Liability upon individual under GST
Whether, receipt towards surrender of tenancy right by the individual is liable under GST?
The facts are that an individual had commercial office in commercial building on tenancy basis. The office came to him by way of ancestral property. The individual has no business activity and also does not hold registration under GST. The said building is under redevelopment and the builder has offered lump sum amount towards vacating the premises and surrender of premises right. This is normally referred to as receipt of money towards tenancy right.
Issue is whether any GST is attracted on the above receipt in the hands of individual?
Under GST Act, tax is attracted on ‘supply’.
Term ‘supply’ is defined in section 7 of CGST Act as under:
“7.(1) For the purposes of this Act, the expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.”
It can be seen that as per section 7(1), if the supply is in course or furtherance of business etc., it will be covered under scope of section 7.
Term ‘business’ is defined in section 2(17) of CGST Act as under:
“(17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”
The definition of ‘business’ basically covers activities which are commercial in nature. Though making actual profit or having profit motive is not criteria, still the activity should be in organised manner so as to carry it
with intention to do business in commercial sense.
On exemplary basis reference can be made to judgment of Hon. Bombay High Court in case of CIT v. Gopal Purohit 228 CTR 582 (Bom.) wherein the issue was about, taxation of profit from dealing in securities under Income-tax Act. The lower authorities tried to tax the profit under “Business Income”. The High Court distinguished the profit from shares business and shares investment. To the extent of shares investment activity, it is held that, it is not business. The relevant observations are as
“The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purpose of business. The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in present case, should be treated as those in nature of investment transactions and the profit received therefrom should be treated as either as short term or, as the case may be, long term capital gain, depending upon the period of holding. The Tribunal has observed in its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping record and the presentation of shares as investment at the end of the year, in all the years. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. The approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. There cannot be any dispute about the basic proposition that the entries in the books of account alone are not conclusive in determining the income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal u/s. 260A. No substantial question of law is raised.”
Thus there is difference between activity as investment and as business. The facts in the query are required to be considered in light of above legal position. Certainly for individual the surrender of tenancy right is disposal of capital asset which can be equated with investment and not a business activity.
Reference can also be made to press note by GST Council about implication of tax on ‘sale of gold’ etc. by individuals. The said press note is as under:
“Press Information Bureau
Government of India
Ministry of Finance
13-July-2017 18:57 IST
Further clarification on tax in reverse
charge on gold ornaments;
Sale of old jewellery by an individual to a jeweller will not make the jeweller liable to pay tax under reverse charge mechanism
on such purchases
However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply
In the GST Ki Master Class held yesterday, in one of the replies given to an on-the-spot-question, it was informed that purchase of old gold jewellery by a jeweller from a consumer will be subject to GST @ 3% under reverse charge mechanism in terms of the provisions contained in Section 9(4) of the CGST Act, 2017.
On further examination, it is felt that the issue needs to be clarified.
Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism. This provision, however, has to be read in conjunction with section 2(105) read with section 7 of the said Act. Section 2 (105) defines supplier as a person supplying the goods or services. Section 7 provides that a supply is a transaction for a consideration by a person in the course or furtherance of business.
Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly, the sale of old jewellery by an individual to a jeweller will not attract the provisions of Section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.”
It is stated that any individual selling its asset like gold is not in course of business.
The individual in the query is not doing any business activity nor holding registration under GST Act. He is disposing of tenancy right as disposal of ancestral capital asset. It is one off transaction of disposal of asset and not with a view to do business. Therefore, the disposal of tenancy right is outside scope of business in case of Individual. It cannot be liable under GST.