Commercial Rental Tax issue is taking the face of a big issue with every passing day. The most controversial of the new services that would attract service tax is “services provided in relation to renting of immovable property for the purpose of business”. A simple activity of renting out built up premises or open space or office space in India would now attract service tax. A question that is being raised in this context is, “What is the service that is provided by a landlord or the owner of the property while renting out his or its premises?”

In most of the cases that involve renting out of premises, the only service, if at all that can be called service, is the monthly visit by the landlord’s bill collector to collect rent. Perhaps, there could be a case for service tax where the landlord is providing certain extra services along with the premises; even in such cases the service tax should be only on the services component. Only if it is not possible to segregate the rent amount from the cost of services that service tax
be levied on the entire amount.

However, the moot question remains unanswered as to whether there is any service involved in mere renting of premises. If no service is being rendered then to what extent is it legally tenable to levy service tax on the rental amount itself? In this context, it would be of interest to refer to the provisions of section 297 of the Companies Act, 1956. The said section provides that certain contracts, entailing sale or purchase of goods or materials or rendering of service, in which directors or their relatives are interested should be approved by the board and in certain cases approval of the Central government should be obtained.