Icai rajkot - real estate - 08.06.2014

K.VAITHEESWARAN
ADVOCATE & TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk, vaithilegal@yahoo.co.in
SERVICE TAX ON
REAL ESTATE TRANSACTIONS

 Section 65B(44) defines “service” to mean any activity
carried out by a person for another for consideration and
includes a declared service, but shall not include –
 (a) an activity which constitutes merely, -
(i) a transfer of title in goods or immovable property by
way of sale, gift or in any other manner;
(ii)such transfer, delivery or supply of any goods
which is deemed to be a sale within the meaning of
clause (29A) of article 366 of the Constitution; or
K.Vaitheeswaran - All Copyrights Reserved

 Service includes a declared service but does not include an
activity of transfer of title in immovable property by way of
sale, gift or in any other manner.
 Section 66E(b) while setting out declared services covers
construction of a complex, building, civil structure or part
thereof including a complex or building intended for sale to a
buyer wholly or partly, except where the entire consideration is
received after issuance of completion certificate by the
competent authority.
 Sale of an immovable property is excluded
 Construction of a complex where monies are received before
issue of completion certificate is a declared service.

 No more complex definition of construction of complex
 Whether Macro Marvel decision is still relevant?
 Notification No. 25/2012 dated 20.06.2012 w.e.f. 01.07.2012
exempts services by way of construction, erection,
commissioning or installation of original works pertaining
to a single residential unit other than as a part of a
residential complex (Entry 14 (b)).
 Residential complex is defined to mean “any complex
comprising of a building or buildings having more than one
single residential unit.”
 Single residential unit means a self contained residential unit
which is designed for use wholly or principally for residential
purposes for one family.

 Original works means:
 (i) all new constructions;
 (ii) All types of additions and alterations to abandoned or
damaged structures on land that are required to make
them workable.
 (iii) Erection, commissioning or installation of plant,
machinery or equipment or structures whether pre-
fabricated or otherwise.

Activity Taxability
Construction of a complex comprising of
more than one residential unit
Taxable
Construction of a single bungalow of a
size of 5000 sq. ft. meant for a family
Not taxable
Construction of a two unit building with
separate floor plans and paid for
separately by two brothers
Taxable?
Construction of 50 villas in a gated
community
Taxable?
Alteration and re-modeling of an existing
single residential unit
Taxable if not in the nature of original
works

 Earlier provision required a complex to have more than 12
residential units.
 New provision creates a liability for any construction of
complex unless it is a single residential unit.
 Construction of a complex comprising of 6 apartments has
started on 01.01.2012 and 30% of the monies have been
received under agreements.
 Martin Lottery decision.
 No tax position
 Proportionate tax position
 Can monies received earlier now be subjected to tax based
on Point of Taxation Rules ?

 Determination of service tax liability for a developer
who receives money before issuance of completion
certificate.
 In the earlier system developers were discharging
service tax on 33% of the value without cenvat
credit benefit under Notification No.1/2006.

DESCRIPTION OF TAXABLE
SERVICE
PERCENTAGE CONDITIONS
Construction of a complex,
building, civil structure or a
part thereof, intended for a
sale to a buyer, wholly or
partly except where entire
consideration is received after
issuance of completion
certificate by the competent
authority.
(a)For a residential unit
satisfying both conditions
namely carpet area being less
than 2000 sft. and amount
charged being less than Rs.1
crore.
(b) Other than (a)
25
30
(i) CENVAT credit on inputs
used for providing the
taxable service has not
been taken under the
provisions of the CENVAT
Credit Rules, 2004.
(ii) The value of land is
included in the amount
charged from the service
receiver.

 Joint Venture
 Different models
 Monetary share / share of constructed area
 Is the contractor liable to pay service tax on
construction done for the land owner?

 An agreement between the owner of a land and a builder for construction
of apartments and sale of those apartments so as to share the profits may
be a joint venture, if the agreement discloses an intent that both parties
shall exercise joint control over the construction/development and be
accountable to each other for their respective acts with reference to the
project.
 On facts there is a contract for construction of an apartment and there is
consideration for such construction flowing from the land owner to the
builder (in the form of sale of undivided share in the land and permission to
construct and own the upper floors).
 The land owner is the consumer, builder is the service provider.

