TREAT HOUSING AS INFRASTRUCTURE - CREDAI-NCR

TREAT HOUSING AS INFRASTRUCTURE - CREDAI-NCR:

TREAT HOUSING AS INFRASTRUCTURE

The Times Of India

NAREDCO has made a number of recommendations — with a view to accelerate housing development — to the finance and the urban development ministries for inclusion in the forthcoming Budget. PRABHAKAR SINHA writes

The real estate industry in India has emerged as one of the most vibrant sectors in the country, providing jobs to millions. The sector plays an important role not only in providing shelter to people, but also in rapid urbanization, which is a key to speeding up economic growth in the country.

But the sector, in the last couple of years, was not given its due in the Union Budget. Real estate developers associations have prepared a number of wish lists to achieve a higher growth in the sector. The National Real Estate Development Council (NAREDCO) made a number of recommendations in this regard to the ministry of finance and the ministry of housing and urban poverty alleviation for inclusion in the Union Budget 2012-13, with a view to accelerate housing development in the country.

Declare housing as infrastructure and bring it under Section 80IA of Income Tax (I-T) Act: This will enable developers and housing finance institutions to raise funds at low rate of interest from domestic and foreign markets, which, at the moment, is confined to Indian banks and public equities at a very high rate of interest. This will also incentivize developers by bringing down their income tax liability. Most countries, and the World Bank, treat housing as infrastructure.

Special incentive to developers to undertake construction of smaller houses under Section 80IB (10) of I-T Act: More than 90% of the shortage in housing is in the category of smaller-size houses (300-1,200 sq ft built-up area). Under Section 80IB (10) of I-T Act 1961, there used to be an incentive for 100% deduction of profits derived from the construction of housing projects up to 1,000 sq ft built-up area in Mumbai and Delhi, and up to 1,500 sq ft built-up area at other places.

This was withdrawn through Finance Act 2009. As this was a big incentive for developers to construct smaller-size housing units to suit the requirements of low- and medium-income households, it has been suggested that this provision should be reintroduced and 100% deduction of profits derived from constructing housing units up to 1,200 sq ft built-up area be allowed. This will go a long way in addressing the housing requirement of LIG and MIG categories.

Increase in deduction limit on account of interest payment on home loan from Rs 1.5 lakh to Rs 3 lakh under Section 24 of I-T Act 1961: Deduction of Rs 1.5 lakh, paid as interest on home loan, was introduced through Finance Act 2001, and made effective from April 1, 2002. Before 2001, 100% of interest paid on home loan used to be deducted.

Ten years down the line, merely on the basis of cost inflation indexation, Rs 1.5 lakh of 2001 would be close to Rs 3 lakh in 2012. Also, the indexed cost of Rs 20 lakh property in 2001 would be around Rs 40 lakh in 2012. Thus, merely on the basis of cost indexation, there is a strong case to increase the deduction limit, on account of interest payment on home loan, from Rs 1.5 lakh to Rs 3 lakh.

Increase in exemption limit of rental income under Section 24 (a) of I-T Act 1961: Supply of rental housing in the market is insignificant because of the low rate of return on high investment in housing property. As everyone can’t own houses for various reasons, 40-50% of the total housing stock ought to be on rentals in the market to meet the housing needs of the low-income group (LIG), who have no capital to buy, and of floating population. It has been suggested to increase the deduction limit from 30%, presently available under Section 24 (a), to 50% and levy tax only on 50% of the rental income. This is necessary to incentivize people to build or buy houses for renting purposes and, thus, increase the stock for rental housing.

Exemption from capital gain if proceed from transfer of a house property is utilized for purchase of one or more houses or invested in capital gain bond under Section 54 of I-T Act 1961: As per the provisions of Section 54 of I-T Act 1961, investment of capital gain from the sale of a house, if made to purchase one house, is exempt from capital gain tax. If capital gain is more than the cost of the house, tax is payable on the balance. It has been suggested that where the entire capital gain is invested in purchase of residential property (one or more) or invested in capital gain bond, it should be exempted from capital gain tax. It will be a big incentive for investment in housing.

Service tax on residential construction: Imposition of 10% service tax on residential construction, when the government is struggling to meet the demand-supply gap in housing, especially in low-income groups, is a deterrent, as it raises the cost by about 3%. Therefore, the service tax on residential construction should be withdrawn.

