Service Tax Not Payable On Transfer Of Development Rights; Income Within Rs.10 Lakh Exempt: CESTAT Delhi
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that the benefit of service tax exemption under the threshold limit of Rs. 10 lakhs is available, and that not all income shown under Section 194(J) of the Income Tax Act is liable to service tax. The Tribunal set aside a service tax demand raised against M/s Baakir Real Estate Pvt. Ltd., holding that the amounts in question were either not taxable or fell within the exemption limit.
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The bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) was dealing with an appeal filed by the appellant challenging the order of the Commissioner dated 30.11.2023. The Commissioner had confirmed a service tax demand of approximately Rs. 5 crores on the basis of a show cause notice issued in 2020, covering the financial years 2016-17 and 2017-18.
The demand primarily related to two components: (i) a consideration of Rs. 34.45 crore received by the appellant under two development agreements executed in 2011, and (ii) an amount of Rs. 91,177 for 2016-17 and Rs. 2,19,099 for 2017-18, shown as income under Section 194(J) of the Income Tax Act.
The Commissioner had concluded that the sale of development rights did not involve a transfer of title in immovable property and hence was liable to service tax. It was further held that the miscellaneous income shown under Section 194(J) had not been explained and was taxable.
However, the Tribunal disagreed with this reasoning. It noted that the development agreements, executed in May and December 2011 respectively, clearly demonstrated that the appellant had transferred development rights to the developers in exchange for consideration. Importantly, the agreements also included clauses indicating the developer’s entitlement to transfer rights to third parties and to retain the proceeds. As such, the Tribunal concluded that what was effectively being transferred was an interest in immovable property, and not a taxable service. It relied on previous rulings, including DLF Commercial Projects Corporation v. CST, Gurugram [2019(27) G.S.T.L. 712 (Tri.-Chand.)]and Amit Metaliks Ltd. v. Commissioner of CGST [2020 (41) G.S.T.L. 325 (Tri.-Kolkata)], to support this conclusion.
On the second issue, the Tribunal noted that the only reason the Commissioner confirmed tax on the amounts of Rs. 91,177 and Rs. 2,19,099 was that they were shown under Section 194(J) of the Income Tax Act, without the appellant offering a specific explanation. However, the Tribunal clarified that “all incomes may not be leviable to service tax,” unless they specifically fall under the provisions of the Finance Act. Even assuming that these amounts were taxable, they were well within the exemption threshold limit of Rs. 10 lakhs per annum as provided under Notification No. 33/2012 dated 20.06.2012, and hence no service tax could be levied.
The Tribunal also addressed the issue of limitation. It noted that the payments in respect of the two development agreements were received between 2011 and 2013 and were recorded in the company’s audited balance sheets for those years. Since the show cause notice was issued only in March 2020, the Tribunal held that the demand was barred by limitation. It further ruled that the extended period of limitation under the proviso to Section 73(1) of the Finance Act could not have been invoked, as there was no evidence of wilful suppression or intent to evade tax. The Tribunal emphasized that the presence of debatable legal issues and full disclosure in audited accounts negated any allegation of mala fide intent. Accordingly, the Tribunal allowed the appeal and set aside the impugned order of the Commissioner.
Appearance
Shri Shaubhik Gupta, Advocate for the Appellant
Shri Anand Narayan, Authorized Representative for the Department
Cause Title: M/s. Baakir Real Estate Private Limited Vs Commissioner of CGST, Delhi South Commissionerate
Case No: Service Tax Appeal No. 50233 Of 2024
Coram: Justice Dilip Gupta [President], Mr. P. V. Subba Rao [Member (Technical)]
[Read/Download order]