 Tax on same rate as charged on other buyers
 Tax on average rate
 Tax on construction cost
 Tax payable by adopting value of UDS transferred
 Decision of the Supreme Court – (Faqir Chand Gulati Vs.
Uppal Agencies Pvt. Ltd.) Consumer case.

 Chennai Tribunal in the case LCS City Makers Vs. CST (2012)
TIOL 618 has held that:
(a ) there is no infirmity in adopting value of the flats sold for
value of flats allotted to land owners.
(b) guideline value of land cannot be adopted.
(c) Contention that consideration received other than in the
form of money prior to 19.04.2006 not acceptable as
substantial part of service was provided after valuation rules
were notified.

 The Chennai Tribunal in the case of Aswini Apartments (unreported)
vide order dated 15.07.2013 on a similar issue remanded the matter back
to the adjudicating authority to give a ruling on the legal issues raised.
One of the legal issues raised was that in respect of land owner share the
consideration would be the notional value received for the value of
undivided share of land obtained from the land owner. This decision was
rendered after the decision of LCS.
 The Commissioner (Appeals), Chennai in the case of Navin Housing and
Promoters Pvt. Ltd. in O-i-A No.209/2010 dated 10.12.2010 has held
that where the land owner is given any constructed area as part of the
joint venture, service tax is not applicable on landowner share.
 Board Circular dated 151/2/2012 dated 10.02.2012 - the value of similar
flats as are sold nearer to the date on which land is being made available

 Developer is likely to recover the service tax
in respect of the apartments allocated to the
landowner.
 If landowner markets these apartments prior
to issue of completion certificate and receives
money in advance, service tax exposure.
 If landowner executes a single sale deed for
the apartment and the land?

 Where the document that is executed is in the nature of an
agreement for transfer and possession is handed over as part
performance as contemplated in Section 53A of the Transfer
of Property Act, 1882 then there is a transfer and capital
gains would arise immediately. This would be evident in a
situation where the developer settles the consideration in
the form of money or monies worth on an outright basis and
the land owner has no relevance or say in the development
work.

 Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT (2003) 260 ITR
491, has in the context of development agreements held that the year of
taxability is the year in which the contract is executed. The Court held that in the
case of development agreement one cannot go by substantial performance of
the contract and the year of chargeability would the year of execution.
 The decision of the Bombay High Court in the case of Chaturbhuj Dwarkadas
Kapadia was distinguished by the Bombay Tribunal in the case of ACIT Vs. Mrs.
Geetha Devi Pasari (104 TTJ 375)
 The Pune Bench of the Tribunal in the case of Mahesh Nemichandra Vs. ITO
(2012) TIOL 408 has held that where the assessee forms a JV with a builder for
development of property and enters into an irrevocable agreement the date of
the Agreement would be the date of transfer .
 The Mumbai Tribunal in the case of Hillside Construction Co. Vs. DCIT (2012)
TIOL 516 has held that where developments rights were parted the entire
amount became due on signing of the development agreement and handing over
of possession of the land. Postponement of payment does not stop accrual of
income.

 Chennai Tribunal in Mount Mettur Pharmaceutical (2008
TIOL 657) has held that when vacant possession of undivided
share of land Is handed over on 16.04.1996, the transfer took
place on 16.04.1996.
 AAR in Jasbir Singh Sarkaria (294 ITR 196) has ruled that for
Section 2(47)(v) to apply there must be a transaction under
which the possession of immovable property is allowed to be
taken or allowed to be retained. What is contemplated is a
transaction which has a direct and immediate bearing on
allowing possession to be taken in part performance of the
contract of transfer. It is at that point of time the deemed
transfer takes place.

 Hyderabad Bench of the Tribunal in the case of Akkineni
Nagarjuna Rao (2012) 52 SOT 23 has held that where a plot
of land was given for development to the developer under an
agreement with a promise by the developer to handover 35%
of the built up area, it is a case of transfer since possession of
the land had been handed over.
 Chennai Bench of the Tribunal in the case of Vijaya
Productions (2012) 134 ITD 19 has held that when
possession is not taken and the power is only to enable
contractual obligations in planning and development there is
no transfer.

(i) If possession is handed over to the developer on the date of signing the
development agreement then in the light of the various decisions
referred to above and in the absence of an alternative view emerging in a
higher forum, transfer would take place on the date of execution of the
development agreement.
(ii) If possession of property as well as the right to deal with the property in
any manner is granted through a power of attorney at a later point of
time and the agreement refers to this aspect as a specific future
transaction to be consummated on the happening of an event, then the
year of taxability would be the year in which the said transaction takes
place.
(iii)Where transfer takes place by virtue of any of the trigger points, the land
owner can take recourse to Section 50D and adopt the fair market value
as the consideration for the purpose of calculating capital gains.