Fund for housing: This will be helpful in creating a dedicated affordable-housing fund, in line with infrastructure fund, exclusively for developing housing of EWS & LIG. Also, it has been suggested that this fund should have access to pension, insurance and provident funds to meet the long-term investment requirement of the housing sector.

Measures to down-market housing finance to poor sections of society: It has also been suggested for developing suitable mechanisms based on interest subsidy, funds pooling and relaxation of mortgage requirements, as also instruments like microfinancing, community pooling, agricultural land mortgaging and annual instalments, etc, to meet the housing loan need of urban poor and rural households.

There is also a suggestion for graded scale of grant, subsidy and loan for social housing to ensure that the lowest strata of poor get the maximum benefit.

Gurgaon plans big for 2025 - CREDAI-NCR

Gurgaon plans big for 2025 - CREDAI-NCR:

10th February, 2012 Source:The Economic Times

Cyber city Gurgaon was developed as one of the prime locations for real estate and industrial activity in the NCR. While the residential and the commercial development are there for all to see, the industrial development is not far too behind. In the last ten years, the Cyber city has had a number of MNCs, real estate companies and factories opening their offices here. This has led to a rapid growth in real estate in the city. And today, it has emerged as a major residential, commercial and retail hub.

Gurgaon plans big for 2025

A K TIWARY

The Economic Times

The new Gurgaon-Manesar Master Plan 2025 is fuelling a boom in realty. It has brought in fresh areas under development and given a new lease of life to the city. ET Realty reports

Cyber city Gurgaon was developed as one of the prime locations for real estate and industrial activity in the NCR. While the residential and the commercial development are there for all to see, the industrial development is not far too behind. In the last ten years, the Cyber city has had a number of MNCs, real estate companies and factories opening their offices here. This has led to a rapid growth in real estate in the city. And today, it has emerged as a major residential, commercial and retail hub.

NEW DEVELOPMENTAL PLAN

To revise the Master Plan, 2021 of Gurgaon (which was released in 2007), and extend the target year from 2021 to 2025, a new developmental plan, Gurgaon-Manesar Urban Complex 2025, has been formulated taking into consideration the proposed growth of the city up to 2025. According to the new guidelines, the population density has been calculated at 120 people per acre, compared to the earlier population density of 100 people per acre. The new draft plan is being formulated for new sectors, Sectors 58 to 115, so that new provisions can be made accordingly, as the sectors are still in the planning process.

TRAFFIC-FREE GURGAON

To free Gurgaon from a rapidly expanding traffic, there is a plan to double the width of sector roads from the existing 30 metres to 60 metres, under the new Gurgaon-Manesar Urban Complex 2025 plan. Special attention has been given to security, health and education while preparing the layout plan of the new sectors. According to the new plan, Sectors 58 to 67 will be developed in the first phase. These sectors will have 60m-wide roads. All roads in the planned sectors will be interconnected, unlike the existing sector roads that end abruptly. Praveen Kumar, the administrator of HUDA, says: "Under the revised plan, the district town planner has been asked to ensure sufficient parking space for vehicles in the new sectors. Directions have also been issued to give special attention to security, health and education while preparing the layout plan of the new sectors. The Badshahpur Nallah, used for carrying excess water, will also be realigned along the 90m-wide southern peripheral road, under this new master plan."

"For interconnectivity, six controlled areas have to be added under the new master plan. With a view to avoiding encroachments beyond the connecting road, the HUDA (Haryana Urban Development Authority) has decided to develop a 50m-wide green belt along the road and earmark a 200m-wide strip as an institutional belt," Praveen Kumar said.

BRT IN GURGAON

Like in New Delhi, Gurgaon will also have a Bus Rapid Transit (BRT) corridor to decongest traffic on the Northern Peripheral Road. In several sections, the NPR will have provisions for a BRT corridor to ensure smooth flow of traffic. The road is likely to be developed by March 2012.

REAL ESTATE SCENE

Gurgaon has benefited hugely from its proximity to the Indira Gandhi International and the domestic airport. This has led to a rapid growth in real estate in the city. Improving infrastructure and commissioning of world-class projects like DMIC (Delhi-Mumbai Industrial Corridor) have further fuelled developments in Gurgaon. Major connectivity projects like the forthcoming Dwarka-Gurgaon Expressway, the Western and Eastern Peripheral Expressway, the Metro link (operational up to HUDA City Centre) have further strengthened Gurgaon's position in the NCR.

