TAXABILITY OF UP FRONT LEASE PREMIUM
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 24-3-2018<\/p>\n
Leasing out the immovable property by the assessee was a taxable service under the category of Renting of Immovable Property under Section 65(105)(zzzz) of the Finance Act, 1994, as amended with effect from 01-07-2010.
\nThe CBEC vide DO F. No. 334\/1\/2010-TRU dated 26-02-2010 had clarified that "it has been reported in many states, the local industrial corporation of PSUs or even private organization rent vacant land on a long terms leases with an explicit understanding that lessee would construct factory or commercial building on that land. In such cases, the ownership of the land is not transferred to the lessee and thus it is a service provided by the lessor to the lessee. The situation is similar to renting out a constructed structure for commercial purposes except that at the time of executing the lease agreement the land is in a vacant state and that l<\/p>\n
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Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n n the form of other charges against such provisioning of lease \/ renting service. Consideration means any amount that is payable for any service provided or to be provided. Lessor receives the amount in the form of upfront lease premium and other charges as consideration for lease. Upfront lease premium is charged on one time basis but on the other hand other charges are charged on regular basis (annual or otherwise). The premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nt is payment made for use and occupation of immovable property leased. Tax is payable on renting of immovable property. Lease premium is not for continued enjoyment of property and as such demand was held to be not sustainable. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n one-time payment on a different footing when compared to the regular lease rent, received in a periodical manner. On identical set of facts, with reference to lease granted by Tripura Industrial Development Corporation, the High Court of Tripura in the case of Hobbs Brewers India Pvt. Ltd. v. Union of India reported in [ 2016 (4) TMI 1173 – TRIPURA HIGH COURT ] held as below: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n provision for exemption relating to long term lease of industrial plots (Section 104) = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" TAXABILITY OF UP FRONT LEASE PREMIUMBy: – Dr. Sanjiv Agarwal Goods and Services Tax – GSTDated:- 24-3-2018 Leasing out the immovable property by the assessee was a taxable service under the category of Renting of Immovable Property under Section 65(105)(zzzz) of the Finance Act, 1994, as amended with effect from 01-07-2010. The CBEC vide DO … Continue reading “TAXABILITY OF UP FRONT LEASE PREMIUM”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-11106","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/11106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11106"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/11106\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\nService tax on renting activity as stipulated under Section 65B (41) of the Finance Act, 1994 read with Rule 2(1)(f) of the Service Tax Rules, 1994 cannot be charged on the amount of 'premium' or 'salami' paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased out. Since <\/p>\n
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\n\tIn City & Indus. Dev. Corpn. of Maharashtra Ltd vs. CST, Mumbai-II, 2014 (11) TMI 127 – BOMBAY HIGH COURT , it has been held by Bombay High Court that Service Tax is leviable on quantum of lease charges and not on lease premium.
\n\tIn Infinity Infotech Parks Ltd. v. Union of India 2014 (12) TMI 36 – CALCUTTA HIGH COURT , it was held that prima facie, there is a distinction between premium or salami, being price paid for transfer of a right to enjoy property and rent paid periodically to lessor; while former was a capital income, latter was a revenue receipt. Premium\/salami is not advance rent which constitutes revenue receipt. Long-term lease for 99 years has been held to amount to 'transfer' under Income-tax law and premium or salami received was held<\/p>\n
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\n "4. We are not at all inclined to even issue notice in the writ petition. A perusal of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994 as quoted in the letter dated 23-11-2015 clearly shows that "Renting of Immovable Property Service" includes renting, letting, leasing, licensing or other similar arrangements amounts to providing service and under Section 65(105)(zzzz) it is a taxable service.
\n 5. It is urged on behalf of the petitioner that what is taxable is the rent and not premium. This argument is without any basis whatsoever. What is taxable is the consideration for the <\/p>\n
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\nFinance Act, 2017 had inserted a section 104 as special provision in Finance Act, 1994 for retrospective exemption to lease premium\/upfront fee in relation to long term lease of industrial plots.
\nThis provision sought to insert section 104 in the 1994 Act so as to exempt service tax leviable on one-time upfront amount (premium, salami, cost, price, development charge or by whatever name called) in respect of taxable service provided or agreed to be provided by a State Government industrial development corporation or undertaking to industrial units by way of grant of long-term lease of thirty years or more of industrial plots, during the period commencing from the 1st day of June, 2007 and ending with the 21st day of September, 2016 (both days inclusive).
\nEarlier, vide Notification No. 41\/2016-ST dated 22.09.2016, taxable services provided by State Government Industrial Development Corporations\/ Und<\/p>\n
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