 Date of possession
 Conflict between developer and landowner
 Postponement of date of possession from a
capital gain perspective may result in higher
service tax liability.

 Section 65B(54) of the Finance Act, 1994 defines ‘works
contract’ as under:-
“ Works contract means a contract wherein transfer of
property in goods involved in the execution of such contract is
leviable to tax as sale of goods and such contract is for the
purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, alteration of any moveable or immovable property
or for carrying out any other similar activity or a part thereof in
relation to such property.”

 In the earlier regime only select works
contracts were covered under the service tax
levy.
 In the new regime all works contracts are
taxable.
 Repair and maintenance is also considered as
a works contract.

 Value of service portion = Gross amount charged for the
works contract Less the value of property in goods
transferred in the execution of the said works contract.
 Gross amount shall not include VAT.
 Value shall include labour, amount paid to sub-contractor for
labour and services, charges for planning, design, architect,
hire, cost of consumables, cost of establishment, similar
expenses and profit relatable to supply of labour and service.
 Where VAT has been paid on the actual value of the
property in goods transferred in the course of execution of
WCT then such value adopted for VAT shall be taken as value
of property in goods for determination of value of services.

CATEGORY VALUE
WCT for execution of original works 40% of the total amount charged
WCT for maintenance or repair or
reconditioning or restoration or
servicing of any goods.
70% of the total amount charged
Other WCTs not covered above
including maintenance, repair,
completion and finishing services
such as glazing, plastering, floor and
wall tile, installation of electrical
fittings of an immovable property.
60% of the total amount charged
Cenvat credit is not available on
inputs.

 When Section 65B(44) excludes specifically
transfers referred to in Article 366(29A), can Rule 2A
create a higher liability including the goods portion.
 For certain contracts under the VAT Law, 85% is
accepted as goods portion and 15% is accepted as
labour portion. For the same contract, under the
Service Tax Law, labour portion is 40%.
 For maintenance contracts, 70% is adopted as
service value under service tax law and VAT law
adopts 70% as material value.

 The Supreme Court in the case of Raheja
Development Corporation had observed that an
agreement entered into by a developer before the
construction is complete is a works contract.
 This decision was doubted by the Supreme Court and
the matter was referred to the Larger Bench in the
case of Larsen & Toubro Ltd. Vs. State of
Karnataka.
 The Larger Bench vide decision dated 26.09.2013 has
rendered a landmark decision which will have far
reaching implications for the real estate industry.

 Raheja Development entered into development agreements
with landowners.
 Raheja Development entered into agreements of sale with
intended purchasers.
 The agreements provided that on completion of
construction the residential apartments or commercial
complexes would be handed over to the purchasers who
would get an undivided interest in the land also.
 The owners of the land would then transfer the ownership
directly to the society formed under the Karnataka
Ownership Flat (Regulation of the Promotion of
Construction, Sale, Management and Transfer) Act, 1972

 The definition of works contract included any
agreement for carrying out for cash, deferred
payment or other valuable consideration, the
building, construction, manufacture,
processing, fabrication, erection, installation,
fitting out, improvement, modification,
repair or commissioning of any movable or
immovable property.

 Three conditions must be satisfied for the levy
namely
(a) There must be a works contract
(b) The goods should have been involved in the
execution of the works contract
(c) The property in those goods must be transferred
to a third party either as goods or in some other
form.
 If the developer has received or entitled to
consideration all the three conditions are fully met.

 In the performance of the contract for construction,
the goods are intended to be incorporated in the
structure even though they lost their identity as
goods.
 Where a contract comprises of both works
contract and transfer of immovable property such
contract does not alter the status of being a works
contract.
 A contract may involve both a contract of work and
labour and a contract for sale.

 Even if the dominant intention is not to
transfer the property in goods and rather it
is rendering of service or the ultimate
transaction is transfer of immovable
property, it is open to the States to levy
sales tax on the materials used in such
contract if such contract otherwise has
elements of works contracts.