Bhim Yadav, the managing director of Falcon Group, says: "Gurgaon is all set to add a fresh residential supply of 97.60 million sq ft during 2009-2012, 80% of which has already been sold. The drop in prices during recession has lured developers to launches residential projects in the affordable price bracket. The commercial office market has seen corrections in terms of capital values and lease rentals."

A report says Gurgaon is one of the fastest developing cities in the NCR, with a supply of 7.3 million sq ft in three years, 63% of which has already been absorbed. The gap between demand and supply is still widening. The earlier expansion plans of retailers have been revised. With high vacancy levels, developers are evaluating revenue-sharing models to attract retailers. But, with the correction in prices, construction activities are picking up.

Amarjit Singh Bakshi, the managing director of Central Park, says: "The new Gurgaon-Manesar Master Plan, in fact, is fuelling a boom in development. It has brought in fresh areas under development and given a new lease of life to the city. Gurgaon is now growing along the southern peripheral area where Sohna Road and Golf Course Road extension are the major growth corridors."

DEVELOPING SECTORS

The Gurgaon-Manesar Master Plan 2025 has pushed up the availability of land for development and avenues for new growth corridors. Sectors 8, 11, 12, 12A and Palam Vihar comprise the old section of Gurgaon. Sectors 4, 5, 14, 15, 29, 56 and 57 are amongst the most developed HUDA sectors in Gurgaon. Areas like DLF Phase IV, Sushant Lok I-III and Golf Course Road are the prime residential areas commanding the highest real estate prices.

A CITY-LEVEL HOUSING SUPPLY

By 2011, Gurgaon has had a city-level supply of 107.56 million sq ft of residential real estate, including a completed stock of 9.95 million sq ft, all of which is spread across 111 projects comprising apartments and villas. According to the new master plan, 14,930 hectare of land has been allotted for residential use with the addition of over 58 new sectors. A majority of the new developments take place in these sectors.

Supreme Court stays Delhi High Court's service tax order on rent Supreme Court stays Delhi High Court's service tax order on rent Chartered Accountant CA ICAI Chartered Accountants CA ICAI CAinINDIA ICAI Announcements Accounting Standards CA News ICAI Students ICAI Members Case Laws CPT IPCC Final ICAI Course CA Course ICAI Forum CA Question Papers ICAI Study Material:

January, 13th 2011

The Supreme Court has stayed an order of the Delhi High Court, which stopped the Centre from recovering service tax on renting of immovable property for commercial use, including shops and malls, from some firms.  A Supreme Court bench comprising Justices Mukundakam Sharma and A R Dave stayed the interim order passed by the Delhi High Court on May 18, 2010. The Centre has challenged the order. "There shall be an interim stay of the operation of the impugned judgement till the next date," said the apex court, directing that the matter be listed for next hearing on January 20. The High court, allowing the appeal of around 20 firms including Home Solutions Retail, had stayed the amendments made by the government in the Budget, 2010-11.  In the Finance Act, 2010, the government had amended taxing entry of "Renting of Immovable Property service", with retrospective effect, from June 1, 2007. The High Court had observed that in its earlier order, passed on April 18, 2009, it had held that renting of real estate cannot be regarded as a service.  A division bench in 2009 had observed that the renting of any immovable property by itself does not entail any value addition, and therefore, cannot be regarded as a service. "Prima facie, it appears that renting of immovable property itself has been regarded as a service by virtue of the recent amendment even though this Court by virtue of the said decision on April 18, 2009 had categorically concluded that renting of immovable property by itself cannot be regarded as a service," said the High Court while staying the recovery.  "In the meanwhile, there shall be no recovery of Service tax from the petitioner in respect of renting of immovable property alone. No such service tax would be recovered from respondents... in the meanwhile," the High Court had said.

