Co-Owners of Rented Commercial Property Not an ‘Association of Persons’; Service Tax Payable Individually: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that co-owners of an undivided commercial property leasing it out cannot be treated as an “Association of Persons” (AOP) or “Body of Individuals” for the purpose of levy of Service Tax, merely because the property is jointly owned and rented under a common lease deed. Setting aside multiple orders passed by the Commissioner (Appeals), the bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) has held that each co-owner is liable to pay Service Tax individually on their respective share of rental income and is entitled to claim threshold exemption separately, provided the statutory conditions are satisfied. The appeals arose from a series of Show Cause Notices issued to different groups of co-owners who had leased out commercial properties such as Srivari Gokul Towers, Prashant Real Gold Tower, and Srivari Shrimat to corporate tenants including Suzlon Energy Ltd., HSBC, Joy Alukkas Traders, Indus Towers Ltd., and others. The Department alleged that since the properties were jointly owned and leased through common lease deeds, the service of “Renting of Immovable Property” was provided collectively. According to the Revenue, the co-owners constituted an Association of Persons, and therefore, the entire rental income should be aggregated, denying individual threshold exemption under Notification No. 6/2005-ST and Notification No. 33/2012-ST. On this basis, Service Tax demands along with interest and penalties were confirmed against the co-owners jointly. The assessee contended that each co-owner held a clearly identifiable undivided share (UDS) in the property. Rental income was received individually through separate account payee cheques, strictly in proportion to ownership share. There was no joint management, pooling of resources, or formation of any association to earn income. The lease deeds merely described the owners collectively as “Lessors” without creating any separate legal entity. Tax was discharged individually whenever the threshold exemption limit was exceeded, and TDS was also deducted in individual hands. The assessee argued that mere co-ownership does not automatically create an Association of Persons in the absence of volition and joint enterprise. After examining the facts and law in detail, the Tribunal framed the core issue as whether co-owners of an undivided commercial property can be deemed an AOP merely because they rent the property together. The Bench noted that neither the Finance Act, 1994 nor the General Clauses Act defines what constitutes an “Association of Persons”. Long-standing Supreme Court jurisprudence establishes that an AOP requires a voluntary coming together of persons with a common intention to carry on a joint enterprise to earn income. Mere joint ownership, inheritance, or indivisible property does not satisfy the test of volition or joint management. The Bench also observed that each co-owner owned every part of the property along with others, and until partition, ownership remained individual in law. The fact that rent was credited separately to each co-owner clearly indicated absence of collective intent. The Department’s own adjudication order revealed inconsistency by holding one noticee liable while allowing others to contribute voluntarily. The Tribunal categorically rejected the Department’s argument that indivisibility of property necessitates collective taxation. It held that legal convenience or administrative difficulty cannot override statutory requirements, especially in taxing statutes which must be strictly construed. It further noted that entering into a single lease deed instead of multiple agreements does not alter the tax status of the co-owners, if their conduct and income flow demonstrate individual ownership and assessment. The Tribunal held that the co-owners of rented commercial property do not constitute an Association of Persons merely due to joint ownership. Service Tax liability must be assessed individually, based on each co-owner’s share of rental income. Threshold exemption is available separately to each co-owner, subject to statutory limits. Accordingly, all impugned orders were set aside, and the appellants were held entitled to consequential relief in accordance with law. Case Details Case Title: Naresh Gopaldas Lund and Eight Others Versus Commissioner of GST & Central Excise Case No.: Service Tax Appeal No. 41598/2015 Date: 21.01.2026 Counsel For Appellant: Radhika Chandrasekar, Advocate Counsel For Respondent: N. Satyaranayaranan Click Here To Read Order Read More: Bail Hearing Today In IRS Officer Prabha Bhandari Case After Completion of Remand Period : What May Be The Grounds of Bail?

Co-Owners of Rented Commercial Property Not an ‘Association of Persons’; Service Tax Payable Individually: CESTAT

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