 Taxing the sale of goods element in WCT is
permissible even after incorporation of goods
provided the tax is directed on the value of goods
and does not purport to tax the transfer of
immovable property. The value of goods which
can constitute the measure for levy of tax has to
be the value of goods at the time of incorporation
of the goods in the works even though the
property passes as between the developer and
the flat purchaser after incorporation of goods.

 It is not correct to say that the work is undertaken
by the developer for himself and for the owner
and the construction is not carried on for and on
behalf of the purchaser.
 If at the time of construction and until construction
is completed there is no contract for construction of
the building with the flat purchaser, the goods used
in construction cannot be deemed to have been sold
by the builder since at that time there is no
purchaser.

 The expression ‘in any other form’ is of utmost significance.
Goods which have by incorporation become part of
immovable property are deemed as goods.
 The ultimate transaction between the parties may be sale
of flat but it cannot be said that the characteristics of WCT
are not involved in that transaction. When the
transaction involves the activity of construction factors
such as, the flat purchaser has no control over the
materials to be used or he does not get a right to monitor
construction or has a say in design or layout are not of
significance.

 It cannot be said to be an absolute proposition in
law that ownership of the goods must pass by way
of accretion or exertion to the owner of the
immovable property to which they are affixed or on
which the building is built.

 In the light of this decision, the argument
that the developer is providing only a self
service becomes questionable.
 If the construction agreement between the
developer and the purchaser is a works
contract, what will happen to the disputes for
the period prior to 01.07.2010.
 Prior to 01.07.2010, Department has issued
show cause notices under ‘construction of
complex’ and not under ‘works contract’.

 If agreement between developer and
purchaser is a WCT for VAT purposes based on
decision of L&T then it is also WCT for service
tax purposes.
 Service tax at the rate of 12.36% on 40% of the
construction agreement?
 Is there any difference between construction
of complex as a category and works contract
service since both categories are considered
as declared services in terms of Section 66E?

 Assuming land value is Rs.50 lakhs and construction
consideration is Rs.1 crore, under construction of
complex service, service tax is payable at rate of
12.36% on 30% of Rs.1.5 crores that is Rs.5,56,200/-.
 Under works contract service, service tax is payable
at the rate of 12.36% on 40% of Rs.1 crore that is
Rs.4,94,400/-.
 Cenvat credit effect is neutral in both systems since
credit is available on capital goods and input
services and not available on inputs.

 Composite contract for manufacture, supply
and installation of lifts in a building – whether
it is a contract for sale of goods or a works
contract.

 A Five Member Bench of the Supreme Court in the case of
Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu
(2014) 34 STR 641 has held as under:-
 Works contract is an indivisible contract but by legal fiction it
is divided into two parts, one for sale of goods and the other
for supply of labour and services.
 The concept of dominant nature test for treating a contract
as a works contract is not applicable.
 Works contract under Article 366(29A) takes within its sweep
all genre of works contract.
 Once the characteristics of works contract are met in a
contract, any additional obligation in the contract would not
change the nature of the contract.

 A lift is not a plant which is erected at site. Without
installation the lift cannot be mechanically functional.
Installation of lift in a building is a composite contract.
 In L&T the Bench has held that the ultimate transaction
between the parties may be the sale of a flat but it cannot be
said that the characteristics of WCT are not involved in that
transaction.
 If the contract is a composite contract falling within the
definition of WCT under Article 366(29A), the incidental part
as regards labour and service pales into total insignificance
for the purpose of determining the nature of the contract.

 It is necessary to state that if there are two contracts namely
purchase of the components of the lift from the dealer, it
would be a contract for sale and similarly if separate contract
is entered into for installation that would be a contract for
labour and service. But a pregnant one, once there is a
composite contract for supply and installation it has to be
treated as a works contract for it is not a sale of goods /
chattel simpliciter.

 The Mumbai Bench of the Tribunal in the case of ITO Vs. Mrs. Chetana H. Trivedi
(2012) TIOL526 has held that the right to construct building on the said plot of
land by consuming FSI and the right as a receiving plot owner to load TDR over
and above the normal FSI, are rights which accrue to the assessee by virtue of the
development control regulation for Greater Bombay. These are rights over
property, which are capital assets within the meaning of the definition of capital
assets under section 2(14). The consideration received by the assessee was for
transfer of rights over such asset and same would fall under Section 45.
 The Mumbai Bench of the Tribunal in the case of ACIT vs. Ishverlal
Manmohandas Kanakia ITA No. 3053 & 2650/Mum/2010 has held that the
receipts on assignment of FSI including originating from the plot of
land and/or married to it and right to load consume and use FSI credit by way of
TDR which was the subject matter of transfer by the Assessee was a capital
asset in respect of which the cost of improvement could not be ascertained
and therefore the receipts of consideration for transfer of the said rights
cannot be brought to tax as the said receipts will be capital receipts and not
capital gain.

