Service tax is charged on sub-letting premises for commercial purposes

Font Size

Print

Feedback

Email

Discuss

We pay a monthly rent to our landlord A & Co for our showroom. A part of our showroom premises have been sub-let by us to a group entity, Y & Co. We are not charging any service tax on the sub-let premises, since A & Co is charging us service tax on the rent payable by us and tax has already been paid on the letting out of the premises. Kindly advice if the above position is appropriate.

Service tax is applicable on letting (and sub-letting) of immoveable property for use in the course of commerce or business. The renting service has been provided firstly by A & co to your company and secondly by your company to Y & Co. Both the transactions are independent of each other and both would attract service tax as the premises have been let out for business and commerce purposes. Even if A & co is charging service tax, the same does not affect the liability to pay service tax by your Company on the rental service provided to Y & Co. Hence, irrespective of the position taken by A & co, your company would be liable to pay service tax on the rental income received.

We are engaged in the construction of commercial buildings. Recently, we constructed a shopping mall, and have rented space to various shop owners and are charging service tax on such rentals. We also charge the shop owners maintenance charges, which is on a no-profit basis. That is, we are availing the services of various service providers in areas such as security, cleaning and repairing and are paying service tax on bills raised by the service providers. We recover these expenses from the shop owners without any mark-up. Can we set off the service tax paid on such procured services against the service tax payable on renting of the shops?

Although you recover maintenance expenses incurred by your company, the same would be liable to service tax under “management, maintenance or repair service”. Since the services procured are for maintenance of the malls, hence it can be said to have been used for providing the output service such as manangement, maintenance or repair service (as well as for renting of immoveable property service). Hence, you should be able to set off the service tax on the services procured for payment of service tax on renting and maintenance services.