This Tax Alert summarizes the recent ruling of the Gujarat High Court (HC). The issue pertains to levy of goods and services tax (GST) on assignment of leasehold rights by lessee (assignor) to a third party (assignee).
The key observations of the HC are:
- Immovable
property is not defined under the CGST Act, however, the same is defined
in the other enactments and it includes benefits arising out of land.
- The
petitioner has transferred leasehold rights which is over and above the
actual physical plot of land and building, encompasses incorporeal
ownership right in such land and building such as the right to possess, to
enjoy the income from, to alienate, or to recover ownership of such right
from one who has improperly obtained the title.
- In
case of lease, the title over the plot remains with GIDC with all other
rights reverting to it on expiry of lease period, whereas transaction of
transfer of leasehold rights by the assignor in favour of assignee divest
assignor of all the absolute rights in the property.
- Under
the Service Tax law, even the development rights which are the benefits
arising from land were not liable to tax. Leasehold right is in fact a
greater right and interest in land than development rights. The principle
under the service tax regime continues to apply under the GST regime.
- What
is assigned by the assignor to the assignee is not only the land allotted
by GIDC on lease but the entire land along with building which was
constructed on such land. The same is a capital asset in the form of an
immovable property.
Accordingly, HC held that assignment of leasehold rights is not leviable to GST.
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