 The Bombay High Court in the case of Chheda Housing Development
Corpn., a Partnership firm Vs. Bibijan Shaikh Farid & Ors. (2007) (3)
MHLJ 402 (Bom.) dealing with specific performance of Agreement for
use of TDR held that FSI/TDR are benefits arising from the land
consequently must be held as immovable property. The Court observed
that an immovable property under the General Clauses Act, 1897 under
section 3(26) has been defined as to include benefits arising out of land.
Therefore, if there is any benefit which arises out of the land, then it is
immovable property.
 The Mumbai Bench of the Tribunal in the case of Jethalal D. Mehta Vs.
DCIT (2005) 2 SOT 422 (Mum.), following the judgment of Apex court in
CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) held that TDR
granted by DCR, 1991 qualifying for equivalent F.S.I. having no cost
of acquisition, sale thereof gives no rise to capital gains.

 The Mumbai Bench of the Tribunal in the case of ITO Vs. Lotia Court Co-
operative Housing Society Ltd. (2008) TIOL 404, held that the assignment of the
TDRs to the developer and in turn the additional floors to be constructed and also
repairs/renovation of the building to be carried out, does not result in to accrual
of any income in the hands of the assessee society, who is not the owner of the
plot. Even in the case of flat owners who owned the individual flats in the
respective names, there is no question of taxability of receipt on account of sale
of additional floor space index received by the assessee by virtue of transfer of
TDRs under the Development Control Regulation for Greater Mumbai, 1991.
Receipt on sale or assignment of rights to receive TDRs is held not liable to
tax.
 The Mumbai Bench of the Tribunal in the case of New Shailaja CHS vs. ITO (ITA
NO 512/M/2007.BENCH B dated 2nd Dec., 2008 (Mumbai) wherein the assessee,
a Co-op. Housing Society became entitled, by virtue of the Development Control
Regulations, to Transferable Development Rights (TDR) and the same were sold
by it for a price to a builder, it was held that though the TDR was a ‘capital
asset’, as there was no ‘cost of acquisition’ for the same, the consideration
could not be taxed as capital gains.

 Can TDR be considered as goods?
 The Supreme Court in the case of Yasha Overseas Vs. Commissioner of
Sales Tax (2008) TIOL 97 SC-CT has held that DEPB like REP license
clearly goods within the meaning of sales tax laws and it sale exigible to
tax.
 The Commissioner under Section 85 of the Delhi VAT Act has issued a
Ruling to the effect that Certified Emission Reductions (CER) commonly
known as ‘Carbon Credit’ are goods.
 If TDR is considered as immovable property, there is no service tax.
 If TDR is considered as goods there is no service tax but VAT / CST
applicability has to be addressed.

 The Tribunal in the case of Nitesh Estates Limited Vs. Commissioner of
Central Excise (2012) 26 STR 587 has held that construction of
residential complex for their clients namely ITC Ltd who in turn allotted
the apartment to its employees for residential use prima facie is not
liable to service tax.
 In terms of Section 65B(44) service means any activity carried out by a
person for another for consideration and includes a declared service. In
terms of Explanation 3, an unincorporated association or body of persons
as the case may be and a member thereof shall be treated as distinct
persons.
 The principles of mutuality are yet to be tested in the new regime.
However if the society does not recover anything more than the amounts
paid to the contractors whether service tax is still payable by the society?

