Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Monday, August 6, 2012

Service Tax applicability on Charitable Organizations: Certain Matters

Re: Service of Renting of Immovable Property– Section 65(105)(zzzz)

As per Notification No.23/2007 dated 22.05.2007, “taxable service” means any service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting of immovable property for use in the course or, for furtherance of, business or commerce.

Renting of immovable property includes renting, letting leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce but does not include-

(i)                  renting of immovable property by a religious body or to a religious body; or
(ii)                renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre.

Point 5 of Mega Notification No.  25/2012 dated 20.06.2012 exempts the following taxable service from the whole of the service tax leviable thereon under section 66B of the Service Tax Act:
Services by a person by way of-
(a)     renting of precincts of a religious place meant for general public; or
(b)     conduct of  any religious ceremony;

Our opinion: Even though the law does not clearly state so, but the legislation intention is to exempt religious places from service tax on activities conducted for religious purposes or for non-commercial use by the general public. The abovementioned clause has been incorporated in the mega notification to affect the same. The same benefit cannot be extended for renting of premises for a commercial purpose. Hence, the activity of renting out property to any person carrying out commercial business will attract service tax liability.

It is to be noted that any property tax paid for the period of renting out such property will be deducted from the rent received during that period for computation of service tax. (Notification No. 29/2012 dated 20.06.2012)

Re: Sponsorship Services – Section 65(105)(zzzn)

Section 65(105)(zzn): Taxable service means any service provided or to be provided to any persons, by any other person receiving sponsorship, in relation to such sponsorship, in any manner, but does not include services in relation to sponsorship of sports events.

Taxable service means any service provided or to be provided to anybody corporate or firm, by any person receiving sponsorship i.e. an external person for a consideration. The term body corporate or firm are having wide meaning and shall include all commercial concerns.

Section 65(99a): “Sponsorship” includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for completion; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors.

As per Point 1(A)(iii) of Notification No. 30/2012 dated 20.06.2012, in case of taxable services provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory, 100% of the service tax in respect of such services is to be paid by the service receiver.

Our opinion: Clearly, a charitable organization will be the service provider according to the definition stated in the service tax law. Any corporate or firm receiving such services from the charitable organization will be itself liable to deposit service tax @12.36% on the amount given as sponsorship.

·         However, in case the charitable organization takes funds for an event with no obligation to display the name of the provider of the funds, such an amount received is not “sponsorship”, but is in the form of a voluntary donation without consideration. In this case, the provider of funds should give in writing that the charitable organization is not bound by any obligation to display their logo, trademarks or business names during the event, or in relation to it.

The charitable organization will not be liable to pay service tax on any amount received as sponsorships or donations as the liability of payment is on the service receiver.

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