Service Tax Not Payable on Church Property Rented for Charitable Activities: CESTAT

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the service tax is not payable on church property rented for charitable activities. The bench of Dr. D.M. Misra (Judicial Member) and Bhagyadevi (Technical Member) has set aside a service tax demand of over ₹2.33 crore raised against St. Patrick’s Church, holding that the property rented by the religious institution for supporting its charitable and religious activities could not be subjected to service tax under the “renting of immovable property” category in the manner alleged by the department. The dispute arose after the Service Tax Department initiated an investigation in 2013 against the church for renting portions of its premises to commercial establishments. According to the department, such leasing activities fell within the taxable category of “renting of immovable property services” under Section 65(105)(zzzz) of the Finance Act, 1994. Following the investigation, the department issued multiple show-cause notices covering the period from October 2007 to February 2015. It alleged that the church had neither obtained service tax registration nor paid tax on rental income received from tenants. The adjudicating authority subsequently confirmed a total service tax demand of ₹2,33,47,553 for the said period. In addition, penalties amounting to ₹1,68,19,225 were imposed under Section 78 of the Finance Act, along with other penalties under Sections 76 and 77. Aggrieved by the order, the church approached CESTAT seeking relief from the demand and penalties. The church argued that St. Patrick’s Church is a religious trust registered under the Indian Trusts Act and recognized under the Income Tax Act for conducting charitable and religious activities. The trust, he submitted, works primarily for the welfare and upliftment of underprivileged sections of society. It was contended that the limited rental income generated from parts of the church premises was used entirely to fund the institution’s religious and charitable objectives. The appellant argued that the department had failed to properly appreciate the nature of the institution and the purpose for which the property was being used. The activities were intrinsically linked to the charitable character of the organization and should not be treated as a commercial service attracting service tax. After examining the records and submissions, the Tribunal carefully considered the nature of the institution and the context in which the rental activity was undertaken. The bench noted that the appellant was a registered religious and charitable trust engaged in social and religious welfare activities. The Tribunal observed that the revenue generated from the property was used to support these charitable purposes rather than for commercial profit. The Tribunal also examined the statutory framework governing service tax on renting of immovable property and the applicability of the provisions to institutions engaged in religious and charitable functions. The Tribunal allowed the appeals filed by the church and set aside the service tax demand and penalties imposed by the department. The bench held that the department’s decision to treat the activity as a taxable commercial service was not sustainable in the facts of the case. Consequently, the order confirming the tax demand of over ₹2.33 crore along with interest and penalties was quashed. Case Details Case Title: M/s. St. Patrick’s Church Fr. C. Francis Versus The Commissioner of Service Tax Citation: JURISHOUR-303-CES-2026(BANG) Case No.: Service Tax Appeal No. 20935 of 2016 Date: 04.03.2026 Counsel For Appellant: Jathin Chrishtopher, Chartered Accountant Counsel For Respondent: M.A. Jithendra, Assistant Commissioner (AR) Click Here To Read Order Read More: Extended Limitation Not Invocable in CENVAT Credit Dispute Detected During Audit: CESTAT

Service Tax Not Payable on Church Property Rented for Charitable Activities: CESTAT

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