 Stamp duty and registration
 Service tax
 VAT
 VAT - TDS
 TDS under Section 194-IA

 Services provided to the Government, a local authority or a
governmental authority by way of construction, erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of -
(a) a civil structure or any other original works meant predominantly
for use other than for commerce, industry, or any other business or
profession;
(b) a historical monument, archaeological site or remains of national
importance, archaeological excavation, or antiquity specified under the
Ancient Monuments and Archaeological Sites and Remains Act, 1958;
(c) a structure meant predominantly for use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for
(i) water supply
(ii) water treatment, or
(iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use
of their employees or other persons specified in the Explanation 1 to
clause 44 of section 65 B of the said Act.
 Original works means
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or
damaged structures on land that are required to make them
workable;
(iii) erection, commissioning or installation of plant, machinery
or equipment or structures, whether pre-fabricated or otherwise;

 Residential complex means any complex comprising of a building or
buildings, having more than one single residential unit.
 “Governmental Authority means an authority or a board or any other body:
(a) set up by an Act of Parliament or a State Legislature; or
(b) established by Government;
with 90% or more participation by way of equity or control to carry out any
function entrusted to a municipality under Article 243W of the Constitution

 Services provided by way of construction, erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for use by
general public;
(b)a civil structure or any other original works pertaining to a scheme under
Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;
(c) a building owned by an entity registered under section 12 AA of the
Income tax Act, 1961 and meant predominantly for religious use by
general public;
(d) a pollution control or effluent treatment plant, except located as a
part of a factory; or
(e) a structure meant for funeral, burial or cremation of deceased;

 Services by way of construction, erection, commissioning,
or installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or metro;
(b) a single residential unit otherwise than as a part of a residential complex;
(c) low- cost houses up to a carpet area of 60 square metres per house in a
housing project approved by competent authority empowered under the
‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing
and Urban Poverty Alleviation, Government of India;
(d) post- harvest storage infrastructure for agricultural produce including a cold
storages for such purposes; or
(e) mechanised food grain handling system, machinery or equipment for
units processing agricultural produce as food stuff excluding alcoholic
beverages;
Single residential unit means a self-contained residential unit which is
designed for use, wholly or principally, for residential purposes for one
family.
Residential complex” means any complex comprising of a building or
buildings, having more than one single residential unit.

 Section 68(2) provides that in respect of such taxable
services as may be notified the Government may
specify that the tax shall be paid by such person in
such manner at the rate specified in Section 66B and
all the provisions of this Chapter shall apply to such
person as if he is a person liable for paying service
tax.
 The proviso provides that the Government may
notify the service and the extent of service tax
payable by such person and the remaining part shall
be paid by the service provider.

Nature of
Service
Status of
Service Provider
Status of Service
Receiver
Percentage of Service Tax
Payable by
Service
Provider
Service
Receiver
Service
portion in
execution of
works
contract.
Individual / HUF /
Partnership Firm
whether registered or
not, including AOP
located in the taxable
territory to a business
entity registered as a
corporate located in the
taxable territory.
Business entity
registered as a body
corporate.
50% 50%*
*The service
recipient has the
option of
choosing the
valuation
method as per
choice
independent of
the valuation
method adopted
by the provider.

 Works contract means a contract wherein transfer
of property in goods involved in the execution of
such contract is leviable to tax as sale of goods and
such contract is for the purpose of carrying out
construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance,
renovation, alteration of any moveable or
immovable property or for carrying out any other
similar activity or a part thereof in relation to such
property.

 Activity
 Material + Labour
 Position in VAT
 Section 194C
 Past period
 VAT TDS

 It is to be noted that the tax liability for the service provider and the service
receiver respectively are independent. This is not like a TDS mechanism
and would require discharging of the identified percentage of service tax.
 Assuming, the reverse charge mechanism is applicable in respect of works
contract service provided by a non-corporate body (individual or AOP or
HUF or Partnership firm) and the bill is for Rs.1 lakh, the Company can
calculate value as 40% and the service tax liability of the Company under
reverse charge mechanism would be 50% of 12.36% calculated on 40% of
the WCT value.
 Assuming, reverse charge mechanism is applicable in respect of manpower
services or security services provided by a non-corporate body and the bill
is for Rs.1 lakh the service tax liability of the Company under reverse
charge mechanism would be 75% of 12.36% on Rs.1 lakh.

 10 Lakh exemption not available
 Payment should be made only by cash and not through
cenvat
 Amount paid can be taken as credit if otherwise eligible and
the challan is the cenvatable document
 Payment by the provider in full may not insulate the receiver
from liability to the extent of the receiver’s portion of tax

 If service tax due on transportation of a
consignment has been paid or is payable by a
person liable to pay service tax, service tax
should not be charged for the same amount
from any other person, to avoid double
taxation.

