By Puloma Dalal, Jayesh Gogri, Mandar telang Chartered Accountants
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Prior to 01/07/2010 – Renting of buildings used for purpose of accommodation including hotels, meaning thereby, renting of a building for a hotel, is not liable for service tax under “Renting of Immovable Property Services”.
Facts: The assessee entered into a joint venture agreement with M/s. IHCL whereby the assessee was to lease its building for running hotel business therein and therefore to share the profits and losses alike. One of the issues for consideration before the Tribunal was whether the arrangement is taxable since under sub-clause (d) under Exclusions to Explanation-1 to section 65(105)(zzzz), a building or buildings used for hotels falls outside the purview of the taxable service. The lower authorities while taxing the transaction recorded a reasoning that, the legislative intent in respect of sub-clause (d) is explicit and clear, not to tax immovable property used (not meant) for accommodation which includes hotels; only the service of accommodation provided by a hotel is outside the purview of the taxable service.
Held:
The Tribunal held that the reasoning given by the lower authorities in taxing the transaction is fundamentally flawed. On a true and fair construction of provisions of the exclusionary clause under Explanation 1 to section 65(105)(zzzz); and in particular sub-clause (d) thereof, renting of buildings used for the purpose of accommodation including hotels, meaning thereby renting of a building for a hotel, is covered by the exclusionary clause and does not amount to an “immovable property”, falling within the ambit of the taxable service in issue.
Note: The above judgment is in respect of the period prior to 01/06/2010, i.e., before insertion of clause (v) in inclusion part of explanation 1 to section 65(105)(zzzz)
