Service tax not payable on the notional interest accrued on the security deposit received on providing immovable property on rent.

Case: The Lake Palace Hotel and Motels P Ltd. vs. Commissioner of Central Excise

 

Facts of the Case

 

• The appellant was owner of land and building which has been rented out to M/s. Indian Hotels Company Ltd. for renting the hotel and the said building on profit sharing basis.

 

• The appellant received the security deposit of Rs.20 crores.

 

• Revenue contended that appellant has leased out the immovable property therefore, they qualify to pay service tax under renting of immovable property service.

 

• It was also proposed service tax on notional interest

 

• A show cause notice was issued to demand service tax.

 

• On appeal, demand of service tax was confirmed along with interest and various penalties were imposed.

 

• Aggrieved from the said order, appellant was before Tribunal.

 

 

Contentions of the Assessee

 

• The appellant argued that renting of immovable property to Indian Hotel Company Ltd. is outside the ambit of taxable service.
• In the earlier period the Tribunal held that appellant was not liable to pay service tax under the category of renting of immovable property service.
• Assessee referred the case of K Raheja Corp. Ltd vs CCE, according to which assessee was not required to pay service tax and notional interest accrued on the security deposit.

 

Contentions of the Revenue

 

The Revenue submitted that at the time of leasing out the property, it was only of immovable property and not a hotel.   Therefore, the appellant is liable to pay service tax under the category of renting of immovable property service.

 

It was held that

 

• As the issue has already been settled in appellants own case for earlier period, that the appellant was not liable to pay service tax under the category of renting of immovable property service.

 

• Therefore, it was held that appellant was not liable to pay service tax under the renting of immovable property service.

 

• It was further found that in the case of  K Raheja Corp. Pvt. Ltd. (supra), this Tribunal has held that notional interest on security deposit cannot  be added to rent agreed upon between the parties.

 

Accordingly, it was held that appellant was not liable to pay service tax on the notional interest accrued on the security deposit.  In these terms, impugned order was set aside. Notional interest accrued on deposit is free from service tax.