By TIOL News Service

NEW DELHI, AUG 23, 2017: THE brief facts of the case are that the appellant, a proprietorship firm, entered into a lease agreement with M/s Frankfinn Institute of Air Hostess Training.

The agreement provided for a leasing out 550 sq. yards of premises and fuselage of Airbus 300 Aircraft for commercial use of the lessee for advertisements, promotion and imparting basic cabin crew/cabin crew/hospitality/travel and tourism training of the institute run by the lessee.

The appellant received consideration in terms of such lease agreement. As the land which was leased out was co-owned by the proprietor alongwith his mother, Mrs. Bhateri Devi, she was paid 50% of land rent by appellant.

Proceedings were initiated against appellant and Mrs. Bhateri Devi, who received rent towards co-owned land/building from appellant, to demand and recover service tax under the category of Business Support service and Renting of Immovable Property service.

Service Tax demands were confirmed under BSS against the appellant. A service tax demand of Rs.2,23,098/- was also confirmed under the category of Renting of Immovable property against Mrs. Bhateri Devi co-owner of the land which was leased out.

The appellant submitted:-

(a) The agreement is for leasing out the fuselage of Airbus alongwith the connected premises of land. The Revenue cannot split up artificially the said lease into two categories to tax under BAS and Renting of Immovable property;

(b) Leasing out the aircraft cannot be called as business support service as the aircraft is fixed to the earth. Leasing of such facility cannot also be considered as renting of immovable property service. The lessee is not using the property for any commercial purpose and, as such, no service tax liability can be demanded from the appellants.

The AR submitted that the aircraft which was earlier a functional Airbus 300 is now kept by the main appellant in his own premises and leased out to the training institute for commercial use of advertisement, promotion, training etc.;that the agreement categorically states that the lessee shall use it for commercial purpose; that as the appellant gave the details under different headings, the demands were accordingly made; that the aircraft is used as a training premises and it contains all the requirements for such training to give the real effect of the actual aircraft; that infrastructural facilities as listed in Schedule II of the agreement like Oxygen, Mask, life saving jacket, service trolly, public address system, floor lighting system etc. were also provided by the main appellant for the training conducted by the lessee and, therefore, these activities are squarely covered by the statutory scope of Business Support service.

As regards renting of immovable property service, the AR submitted that since the land alongwith certain office room has been provided on lease rent basis to the lessee for use in conjunction with the training, advertisement and other commercial purposes in terms of the agreement, the said activity is clearly covered under RIPS for commercial purpose.

After extracting the agreement entered into with M/s Frankfinn, the Bench made the following observation on both the submissions made by the appellant –

++ It is very clear that there are two distinct properties which are given on lease. The lease rental contribution attributable to each one of the property has been categorically stated by the main appellant when the enquiry was conducted. There is no dispute about the consideration attributable to each one of the property. We do not agree with the appellant that the consideration has been artificially split up and brought under tax liability under two tax entries...

++ The Airbus 300 is apparently not in a flying condition. The same is parked and immobilized in the premises of the main appellant. The said aircraft is put to use as an extension of training class for imparting training to cabin crew and others. In other words, the aircraft is an extended premises of training facility of the lessee.

++ With this background, when we examine the statutory definition of business support service as provided under Section 65 (104c) it is clear that this activity will be covered by the said tax entry. "Support services of business or commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers …….. infrastructural support services ………. The explanation below the tax entry gives the scope of the expression "infrastructural support services".

++ The same will include providing office alongwith office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet, telecom services, pantry and security.

++ In the present case, the terms of the agreement clearly stipulate that the main appellant shall maintain the property alongwith required equipments, as mentioned in Schedule II of the agreement. The Schedule II lists out various equipments and facilities which are to be provided by the main appellant. These are oxygen masks, life saving jackets, doors, escape shuts, service trolley, public address system, floor lighting system for emergency evacuation etc. These are nothing but infrastructural support for business or commerce of M/s Frankfinn.

++ It is clear that the aircraft premises and the other equipments are very essential and imperative infrastructure for providing training to the participants and also to make publicity about the status of the training institute. As already noted, the training of cabin crew is imparted both in the classrooms and inside the aircraft for practical exposure. The aircraft in possession of the main appellant serves this very basic infrastructural requirement of the training by the lessee. As such, we find that lease rent attributable to this activity is rightly taxable under business support service.

++ The second property indicated in the lease agreement is 550 sq. yards of the appellant. We note that the lessee is also to have an office premises of their choice location within the leased out land. The lessee is also allowed to use the land with office for commercial purpose as listed in the agreement. The said activity is specifically covered by the tax entry renting of immovable property services in terms of Section 65 (105) (zzzz) readwith Section 65 (90a). The property leased out by the main appellant is for the furtherance of business and commerce and accordingly liable to tax.

In fine, it was held that there was no merit in the submission made by the appellant against the service tax demands.

However, considering that renting of immovable property service was the subject matter of substantial litigation and amendments were brought in the statutory definitions alongwith retrospective changes coupled with specific provision in Section 80(2) of the FA, 1994 for waiver of penalty in respect of renting of immovable property service, the Bench, invoking the provisions of Section 80 of the FA, 1994, waived the penalties imposed.

The appeals were dismissed except to the extent of setting aside the penalties.

(See 2017-TIOL-3055-CESTAT-DEL)