Co-Owners Renting Property Individually Not an “Association of Persons”, Eligible for Separate Service Tax Exemption: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench has held that co-owners renting out a commercial property cannot automatically be treated as an “association of persons” (AOP) for service tax purposes. The bench of M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) ruled that each co-owner must be assessed separately and is entitled to claim the individual threshold exemption under service tax law. The three co-owners challenged a service tax demand raised by the department on the ground that the rental income from their jointly owned commercial property should be aggregated and taxed collectively. The appellants jointly owned a commercial property in Coimbatore which was rented out to various tenants between 1 April 2009 and 31 March 2014. According to the department, the owners had neither obtained service tax registration nor paid service tax or filed returns during the relevant period despite providing taxable “Renting of Immovable Property Service” under the Finance Act, 1994. Following an investigation, the department issued a Show Cause Notice dated 17 October 2014 proposing recovery of ₹20,24,579 along with interest and penalties. The adjudicating authority confirmed the demand and imposed penalties under Sections 77 and 78 of the Finance Act. Although the Commissioner (Appeals) partly allowed the assessees’ appeal, the dispute regarding the tax liability and treatment of the co-owners persisted, prompting the present appeals before the Tribunal. The appellants argued that the property was jointly owned and each co-owner received one-third of the rental income separately through cheque payments, with tax deducted at source (TDS) individually. Each co-owner disclosed only their respective share of rental income in their income-tax returns. The appellant contended that the property had undivided but identifiable shares among the co-owners. Rental income was not pooled or managed through any joint entity. Each co-owner obtained separate service tax registration after crossing the individual threshold exemption limit of ₹10 lakh. There was no agreement or arrangement establishing an association of persons. The appellants further argued that since their individual turnover remained below the threshold limit, they were eligible for exemption under Notification No. 6/2005-ST. They also raised the plea that the extended limitation period could not be invoked in the absence of suppression or intent to evade tax. The department argued that renting the property was possible only because the co-owners acted together, since their shares were not physically demarcated. According to the revenue, the co-owners effectively functioned as a collective body or association, and therefore the total rental income from the property should be aggregated and taxed as a single entity, without granting individual exemptions. The Tribunal examined whether joint owners of a property letting it out for rent could be treated as an “association of persons” for service tax assessment. Relying on earlier judgments and Supreme Court rulings interpreting the concept of an association of persons, the Bench emphasized that mere joint ownership does not automatically create an AOP. The formation of such an entity requires a voluntary association or meeting of minds, and joint management or a common enterprise aimed at generating income. The Tribunal noted that the co-owners had separate identifiable shares and received rent individually, with payments credited directly to them rather than to any collective entity. There was also no evidence of joint management or a deliberate arrangement to operate as a unified commercial venture. Referring to earlier Tribunal decisions and judicial precedents, the Bench reiterated that co-ownership arising from purchase or inheritance does not, by itself, amount to forming an association of persons. The CESTAT held that the co-owners cannot be treated as an association of persons for service tax purposes. Consequently, the Tribunal ruled that each co-owner must be assessed individually based on their respective share of rental income and is entitled to claim the separate threshold exemption available under service tax law. The Tribunal set aside the impugned order and allowed the appeals, granting consequential relief to the appellants in accordance with law. Case Details Case Title: Shri M. Durairajan Versus Commissioner of GST & Central Excise Citation: JURISHOUR-347-CES-2026(CHEN) Case No.: Service Tax Appeal No. 40048 of 2017 Date: 13.03.2026 Counsel For Appellant: R. Balagopal, Consultant Counsel For Respondent: M. Selvakumar, Authorised Representative Click Here To Read Order Read More: E-Way Bill Generation Rises 18.8% YoY to 132.6 Million in February, Signalling Strong Goods Movement

Co-Owners Renting Property Individually Not an “Association of Persons”, Eligible for Separate Service Tax Exemption: CESTAT

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