Custom, Excise & Service Tax Tribunal
Harish B Vagadia vs Commissioner Of Central Goods & Service ... on 13 March, 2026
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Service Tax Appeal No. 40048 of 2017
(All appeals arising out of Order in Appeal No. CMB-CEX-000-APP-235 to 237/2016
dated 7.10.2016 passed by the Commissioner of Customs, Central Excise and Service
Tax (Appeals - I), Coimbatore)
Shri M. Durairajan Appellant
S/o Shri Mounasamy Naidu
18/4C, Sengappan Komar Street
Sundarapuram, Coimbatore - 641 024.
Vs.
Commissioner of GST & Central Excise Respondent
6/7, A.T.D. Street Race Course Road, Coimbatore - 641 018.
With
Service Tax Appeal No. 40049 of 2017
Shri G. Kaleeswaran Appellant
S/o Shri Ganesan, 31/24A, Karunanithi Nagar Ramanathapuram Coimbatore - 641 045.
Vs. Commissioner of GST & Central Excise Respondent 6/7, A.T.D. Street Race Course Road, Coimbatore - 641 018.
And
Service Tax Appeal No. 40050 of 2017
Shri Harish B. Vagadia Appellant
S/o Shri Harish Bhaishankar Vagadia
100, Karunanithi Nagar
Ramanathapuram, Coimbatore - 641 045.
Vs.
Commissioner of GST & Central Excise Respondent
6/7, A.T.D. Street
Race Course Road, Coimbatore - 641 018.
APPEARANCE:
Shri R. Balagopal, Consultant for the Appellants Shri M. Selvakumar, Authorised Representative for the Respondent 2 CORAM Hon'ble Shri M. Ajit Kumar, Member (Technical) Hon'ble Shri Ajayan T.V., Member (Judicial) FINAL ORDER NOS. 40357-40359/2026 Date of Hearing: 24.02.2026 Date of Decision:13.03.2026 Per M. Ajit Kumar, These appeals are filed by the appellants against Order in Appeal No. 235 to 237/2016 dated 7.10.2016 passed by the Commissioner of Customs, Central Excise and Service Tax (Appeals - I), Coimbatore.
2. The issue in these appeals being common, they were heard together and is disposed by this common order.
2.1 The brief facts are that the appellants rented out their commercial premises to various lessees, thereby providing taxable "Renting of Immovable Property Service" as per section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994 and the provisions of Section 65(B)(41) ibid. It is alleged that they neither obtained service tax registration nor paid service tax or filed returns for the period from 1.4.2009 to 31.3.2014. Upon investigation and scrutiny of records by the department, it was found that service tax liabilities had not been discharged. Accordingly, a Show Cause Notice dated 17.10.2014 was issued demanding service tax of ₹20,24,579 along with interest and penalties. The Adjudicating Authority confirmed the demand with interest and imposed penalties under Sections 77 and 78.
On appeal, the Commissioner (Appeals) partly allowed the appeals, leading to the present proceedings.
3. The Ld. consultant Shri R. Balagopal appeared for the appellants and Ld. Authorized Representative Shri M. Selvakumar appeared for the respondent.
33.1 Shri R. Balagopal the learned Consultant for the appellants submitted that;
A) The appellants are joint owners of a commercial property, which was let out for commercial purposes. Each co-owner received one-third of the rental income by cheque after deduction of TDS during the period 2009-10 to 2013-14, disclosed only their respective shares in their income-tax returns, and paid tax accordingly. Separate service tax registrations were obtained by each appellant upon crossing the individual threshold exemption limit of ₹10 lakhs.
B) It was submitted that the property was jointly owned with equal rights, and though there was no physical demarcation, the undivided share (UDS) of each co-owner was clearly ascertainable, with rental consideration received strictly in proportion to such share. The co-owners had not pooled resources nor acquired the property in the name of any association, and therefore could not be treated as an "association of persons" in the absence of any statutory deeming provision. TDS was also deducted in the hands of the individual co-owners.
C) It was further contended that the Show Cause Notice was incorrectly issued proposing levy under Section 66, whereas the applicable charging provision during the relevant period was Section 66B. The appellants were entitled to the benefit of threshold exemption under Notification No. 6/2005-ST, as their individual turnovers were below ₹10,00,000.
D) He placed reliance on the following decisions in the appellants favour:
i) P. Dhanalakshmi Vs. Commissioner of GST & CE 2020 (33) G.S.T.L. 225 (Tri. - Chennai) 4
ii) Ramesh Kumar Chaudhary Vs. CST (2025) 26 Centax 147 (Tri.-Chan);
iii) Sarojben Khusalchand Vs. CST 2017 (4) G.S.T.L. 159 (Tri.-
Ahmd);
iv) CCE Vs. Deoram Vishrambhai Patel 2015 (40) STR 1146 It was also argued that the Show Cause Notice was barred by limitation, as there was no suppression, wilful misstatement, or intent to evade tax so as to invoke the extended period. The appellants therefore prayed that the appeals be allowed.
