become taxable in the hands of the donee,
being an individual or a Hindu Undivided Family (HUF), as income from other sources under
clause (vii) of sub-section 2 of section 56 of the Act. Therefore, any such person who receives a
gift of any such property on or after 1st October 2009 must pay the income tax due on the value
of the gift and disclose the taxable value of such property in the return of income for assessment
year 2010-11 and subsequent years.
The following types of gifts will, however, not be subject to tax, i.e. gifts (a) from a person who
is a relative; (b) on the occasion of marriage of the individual; (c) under a will or by way of
inheritance; (d) in contemplation of death of the donor; (e) from any local authority as defined in
the Explanation to section 10(20) of the Act; (f) from any fund or trust established under section
10(23C) of the Act; (g) from any trust or institution registered under section 12AA of the Act.
Relative is defined in the Act as (i) spouse; (ii) brother or sister; (iii) brother or sister of the
spouse; (iv) brother or sister of either of the parents; (v) any lineal ascendant or descendant; (vi)
spouse of any of the relative at clauses (ii) to (v); of the individual. Gifts received from these
relatives will not be subject to tax.
Earlier cash gifts exceeding Rs.25,000 were subject to tax with effect from 1st April 2004. Later
the Act was amended with effect from 1st April 2006 to tax all cash gifts having aggregate value
exceeding Rs.50,000. Cash gifts also enjoy exemptions as is available for gifts-in-kind.

Service tax on renting of property upheld court


MUMBAI: In a judgment that has enriched the central government coffers by an estimated Rs

10,000 crore in the last three years, the Bombay high court on Thursday upheld the constitutional
validity of service tax on commercial real estate transactions on renting of property.
A 12% service tax was introduced in the amended Finance Act, 2007. Dictating and delivering
the judgment in the open court, Justice D Y Chandrachud held that the renting of land and
building did comprise a "service" and that the Centre was entitled to levy a tax on it.
The judgment, viewed as landmark in legal circles, has recognized wide powers with the Centre
to levy a service tax on transactions which have an element of service. The judgment thus
resolved the power of the Centre to bring under the service tax umbrella un-enumerated services
too.
The ruling will boost tax revenue for the government and will translate into higher rentals in the
already high-priced corporate property markets of bigger metros like Mumbai, Delhi, Bangalore
and Chennai.
The Retailers' Association of India along with the Confederation of Real Estate Developers'
Association of India and Multiplex Association of India had moved the Bombay high court
against the service tax on renting of commercial property. Advocate Ameet Naik, lawyer for the
retailers' association, later said, "We will study the judgment once we get a copy and then decide
the next course of action."
The service tax provision had resulted in proceedings being filed in the Delhi high court even in
2008, after the first amendment to the law in 2007, which spoke of only "services in relation to
renting of immovable property". The Delhi HC in 2009 held that service tax was not payable on
renting as it was not a value-added service. The Centre quickly brought out an amendment in
2010 to clarify that the tax was on renting of commercial property. The 2010 amendment was
under challenge as it would also have retrospective effect since 2007.
The main argument that the developers made was that tax department was misinterpreting the
entry of taxable service "in relation to renting of immovable property" under Section 65 (105)
(zzzz) of the Finance Act. They argued that there was "no service involved in renting premises".
But the HC held that service was involved and upheld the power of Parliament to levy the
service tax.
The HC rejected the retailers' and developers' arguments that only state governments could make
laws governing "immovable property". The judges, after tracing laws on land taxes since 1949,
said taxes on land and buildings were directly imposed on ownership but significantly delineated

the concept of service. It held that what was being taxed was not land but a service invoked in
renting of the land and constructed premises.
The HC also upheld arguments by additional solicitor-general Darius Khambata that Parliament
could add taxable transactions.
The judgment thus sets at rest the conflict between the power of the Union government and state
to levy service tax, particularly on transactions relating to land.

VAT on the supply of services is dealt with in S. 34 Value Added Tax


Consolidated Act 2010.
The general rule is that the place of supply of services depends on whether the services are
supplied in a business to business transaction (known as a B2B supply), in a business to
customer transaction (known as a B2C supply) or to a business/customer outside the EU.
However, an exception to this general rule applies in the case of the place of supply of services
in relation to immovable property (e.g. legal services to transfer ownership) as such services are
deemed to be supplied where the property is located.

