Recently in Jai Mahal Hotels (P) Ltd. Vs. Commissioner of Central Excise, Jaipur, it was held that renting of building for hotel is not liable to Service Tax under ‘Renting of Immovable Property’ services.   

Facts of the case:

The appellant (Jai Mahal Hotels (P) Ltd) owned an immovable property. It entered into joint venture on 28^th August, 1985 with Indian Hotels Company Limited (IHCL) for running hotels at the said property.

The Department contended that providing of property on rent for hotel purpose is a taxable service viz. ‘Renting of Immovable Property’. Such service is defined in erstwhile Section 65(90a) read with Section 65(105) (zzzz) of the Finance Act, 1994 (the Finance Act). Thus, demand of Service tax along with interest and penalty was raised for the period from June 2007 to March 2010. Against the demand raised, the appellant went for an appeal to CESTAT.

It was held that:

The appellant had put forward that ‘Renting of Immovable Property’ does not include hotel service as a taxable service. This was specifically excluded under Section 65(105) (zzzz) of the Finance Act. The appellant also argued that as there was a joint venture with IHCL there can not be any question of providing service.

The CESTAT analyzed the Section 65(105) (zzzz) of the Finance Act along with its inclusionary and exclusionary clause which read as:

“taxable service” means any service vice” provided, or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce and the term “service provider” shall be construed accordingly.

Explanation 1— For the purposes of this sub-clause, “immovable property” includes:

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all                common areas and facilities relating thereto, within such complex or              estate,

(v) vacant land, given on lease or license for construction of building or                temporary structure at a later stage to be used for furtherance of                      business or commerce;

but does not include-

(a) vacant land solely used for agriculture, farming, forestry, animal                        husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use       of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking               purposes; and

(d) building used solely for residential purposes and buildings used for            the purposes of accommodation, including hotels, hostels,                  boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2—For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be  immovable property for use in the course or furtherance of business or commerce.

As per the exclusionary clause stated above, it was clear that ‘immovable property’ does not include buildings used for purposes of accommodation, including hotels. Hence, buildings used for hotels do not amount to immovable property. Therefore, renting of a building for a hotel is covered by exclusion clause.

The other argument of the appellant regarding the joint venture was not a matter of discussion. Thus, the CESTAT held that renting of building for hotel purpose is not a taxable service under ‘Renting of Immovable Property’.

The case was decided in the favour of the appellant.

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