Department can’t collect service tax on renting of immovable properties - Accommodation Times

In absence of stay from SC, Department can’t collect service tax on renting of immovable properties by resorting to other means

Executive Summary: – In absence of Supreme Court’s order staying operations of High Court’s judgment relating to levy of service on renting of immovable property, Revenue Department could not instruct its officers to pursue the matter with tax payers calling upon them to pay service tax on same or to resort to other means under the law to protect the Revenue.
Source of The Case Law:-
Decided by: HIGH COURT OF DELHI, In the case of: SSIPL Retail Ltd. v. Union of India, Writ Petition (Civil) No: 13861 of 2009, Decided on : December 18, 2009
RELEVANT PARAGRAPHS:
By the Finance Act, 2007, service “in relating to renting of immovable property for use in the course or furtherance of business or commerce” was introduced within the definition of taxable service as sub-section (zzz) to section 65 (105) along with corresponding insertions to section 66 and 65 (90a) thereto. Notification dated 22-5-2007 was thereafter issued making the aforesaid amendment effecting from 1-6-2007. The said Notifications/amendments as well as circular was challenged by various tenants and landlords by filing various Writ Petitions. These writ petitions were decided by this Court on 18 -4-2009 in Home Solution Retail India Ltd. v. UOI and others (2009) 20 STT 129 by the said judgment this Court hold that aforesaid notification and circular were ultra vires the provisions of the Finance Act.
Respondent no. 1 has filed Special Leave Petition No. 1385O/ 2009 in the Supreme Court challenging the aforesaidjudgment dated 18,h April. 2009 rendered by this Court, though in the Special Leave Petition till date Supreme Court has not granted any stay on the operation of that judgment. Therefore even when Special Leave Petition is pending, the judgment of this Court as of today holds and in the absence of any stay the respondents are hound to follow the same.
Grievances made in this petition is that in spite of the aforesaid position, the respondent No. l is issuing instructions to its officers throughout the’ country slating that in
view of the filing and pendency of the said Special Leave Petition, the officers should safeguard the revenue by either pursuing the tax-pavers to pay the service tax on renting of immovable property for use in the course of furtherance of business or commerce or resorting to means under law to protect the Revenue It is further stated on the basis of these instructions received by the officials of the Department, they are sending notices to various persons with instructions to start complying with the provisions of the aforesaid notification and circular by paying the requisite -’Service tax. One specimen of such notice is enclosed along with this writ petition which is notice dated 24\07£009 issued by the Office of the Commissioner of Service Tax, Service Tax Commissionerate, to Karnataka State Industrial Investment and Development Corporation Ltd:-
“Sub. Issue of leviability of ST on renting of immovable property – Clarification sought for – Reg.
Please refer to your letter dated IS.07.2009 on the above mentioned subject.
As pointed out above, even when the judgment of this Court is challenged by filing the SLO, till date there is no order passed by the Supreme Court staying the operation of that judgment. In these circumstances, the respondent could not instruct their officers to peruse the matter with tax payers calling upon them to pay service tax or to resort to other means under the law to protect the Revenue. The manner in which the letters are written clearly indicate that the payment of tax is demanded and the threat is also extended that if there is no compliance, Department would initiate further necessary action against them.
Mr. Chandhiok, learned ASG appearing for the respondent, assures that corrective steps shall be taken by issuing further instructions, in suppression of earlier instructions, to the officers not to write such letters demanding the payment of service tax or threatening corrective steps. On this assurance no further orders are required to be passed in this Writ Petition.
Courtsey : Taxguru.com

taxworry.com – Delhi High Court : Service Tax on Renting of Property Valid !

taxworry.com – Delhi High Court : Service Tax on Renting of Property Valid !:

Delhi High Court : Service Tax on Renting of Property Valid !

september 23, 2011 by taxworry leave a comment

Service tax on rent of immovable property now get seal of approval from Delhi High Court. Hundreds of lawyers including Sri Harish Salve and Dr Avishek M Sighvi could not pursue the Court that the service tax on renting of immovable property is unconstitutional.Delhi High Court vide its order dated 23/09/2011 dismissed the Hundreds of Writ Petitions filed by different persons .

Service Tax Artificial Liability

It was contented by the petitioner that an artificial liability has been created on the tenants by the Finance Act, 1994 which introduced the service tax. Reference has been made to sub-section 90(a) which was inserted in Section 65 of the Finance Act, 1994 by the Finance Act, 2007 to tax any “service provided to any person by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce”. The said provision came into force with effect from 1.6.2007.Service Tax Authority issued a notification No.24/2007 dated 22.5.2007 and issued, a circular dated 4.1.2008 in relation to Section 65(105)(zzzz) as it stood in 2007.