The place of supply of services connected to immovable property is


governed by Article 47 of the Recast Sixth Directive (Directive
2006/112/EC) as amended byDirective 2008/8/EC.
Immovable property means land and any buildings or fixtures attached to the land, including
tenements, hereditaments, house buildings, walls, fences, other permanent structures or fixtures
such as pipeline systems for gas, water, sewage etc, land covered by water, and any estate
interest in, or over, land. Supplies of services in connectionwith immovable property can range
from the services provided by estate agents, engineers, and solicitors in relation to the acquisition
of property to property management services supplied by letting agents. The place of supply of
hotel accommodation or the provision of similar accommodation services
(such as the use of camping sites) will always be where the hotel, camping site, or other
accommodation is located. The specific rule concerning the place of supply of services relating
to property only applies where the service supplied is directly related to a specific property. It
does not apply if the service involved has only an indirect connection with land or if the land

based service is only an incidental component of a more comprehensive supply of services.


Where these services are provided in Ireland in relation to property in Ireland, then the place of
supply is quite straightforward, i.e. it is an Irish supply. Where such services are provided to an
individual located in another Member State (e.g. the UK) in regard to a property
located in that Member State then the place of supply will be that other Member State (the UK).
If an Irish business supplies services in relation to immovable property in another Member State
which exceeds the relevant VAT threshold in that Member State,then the business will have to
register, and account for VAT, in that Member State. OHT VAT on Services Connected with
Immovable Property

VAT on Services Connected with Immovable Property


The Revenues Leaflet VAT treatment of
services connected with Immovable Property
indicates that the following are not connected
with immovable property:
The letting of property or part of a property for the purposes of advertising; Advice and
information relating to land prices or property markets which do not relate to specific properties;
Feasibility studies of the commercial potential of development etc. in a geographical area;
Legal or estate agents fees for services that do not relate to specific properties.
The drawing up of plans for a building or parts of a building if not designated for a particular
plot of land;
The installation or assembly, the repair and maintenance, the inspection or the supervision of
machinery which is not, or does not become, part of the immovable property;
The hiring out of equipment for use on building sites;
The making available of equipment, together with staff qualified to operate the equipment, for
a customer carrying out work on immovable property where the customer is responsible for
carrying out the work.;
Legal services connected to contracts, including advice given on the terms of a contract to
transfer immovable property, or to enforce such a contract, or to prove the existence of such a
contract, where such services are not specific to the transfer of a title on an immovable property.
The storage of goods if no specific part of an immovable property is designated by the owner

for use of the customer;


The provision of a stand location on a fair or exhibition site where accompanied by other
related services such as electricity, stand design, transport, storage, provision of machines, cable
laying ,insurance, and supply of publicity material. Caveat: These notes are intended as a general
guide. OHT has endeavoured to provide an accurate commentary but the notes cannot cover all
circumstances. OHT strongly recommends that formal tax advice beobtained before any steps are
taken that may have a tax effect.
Revenue have stated in their May 2012 Leaflet VAT treatment of services connected with
Immovable Property that the following are services connected with immovable property:
Construction of or demolition work on, a building or of other permanent structures such as
pipeline systems for gas, water, sewage and the like;
The drawing up of plans for a building or parts of a building designated for a particular plot
ofland regardless of whether the building is erected;
The provision of on site supervision and construction work performed on a building or parts of
a building or on land;
The renovation and repair of a building or parts of a building, including work such as cleaning,
tiling, papering and parqueting;
The installation or assembly of equipment which, upon installation or assembly, becomes part
of an immovable property;
The provision of on site (not remotely supplied) supervision and security services;
The repair and maintenance, inspection and supervision of equipment if the equipment is part
of an immovable property;
Work on land including agricultural services such as tillage, sowing, watering, and fertilisation
services;
The provision of accommodation in the hotel sector or sectors with a similar function such as
holiday camps or sites developed for use as camping sites including the right to stay in a specific
place resulting form the conversion of timeshare usage rights and the
like;
The valuation of immovable property, including where such service is needed for insurance
purposes, to determine the value of a property as collateral for a loan, or to assess risk and
damages in disputes;

