Illustrations of services directly relatable to immovable property :
In Heger Rudi GmbH v. Finanzamt Graz-Stadt (2012) 36 STT 393 = 22 183 (ECJ), assessee of Germany acquired fishing rights in relation to a river in Austria. These rights were sold to various persons located in different countries. It was held that the fishing right was in relation to immovable property (i.e. river). Hence, place of provision of service is Austria.
In RCI Europe v. Commissioner for Her Majesty’s Revenue and Customs (2012) 36 STT 409 = 24 7 (ECJ), it was held that in respect of holiday package relating to holiday resort, the place of provision is where resort is located, as it relates to immovable property.
CBE&C’s ‘Taxation of Services : An Education Guide’ published on 20-6-2012 states as follows —
What is “immovable property”?- “Immovable Property” has not been defined in Service Tax law. However, in terms of section 4 of the General Clauses Act, 1897, the definition of immovable property provided in section 3(26) of the General Clauses Act will apply, which states as under:
“Immovable Property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.
It may be noted that the definition is inclusive and thus properties such as buildings and fixed structures on land would be covered by the definition of immovable property. The property must be attached to some part of earth even if underwater.
What are the criteria to determine if a service is ‘directly in relation to’ immovable property located in taxable territory?- Generally, the following criteria will be used to determine if a service is in respect of immovable property located in the taxable territory :
(i) The service consists of lease, or a right of use, occupation, enjoyment or exploitation of an immovable property
(ii) service is physically performed or agreed to be performed on a specific immovable property (e.g. maintenance) or property to come into existence (e.g. construction);
(iii) the direct object of the service is the immovable property in the sense that the service enhances the value of the property, affects the nature of the property, relates to preparing the property for development or redevelopment or the environment within the limits of the property (e.g. engineering, architectural services, surveying and sub-dividing, management services, security services etc.);
(iv) the purpose of the service is : (a) the transfer or conveyance of the property or the proposed transfer or conveyance of the property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of property, legal services rendered to the owner or beneficiary or
potential owner or beneficiary of property as a result of a will or testament); (b) the determination of the title to the property.
There must be more than a mere indirect or incidental connection between a service provided in relation to an immovable property, and the underlying immovable property. For example, a legal firm’s general opinion with respect to the capital gains tax liability arising from the sale of a commercial property in India is basically advice on taxation legislation in general even though it relates to the subject of an immovable property. This will not be treated as a service in respect of the immovable property.
Examples of land-related services
(i) Services supplied in the course of construction, reconstruction, alteration, demolition, repair or maintenance (including painting and decorating) of any building or civil engineering work.
(ii) Renting of immovable property.
(iii) Services of real estate agents, auctioneers, architects, engineers and similar experts or professional people, relating to land, buildings or civil engineering works. This includes the management, survey or valuation of property by a solicitor, surveyor or loss adjuster.
(iv) Services connected with oil/gas/mineral exploration or exploitation relating to specific sites of land or the seabed.
(v) The surveying (such as seismic, geological or geomagnetic) of land or seabed.
(vi) Legal services such as dealing with applications for planning permission.
(vii) Packages of property management services which may include rent collection, arranging repairs and the maintenance of financial accounts.
(viii) The supply of hotel accommodation or warehouse space.
What if a service is not directly related to immovable property?- The place of provision of services rule applies only to services which relate directly to specific sites of land or property. It does not apply if a supply of services has only an indirect connection with the immovable property, or if the service is only an incidental component of a more comprehensive supply of services.
For example, the services of an architect contracted to design the landscaping of a particular resort hotel in Goa would be land-related. However, if an interior decorator is engaged by a retail chain to design a common décor for all its stores in India, this service would not be land-related. The default rule i.e. Rule 3 of Place of Provision of Service Rules will apply in this case.
Examples of services which are not land-related
(i) Repair and maintenance of machinery which is not permanently installed. This is a service related to goods.
(ii) Advice or information relating to land prices or property markets because they do not relate to specific sites.
(iii) Land or Real Estate Feasibility studies, say in respect of the investment potential of a developing suburb, since this service does not relate to a specific property or site.
(iv) Services of a Tax Return Preparer in simply calculating a tax return from figures provided by a business in respect of rental income from commercial property.
(v) Services of an agent who arranges finance for the purchase of property.