3.2 The Ld. A.R. Shri M. Selvakumar appearing for revenue, has reiterated the findings in the OIO. He stated that but for the co-owners acting together to rent the property to earn income no provision of service is possible to be provided since the share of each co-owner is not demarcated. Only when the co-owners join as an association or as a team or a body, that the service provided comes into existence.
Hence the co-owners would collectively constitute a single entity as an "association or body of individuals" who are collectively liable to pay service tax after pooling the entire consideration received. He hence prayed that the appeal may be rejected.
4. We have heard the parties and examined the appeals. The issue is whether joint owners of a commercial property should be assessed individually with separate slab exemptions, or collectively as an 'association of persons' without such exemption.
5. We find that a similar matter was considered by this Bench in the case of Naresh Gopaldas Lund and Ors Vs Commissioner of GST & Central Excise, Coimbatore [2026 (1) TMI 1161 - CESTAT CHENNAI / FINAL ORDER NOS. 40116-40122/2026, Dated:
21.01.2026]. It was held as under:5
"9. Joint ownership or co-ownership of property plays a critical role in defining how property is held, managed, and transferred between multiple individuals in India. It can arise in various social contexts, such as inheritance, purchase of property by more than one person say husband and wife, or as part of family arrangements or with a view to resolving disputes etc. These peculiar arrangements are generally made in the social context of maintaining peace and security of the family, entails rights, responsibilities, and individual interests of each co-owner in the property, and tax laws must be interpreted in this context. Reference in this regard is made to the decision of the Supreme Court in Nagpur Electric Light and Power Company Limited Vs K. Shreepathirao (AIR 1958 SC 658), where the Court declared that even a definition clause in an enactment must derive its meaning from the context or subject. In Reserve Bank of India Vs Peerless General Finance and Investment Co. Ltd.: [(1987) 1 SCC 424], the Hon'ble Supreme Court held as under:
"Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual."
Again, the Constitution Bench of the Hon'ble Supreme Court in A.V Fernandez Vs State of Kerala [AIR 1957 SC 657], while elucidating the principle of interpretation of a taxing statue stated:
"29. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case of not covered within the four corners of the provisions of the taxing statue, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter."
(emphasis added)
10. The case laws involving a discussion on the legal concept of 'association of persons', leans heavily on Constitutional Court judgments given in the case of Income Tax laws. In Hari Khemu Gawali Vs Deputy Commissioner of Police, Bombay and another [AIR 1956 SC 559], a Constitution Bench of the Apex Court stated:
6"It has been repeatedly said by this Court that it is not safe to pronounce on the provisions of one Act with reference to decisions dealing with other Acts which may not be in pari materia."
However, in this case the interpretation of the phrase 'association of persons' as appearing in Section 2(31)(v) in The Income Tax Act, 1961, is in pari materia to Section 65B(37)(vii) of the Finance Act 1994 and states that 'person' includes an association of persons or a body of individuals, whether incorporated or not.'
11. It can safely be said that an 'association of persons' does not mean any and every combination of individuals. This issue was examined by the Hon'ble Supreme Court in its landmark three Judge Bench judgment in Commissioner Of Income-Tax, Bombay Vs Smt. Indira Balkrishna [1960 AIR SC 1172, 1960 SCR (3) 513]. The Court held:
"We now come to the main question in this appeal. What constitutes an " association of persons " within the meaning of the Income-tax Act ? It has been repeatedly pointed out that the Act does not define what constitutes an association of persons, which under s. 3 of the Act is an entity or unit of assessment.
*****. *****. ***** It is enough for our purpose to refer to three decisions: In re: B. N. Elias and Others [[1935] I.T.R. 408]; Commissioner of Income-tax, Bombay Vs Laxmidas Devidas and Another [[1937] 5 I.T.R. 484]; and In re: Dwarakanath Harishchandra Pitale and Another [[1937] 5, I.T.R. 716]; In In re: B. N. Elias and Others, Derbyshire, C. J., rightly pointed out that the word "associate" means, according to the Oxford dictionary, "to join in common purpose, or to join in an action."
Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C. J., in Commissioner of Income-tax, Bombay v. Laxmidas Devidas and Another at page 589 and also in Re:
Dwarakanath Harishchandra Pitale and Another. In re:
B. N. Elias, Costello, J., put the test in more force full language. He said "It may well be that the intention of the legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnership.7
When we find that there is a combination of persons formed for the promotion of a joint enterprise then I think no difficulty arises in the way of saying that these persons did constitute an association. We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of s. 3 of the Income-tax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of s. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not."