The constitutional validity of the notification and the circular was questioned before this Court in the case of Home Solution Retail India Ltd. v. Union of India, 158 (2009) DLT 722 (DB).

Division Bench of Delhi High Court in Home Solution Retail India Ltd. v. Union of India, 158 (2009) DLT 722 (DB) held that Section 65(105)(zzzz) could not have brought in its ambit and sweep the renting out of immovable property for use in the course of furtherance of business or commerce to constitute a taxable service and thereby exigible to service tax and, accordingly, the notification and circular were declared ultra vires.

After the said decision was rendered, Section 65(90)(a) and Sections 65 and 66 were amended.

Service Tax Unconstitutional ??

Challenging the validity of the amendments, Mr. Harish N.Salve, learned senior counsel, has submitted that the Parliament has no authority to enact the impugned legislation as renting of immovable property is a tax on lands and buildings which squarely comes within
Entry 49 of List II of the Seventh Schedule of the Constitution of India.

Dr. Singhvi, learned senior counsel appearing in some of the writ petitions, has submitted at the fore that there is no service involved in the letting of immovable property and consequently, it is not open to the Parliament to impose service tax on the assumption that the taxable service is involved in letting of immovable property. It is submitted by him that it is well settled in law that the Legislature in enacting a law is entitled to enact or prescribe a deeming fiction but the exercise of the

11. Dr. Singhvi, drawing analogy from the internationally followed principles, further submitted that even internationally, leasing / letting of immovable property is exempted from value added taxation since it has been construed that the same does not provide any value addition and since the Government of India has sought to rely upon the internationally accepted value added tax regime, it needs to follow the same fully and exempt leasing / letting of immovable property from the domain of value added tax. In this regard, he has placed reliance on the decision of the House of Lords in Commissioners of Custom and
Excise v. Sinclair Collis Limited (2001) UKHL 30 (7th June, 2001).

Mr. S. Ganesh, learned senior counsel , in his submission that letting of immovable property is merely a property transaction and does not involve remotely any value addition whatsoever which results from the rendering of the service and therefore, the service tax is not leviable. He has heavily relied on the decision rendered in All India Federation of Tax Practitioners (supra) wherein the Apex Court has noted that a service tax is a tax on value addition made by rendering of services.

Defense Arguments

Mr. A.S. Chandhiok, learned Additional Solicitor General contended that the amendment incorporated by the Finance Act, 2010, the levy is on the very activity of renting, leasing, letting, licensing of the immovable property or permitting the immovable property through any
arrangement whatsoever to be used in the course or furtherance of business or commerce and for the said purpose, transfer of right, title and interest is totally irrelevant. It is his further submission that the activity which is sought to be taxed under Section 65(105)(zzzz) is
allowing/permitting the usage of immovable property in the course and furtherance of business which is neither covered under the Transfer of Property Act nor under the Indian Easements Act and by no means is a tax on land and building to come within the ambit and sweep of Entry 49 of List II of the Seventh Schedule of the Constitution

It is canvassed by him that the tax in the present case is an indirect tax and the impost is on the activity and not on renting or leasing.

Hon,ble Delhi High Court Held as under

(a) The provisions, namely, Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010, are intra vires the Constitution of India.
(b) The decision rendered in the first Home Solution case does not lay down the correct law as we have held that there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly overruled.

(c) The challenge to the amendment giving it retrospective effect is unsustainable and, accordingly, the same stands repelled and the retrospective amendment is declared as constitutionally valid. Consequently, the writ petitions, being sans substratum, stand dismissed without any order as to costs.

Fight over validity of service tax on renting of immovable property now shifted to Supreme Court.

Service tax on rent is dicey - Money - DNA

Service tax on rent is dicey - Money - DNA:

One of the more controversial provisions of budget 2010, being made applicable retrospectively, is the explicit provision that the activity of renting is a taxable service.

Background

Service tax on renting of immovable property was first mooted by budget 2007. The tax was sought to be imposed on the service provided in relation to renting of immovable property for use in the course of furtherance of business or commerce.

