GST on leasehold rights covered under “sale of land” – SC?


GST on leasehold rights covered under “sale of land” – SC?

The ongoing dispute wherein one side (specifically the revenue) seems of the opinion that the transaction of assignment of long term lease is a service and consequently subject to GST. The other side carrying a just opposite view considering the fact that the transaction is equivalent to a sale of land and therefore exclude under Schd 3 of CGST.

The primary contention raised in favour of the levy is that the assignment is not per se a sale of land and the transaction being that of along term lease is a service covered under schedule 2. The fact that a premium is paid towards the lease which may equate to the underlying value of land would not make any difference as the same characterises the lease rentals.

Apart from equating the value of assignment with the underlying value of land, the other side also contends that the transaction is that of land considering the wide connotation the terminology holds in including the benefits derived from it.

Hon’ble SC recently touched upon the fact that a person in a valid possession of land if is entitled to benefits attached therein and without being interrupted by anyone, needs to also be a legal owner so as to be subject to the rigour of taxation laws? Here are a few pertinent points from the said ruling (7803/18);

– should the assessment be made at the hands of the person who has the bare husk of the legal title or at the hands of the person who has the rights of an owner of a property in a practical sense?

– the ‘owner’ or ‘proprietor’ of a property is the person in whom (with his or her assent) it is for the time being beneficially vested, and who has the occupation, or control, or usufruct, of it,
e.g. a lessee is, during the term, the owner of the property demised

– one of the most important of the powers of ownership is the right to exclude others from possession and the property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing. In that sense, therefore, the assessee itself became the owner of the property in question

– the idea of ownership of land is essentially one of the ‘better right’ to be in possession and to obtain it, whereas with chattels the concept is a more absolute one. Actual possession implies a right to retain it until the contrary is proved, and to that extent a possessor is presumed to be owner

– one cannot reasonably and logically visualise as to when a person in actual physical control of the property realising the entire income and usufructs of the property for his own use and not for the use of any other person, having the absolute power of disposal of the income so received, should be held not liable to tax merely because a vestige of legal ownership or a husk of title in the long run may yet clothe another person with the power of a residual ownership when such contingency arises

Doesn’t this seems to be tilting in taxpayers favour?