Intermediation in the sale or letting of immovable property;


Legal services relating to the conveyance or the transfer of a title to immovable property, such
as notary work, or the drawing up of a contract to sell or acquire suchproperty, even if the
underlying transaction resulting in the legal alteration of the property is not carried through;
The assessment of the risk and integrity of immovable property;
The leasing or letting of immovable property, including the storage of goods for which a
specific part of the property is designated by the owner for use of the customer; Where services
are supplied from a Member State other than Ireland to a
business located in Ireland in relation to Irish property, the foreign supplier can able to avail of
the reverse charge mechanism set out in S. 12(2) VATCA10. This provides for a zero rate of VAT
on the invoices for the supply.
The Irish business receiving the services should account for VAT in Ireland in relation to those
services. In this situation the foreign supplier of the services does not have to account for VAT in
Ireland. If services are provided by accountable persons in other Member States (but theservices
provided relate to property which is located in Ireland) those service providers may have an
obligation to register for VAT in Ireland. If they are registered for VAT in Ireland they can claim
an input credit for any VAT paid in Ireland which relates to the business. The issue becomes
more complicated where services are provided to individuals located outside the EU. In the
normal course of events a supply of services to a business outside the EU, would be outside the
charge to VAT as these services are deemed to provided at the place where the
recipient is located. However, in the case of services relating to immovable property located
within the EU those services are deemed to be supplied where the property is situated and
subject to VAT in the Member State in which the immovable property is located. If tax advice is
required on any of the points covered in this article,

SERVICE RELATING IMMOVABLE PROPERTY

PROVISION
The place of provision of service bprovided directly in relation to an immovable
property ,including service provided in this regards nby experts and estate agents,
provision of hotel accommodation by a holtel , inn ,guest house club or campsite ,
by whatever name called grant of right to use immovable porperty , service for
carrying out or c-ordinaation of construction dwoek, including architect interior
decorators shall be the place where the immovable prooperty .
COMMENTS
1. SUMMARY
In case of a service that is directly in relation to immovable plroperty the place of provision is
ehere the immovalbe4 property(land and building) is located irrespective of dwhere the provider
or receiver is located

service provided in this regards by experts and estate agents

provision of hotel accomodation by hotel guest house club campsite

grant of right to use immovable property

service for carrying out co-ordination of contructiondwork,including architect or interior


decorator

'' IMMOVABLE PROPERTY'' Immovable property has been defined in the finance act

1994 however in terms of section 4 of the general clauses act 1897 the defination of
immovable property provided in sub -section 3(26) of the general clauses act.
DEFINATION
"Immovable property' shall include land, benefits to arise out of land , and thing attached to
the earth , or permanently fastened to anything attached to the earth.
SERVICE DIRECTLY IN RELATION TO IMMOVABLE PROPERTY
This rule applies if the service is directly in relation to immovable property located in

taxable territory

Exploition : the service consist of lease, or right of use occupation, enjoyment or


exploition of an aimmovable property

Physical

: The service is pysically performed or agreed to be preformed on an

immovable property or proerty to come into existence

Object : The direct object of the service is the immovable porperty in the sense that
the service ebnhance the value of property affects the nature of the property for
development.

Purpose the of the service is

(a)

the transfer or conveyance of the property or the prosposed transfer or

conveyence of theproperty (real estate service rendered to the owner or beneficiary.

CONCLUSION

From the foregoing discussion, it is quite evident that the issue whether renting of immovable property
alone is taxable or not, is far from settled. Pursuant to the amendments inserted by the Finance Act, 2010,
a second round of litigation has commenced. Now one has to wait and watch how this act unfolds.

It is important to note that the new provisions are applicable to properties received by Individuals
or HUFs on or after 1st October 2009. This suggests that whatever property is received
(purchased or possession received) before 1st October 2009 will not come under the purview of
new provisions. This view is supported by the definition of transfer contained in section 2(47)
read with section 53A of the Transfer of the Property Act if the necessary stipulations are
fulfilled.