If you read the above line carefully, you will notice that the tax is on service in relation to renting and not on the rent itself.

Consequently, some experts have the view that the rent income per se should not be subject to service tax, but only peripheral services that are rendered in relation to the renting. For example, if there is a composite lease agreement where the lease payments cover not only the rent but extra services such as maintenance, security, provision of utilities and support staff etc, these would be under the ambit of the service tax and not the rent per se.

So now there was this big confusion among the taxpaying population as to what exactly does the government intend to tax — is it the rent itself or is it the service in relation to the rent?

Finally, on April 18, 2009, the Delhi High Court in the case of Home Solutions Retail India Ltd vs UOI [2009] 20 STT 129, held that while any service connected to renting of property would indeed fall within the ambit of service tax, the act of renting per se cannot be seen as a taxable service. Extracts of the judgment are paraphrased below:

“Service tax is a value-added tax. It is a tax on value addition provided by a service provider. It is obvious that it must have connection with a service and, there must be some value addition by that service. If there is no value addition, then there is no service.

For example, take a service provided or to be provided to ‘A’ by ‘B’ in relation to ‘C’.Here, ‘A’ is the recipient of the service, ‘B’ is the service provider and ‘C’ is the subject matter. The expression “in relation to” may be of widest amplitude, but it has been used in the said Act as per its context.Sometimes, “in relation to” would include the subject matter following it and on other occasions, it would not.

As in the case of the service of dry cleaning, the expression “in relation to dry cleaning” also has reference to the very service of dry cleaning. On the other hand, the service referred to in Section 65(105)(v), which refers to a service provided by a real estate agent “in relation to real estate”, does not, obviously, include the subject matter as a service.

This is so because real estate by itself cannot by any stretch of imagination be regarded as a service. Going back to the structured sentence, i.e. — service provided or to be provided to ‘A’ by ‘B’ in relation to ‘C’, it is obvious that ‘C’ can either be a service (such as dry cleaning, hair dressing, etc) or not a service by itself, such as real estate. The expression “in relation to” would, therefore, have different meanings depending on whether ‘C’ is a service or is not a service.

If ‘C’ is a service, then the expression “in relation to” means the service ‘C’ as well as any other service having connection with the service ‘C’.Where ‘C’ is not a service, the expression “in relation to” would have reference only to some service which has a connection with ‘C’.But, this would not imply that ‘C’ itself is a service.

From this analysis, it is clear that we have to understand as to whether renting of immovable property for use in the course or furtherance of business or commerce by itself is a service. There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to service tax.

The question is whether renting of such immovable property by itself constitutes a service and, thereby, a taxable service. We have already seen that service tax is a value-added tax. It is a tax on the value addition provided by some service provider. Insofar as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value addition.

Consequently, the renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of course, if there is some other service, such as air-conditioning service provided alongwith the renting of immovable property, then it would fall within Section 65(105)(zzzz).

In view of the foregoing discussion, we hold that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act.”

The Centre had appealed against the Delhi high court judgment and this SLP is still pending. Now, what budget 2010 has done is to basically amend the Act and provided explicitly that the activity of ‘renting’ is indeed a taxable service. What happens now will indeed be interesting.

Stoking already high inflation

It must be realised that all indirect taxes are in fact, surrogate taxes. In the end, it is the consumer who bears them. Service tax is no exception. This tax is ostensibly payable by the service provider, but he recovers it from the availer of the service.

In the current context too, it is the owner or the landlord of the property who is meant to bear this tax, however, it will be eventually recovered from the person renting the property. Most retailers including grocery stores and shopping malls don’t own the property themselves but instead take it on lease. If the cost of the lease increases, it follows that the burden will be passed on the end consumers, thereby pushing up prices. If inflation control is one of the priorities of the government, then perhaps they should desist from levying this tax. In any case, the landlord pays income-tax on the rent received.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be

contacted at sandeep.shanbhag@gmail.com

Buyers cheer as service tax on property goes on short break - Mumbai - DNA

Buyers cheer as service tax on property goes on short break - Mumbai - DNA:

Home buyers and property developers can enjoy exemption from service tax, though temporarily.

The Union finance ministry has sought legal opinion as to whether it can allow another government or outside agency (apart from the local civic body) to issue a completion certificate. A building completion certificate from the local authority is a must if a buyer wants exemption from service tax.

