Notional interest on interest free security deposit not includible in value of rent agreed upon between parties for the purpose of levy on renting of immovable property.

53 taxmann.com 511 (Mumbai-CESTAT)-Murli Realtors (P.) Ltd. vs. CCEx, Pune-II. [2015]

 

 

  FACTS:

The Appellants leased out their premises on long time lease ranging from five to 10 years against monthly lease rentals and also obtained interest free security deposit. The deposit is returned to the lessee at the end of the lease period. The department held a view that by taking of interest free security deposit, the lease rentals was suppressed. Hence, notional interest at 18% was added to the rent to demand service tax thereon.

 

  HELD:

The Tribunal held that, section 67 of the Act provides for taxing only the consideration received in money for the service rendered. The consideration for renting of immovable property is the amount agreed upon between the parties on which the appellant has discharged service tax. The security deposit is taken for a different purpose altogether. It is to provide for a security in case of default in rent by the lessee or default in payment of utility charges or for damages, if any, caused to the leased property. The security deposit serves a different purpose and is not a consideration for leasing of the property. There is no provision in service tax law for deeming notional interest on security deposit taken as a consideration for leasing of the immovable property. Therefore, in the absence of a specific provision, there is no scope for adding any notional interest to the value of taxable service. Relying upon ISPL Industries Ltd. case 2003 (154) ELT 3 (SC), it was held that, there is not even an iota of evidence adduced by the Revenue to show that the security deposit taken influenced the price of the rent in any way. In absence thereof, the appeal was allowed.