(emphasis added) A three Judge Bench of the Apex Court in its judgment in G. Murugesan & Bros Vs C.I.T., Madras [AIR 1973 SUPREME COURT 2369, 1973 SCC (TAX) 445], further amplified on its judgment in Smt. Indira Balkrishna (supra) and it held:
"The expression 'Association of Persons' is not a term of art.
*****. *****. ***** For forming an association of persons, the members of the association must join together for the purpose of producing an income. An association of person can be formed only when two or more individulas voluntarily combine together for a certain purpose. Hence volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an association of persons if his lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an association of persons from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an association of persons."
(emphasis added)
12. The above judgments delineates the legal prerequisites for the formation of an association of persons. Firstly, there must be a meeting of the minds. An association can only arise when individuals voluntarily unite with a 8 shared objective, particularly the generation of income. The formation of an association of persons depends fundamentally on the volition of the parties. There must be jointness of individuals by volition. This union must result from a conscious and consensual agreement and not from automatic or incidental circumstances. Secondly joint management of the property for purpose of rent must be involved. The existence of co-owned property alone--such as in cases of inheritance where ownership is determined by law--does not constitute an association of persons, as there is no deliberate or contractual intention to collaborate or to manage the property for profit. Hence the co-ownership and joint rental of property by heirs of a deceased, in itself, will not make them an association of persons. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture with a joint management, they will not become an 'association of persons/ body of individuals'. The distinction hinges upon the element of voluntary association and collective intent among the parties involved to manage the property for economic gain. In Sri Ram Pasricha Vs. Jagannath [AIR 1976 SC 2335], the Supreme Court observed :
"Jurisprudentially it is not correct to say that a co- owner of a property is not its owner. He owns every part of the composite property along with others and it cannot be said that he is only a part-owner or a fractional owner of the property. The position will change only when partition takes place. .."
(emphasis added) Once a person owns property on his own strength then his act of renting out the property has to be due to his self- interest and not for the collective or common interest of the co-owners, unless there is something to suggest otherwise.
13. Revenue has asserted that, given the indivisible nature of the property, it is not feasible for each co-owner to independently provide the service of letting the property without cooperation or involvement from the other co- owners. Consequently, revenue maintains that the total rent received from the entire property should be considered when calculating the aggregate value of taxable services for Service Tax purposes. However, this argument suggests that co-ownership arises not through voluntary action or mutual agreement, but rather because of automatic and incidental circumstances. In essence, the co-owners have not intentionally formed an association for a common purpose; instead, their connection exists solely due to their respective undivided interests in the property. Analogously, while individuals may travel together in a company vehicle for work, they do not constitute an association of persons in the legal sense. Furthermore, the facts demonstrate that rent was paid separately to each co-owner, with ownership 9 shares being distinct and identifiable, and lease payments having accrued directly to each co-owner rather than to any collective entity or association. This indicates the absence of the essential element of volition required for the formation of an association of persons. Additionally, there is no evidence to suggest joint management of the property by the co-owners. The resulting confirmation of demand appears to reflect this dilemma faced by the Ld. A.A., as evidenced by the order portion of the OIO, which arbitrarily holds one noticee liable for the tax dues but states:
"However, any of them (other noticees) is free to contribute towards payment of tax, interest and penalty more than his/her own liability on behalf of others and the same would be appreciated as well."
14. In light of these observations, it can be concluded that the individual appellants are entitled to be assessed separately for Service Tax in respect of their respective shares of rental income from the property. Our views are further strengthened by the judgment of the Hon'ble Andhra Pradesh High Court in Bolla Tirapanna and Sons Vs CIT [(1969) 71 ITR 209]. It was held that:
"Merely because the parties entered into a single lease instead of seven separate agreements of lease, the status of the assessee cannot be determined as an association of persons as long as the intention of the parties, which is evidenced by the crediting of rental receipt separately, is otherwise."
15. We find that the orders of this Tribunal cited by the appellant above i.e. in the case of P. Dhanalakshmi (supra); Ramesh Kumar Chaudhary (supra); Sarojben Khusalchand (supra); and. Deoram Vishrambhai Patel (supra), have also arrived at a similar conclusion, in favour of the individual co-owners and against revenue..
16. Accordingly, we find that the appellants, as co- owners, cannot be regarded as an association of persons for the purpose of joint assessment of their total rental income under Service Tax. Each appellant is entitled to individual assessment and may avail the applicable slab exemption on an individual basis. In view of the foregoing, the impugned orders are set aside and appeals are allowed. The appellants are entitled to consequential relief in accordance with the law. The appeals are disposed of accordingly."
5. Since the legal issue raised in these appeals are the same and have not been differentiated by revenue, we find no reason to deviate from the same.
106. We hence set aside the impugned order. The appellants are eligible for consequential relief as per law. The appeals are disposed of accordingly.
(Order pronounced in open court on 13.03.2026) Sd/- Sd/-
(AJAYAN T.V.) (M. AJIT KUMAR) Member (Judicial) Member (Technical) Rex