The ministry has sought legal opinion as local authorities in some states do not issue completion certificates, whereas some such as Maharashtra take many years to issue one.

In Mumbai, there are very few buildings that have got a completion certificate mostly because of the delay. In many cases, the certificate is elusive because the developer uses extra floor space or has not paid the dues to the civic body.

Civic officials and developers say the Brihanmumbai Municipal Corporation stresses on issuing an occupation certificate as proof of the completion of the building. Therefore, the government is thinking of allowing some independent authorities, such as architects or builders’ associations, as a sufficient proof of completion. So, it will be some time before a notification will be issued to decide as to when the service tax can be levied.

The Union budget for 2010-11 has proposed to expand the scope of construction service to impose service tax on houses that are still being built. The tax will be levied only on 33% of the base price of a flat sold at the construction stage. The effective service tax rate will work out to 3.3%, or 10% of 33%. Charges, such as development fee, parking fee and premium location, usually paid at the time of completion of construction, will also be included in the base price.

The new rule was to come into effect after the parliament approved the budget.

Service tax will be levied only if payment is made before the completion of construction. The sale of fully completed houses will be exempted from the tax if a completion certificate from a local authority is provided.

Property developers had a mixed response to the proposal. While some said the flexibility could be abused, others pointed out that the outsourcing to an independent accredited body would see less corruption.

Sunil Mantri, president of the Maharashtra Chamber of Housing Industry, said: “While the civic body does not insist on a completion certificate in Mumbai, it could create confusion in gram panchayats and other municipal corporations where there is no concept of occupancy certificate.

“That apart, we are opposed to the levy of service tax. Sale of flats is already covered under the Maharashtra Flat Ownership Act. Where is the service component in this? We have decided to challenge this levy and would soon be moving the Bombay high court on the issue.”

Service tax on renting of property upheld by court - Times Of India

Service tax on renting of property upheld by court - Times Of India:

MUMBAI: In a judgment that has enriched the central government coffers by an estimated Rs 10,000 crore in the last three years, the Bombay high court on Thursday upheld the constitutional validity of service tax on commercial real estate transactions on renting of property.

A 12% service tax was introduced in the amended Finance Act, 2007. Dictating and delivering the judgment in the open court, Justice D Y Chandrachud held that the renting of land and building did comprise a "service" and that the Centre was entitled to levy a tax on it.

The judgment, viewed as landmark in legal circles, has recognized wide powers with the Centre to levy a service tax on transactions which have an element of service. The judgment thus resolved the power of the Centre to bring under the service tax umbrella un-enumerated services too.

The ruling will boost tax revenue for the government and will translate into higher rentals in the already high-priced corporate property markets of bigger metros like Mumbai, Delhi,Bangalore and Chennai.

The Retailers' Association of India along with the Confederation of Real Estate Developers' Association of India and Multiplex Association of India had moved the Bombay high court against the service tax on renting of commercial property. Advocate Ameet Naik, lawyer for the retailers' association, later said, "We will study the judgment once we get a copy and then decide the next course of action."

The service tax provision had resulted in proceedings being filed in the Delhi high court even in 2008, after the first amendment to the law in 2007, which spoke of only "services in relation to renting of immovable property". The Delhi HC in 2009 held that service tax was not payable on renting as it was not a value-added service. The Centre quickly brought out an amendment in 2010 to clarify that the tax was on renting of commercial property. The 2010 amendment was under challenge as it would also have retrospective effect since 2007.

The main argument that the developers made was that tax department was misinterpreting the entry of taxable service "in relation to renting of immovable property" under Section 65 (105) (zzzz) of the Finance Act. They argued that there was "no service involved in renting premises". But the HC held that service was involved and upheld the power of Parliament to levy the service tax.

The HC rejected the retailers' and developers' arguments that only state governments could make laws governing "immovable property". The judges, after tracing laws on land taxes since 1949, said taxes on land and buildings were directly imposed on ownership but significantly delineated the concept of service. It held that what was being taxed was not land but a service invoked in renting of the land and constructed premises.

The HC also upheld arguments by additional solicitor-general Darius Khambata that Parliament could add taxable transactions.

The judgment thus sets at rest the conflict between the power of the Union government and state to levy service tax, particularly on transactions relating to land.