 There is no dispute that service in question has suffered tax.
The only dispute is the person who shall pay the service tax.
When the treasury has not been affected by virtue of
collection of service tax from the service provider as is the
case of the Revenue and there is no legal infirmity in the
decision of the learned Commissioner (Appeals) there
cannot be double taxation of same service. But it is fact that
realization of the service tax has been made from the service
provider while the recipient of service of GTA has liability
under the law. Finding no loss of revenue, as has been held
by the learned Commissioner (Appeals), Revenue’s appeal is
dismissed.

 The Mumbai Bench of the Tribunal has held
that once the amount of service tax is
accepted by the revenue from the provider of
GTA service it cannot be demanded again
from the recipient of the GTA service.

 The definition of ‘service’ excludes transfer of title in
immovable property by way of sale, gift or in any other
manner.
 Immovable property not defined.
 Immovable property in terms of General Clauses Act includes
land, benefits to arise out of land, things attached to the
earth or permanently fastened to anything attached to the
earth.
 Joint Development – Landowner / Developer perspective
 Can the transaction be seen as barter of land for constructed
apartments?
 Can the transaction be seen as a transfer of title in
immovable property from both sides?

 Section 118 of the Transfer of Property Act provides that when two
persons mutually transfers the ownership of one thing for the ownership of
the other, neither thing or both things being money only, the transaction is
called ‘an exchange’.
 The Supreme Court in the case of CIT Vs. Motor & General Stores Pvt.
Ltd. has held that a transaction in which the consideration for the transfer
of certain properties are shares in a limited company is an exchange.
 The Supreme Court in the case of CIT Vs. Rasiklal Maneklal (1989) 177 ITR
198 has held that an exchange involves the transfer of property by one
person to another and reciprocally the transfer of property by that other to
the first person. There must be a mutual transfer of ownership of one
thing for the ownership of another.
 Whether the flats to be exchanged exist at the time of the land being
handed over?

 Relinquishment of rights in immovable property.
 Whether it can be considered as merely transfer of title in
immovable property by way of sale, gift or in any other
manner.
 Scope of Section 66E(e) dealing with agreeing to the
obligation to refrain from an act, or to tolerate an act or a
situation or to do an act.

 Renting of immovable property
 The Supreme Court in the case of Member Board of Agricultural Income Tax Vs.
Sindhurani Chaudhurani (1957) 32 ITR 169 has held that salami in the form of a
lump sum non-recurring payment made by a prospective payment to the landlord
as a consideration for the settlement of agricultural land, paid anterior to the
constitution of relationship of landlord and tenant is not ‘rent’.
 The Mumbai Bench of the Income Tax Appellate Tribunal in the case of ITO Vs.
Shah Group Builders Ltd. (2013-TIOL-751) has held that lease premium paid to
CIDCO is not in the nature of rent contemplated under Section 194-I and the
assessee was not liable to deduct tax at source.
 The Chennai Bench of the Tribunal, however has taken a contrary position in the
case of Foxconn and has held that Section 194-I is applicable. However, the
Chennai Bench has not considered the angle that the development charges is not
‘rent’ but the consideration for the transfer of right to use the land. The provisions
of Section 194-I would be attracted provided what is paid is in the nature of rent
and rent is defined to mean any payment for the use of any land or building, etc.

 In the context of service tax when tax was imposed on renting of immovable
property through Section 65(105)(zzzz) of the Finance Act, 1994, the Tribunal at
the stage of Stay Petition in the case of Greater Noida Industrial Developmental
Authority Vs. CCE (2014) 33 STR 464 has observed that the ordinary meaning of
‘renting’ would not cover under long term leasing. The definition of renting to
include letting, licensing, leasing, would suggest that leasing would not cover
long term leasing where a property is given to a person with rights to transfer,
assign and mortgage the rights. Developing a township according to a plan
which would be conducive to society at large and maintaining municipal
functions in such township has to be considered as a sovereign function of a
Government and not a commercial activity of the Government.

K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 + 2224 4854/ 4112 0804
Mobile: 98400-96876
E-mails : askvaithi@yahoo.co.uk vaithilegal@yahoo.co.in

Icai rajkot - real estate - 08.06.2014

Recommended

Recommended

More Related Content

What's hot

What's hot (15)

Similar to Icai rajkot - real estate - 08.06.2014

Similar to Icai rajkot - real estate - 08.06.2014 (20)

More from oswinfo

More from oswinfo (20)

Recently uploaded

Recently uploaded (20)

Icai rajkot - real estate - 08.06.2014