While clarifying that Section 65(88) of the Finance Act, 1994, which defines a ‘Real Estate Agent’, does not cover a direct transaction of sale and/or purchase inter se between two individuals or entities, the Supreme Court clarified that the transfer of title of land by the real estate developer (Elegant Developers) to Sahara India Commercial Corporation (SICCL) after negotiating the price thereof with the owners and procuring a Power of Attorney to execute the sale deeds, are purely sale/conveyance of immovable property, which falls within the exception as provided under Section 65B(44)(a)(i) of the Finance Act, 1994.
Thus, the Court held that the transactions/activities undertaken by the respondent/Elegant Developer with SICCL did not bring it within the purview of ‘Real Estate Agent’ or ‘Real Estate Consultant’ as defined under Sections 65(88) and 65(89) of the Finance Act, 1994, respectively. Since these transactions were not undertaken for service charges, commission, agency or consultancy but were plain and simple transactions of sale of land, the Commissioner erred in raising the demand of tax and imposing a penalty upon the respondent.
A Two-Judge Bench of Justice J.B. Pardiwala and Justice Sandeep Mehta observed that the terms of the MoU do not indicate the existence of any relationship of principal and agent between SICCL and the respondent. It simply referred to a fixed rate per plot, which SICCL would pay to the respondent for every chunk of the land provided by the respondent to SICCL. There was no element of any service charges or consultancy charges being levied by the respondent on such sale transactions.
The Bench went on to observe that the gains, if any, accruing to the respondent would arise from the difference in sale consideration over and above the fixed sale price settled in the MoU. At the same time, there also existed a probability of the respondent suffering losses in the transaction if the value of the land exceeded the fixed price agreed upon in the MoU.
The Bench referred to the definitions of ‘Real Estate Agent’ and ‘Real Estate Consultant’ as provided under Sections 65(88) and 65(89) of the Finance Act, 1994, respectively, which revealed that both are centred on the rendering of services, whether in form of sale, purchase, leasing or renting of real estate and/or in form of advice, consultancy or technical assistance, in relation to procurement, acquisition, development, construction, maintenance, marketing, or management of real estate or activities related to construction.
The Bench clarified that while ‘Real Estate’ encompasses land, buildings, and associated development works, as well as commercial activities connected with such property, the definition of a ‘Real Estate Agent’ under Section 65(88) of the Finance Act, 1994, is service-centric. Thus, for a person to be covered under the definition of ‘Real Estate Agent’, there must be attributable to such person an act of rendering service.
It is only the contract of agency inter se between the service provider or the consultant, as covered under Sections 65(88) and 65(89) of the Finance Act, 1994, and the principal engaging such service provider or the consultant, for the purpose specified in these two sections, which establishes the agency relationship, and the consideration paid for the services or the consultancy provided under such contract in form of commission or otherwise, would be the taxable event as defined under Section 65(105)(v) of the Finance Act, 1994, added the Bench.
Briefly, the respondent, a real estate developer, entered into Memorandums of Understanding (MoU) with Sahara India Commercial Corporation Ltd. (SICCL) for the acquisition, development and management of land parcels for its real estate project at Sahara City Homes. The Directorate General of Central Excise Intelligence (DGCEI) opined that the respondent had received substantial consideration without discharging the liability of service tax, and therefore called upon the authorised representative of SICCL to furnish information on the Real Estate Agent/s engaged, including copies of bills.
Later, the DGCEI concluded that the respondent squarely fell within the purview of a ‘Real Estate Agent’ as defined under Sections 65(88) and 65(89) of the Finance Act, 1994, and had wilfully suppressed the fact of rendering taxable services to its client from 1st October, 2004, onwards from the jurisdictional Service Tax authorities. Even though the respondent had contended that it had undertaken development activities in respect of the land prior to the execution of the sale deeds, and thus, its actions did not fall within the scope of taxable services, the Commissioner held that the consideration received by the respondent was held liable to service tax in terms of Section 65(105)(v) of the Finance Act, 1994, and thereby imposed demand and penalty.
Appearances:
AOR Gurmeet Singh Makker, along with Advocates V C Bharathi, Saurabh Mishra, Vanshaja Shukla, and Annirudh Sharma, for the Petitioner/ Revenue
Senior Advocate Balbir Singh, AOR Abhisth Kumar, along with Advocates Karan Sachadeva and Abhinav Singh, for the Respondent/ Taxpayer
