Justice Nadeem Azhar Siddiqi: This appeal has been filed by the appellant challenging the Order-in- Appeal No.51/2017 dated 18.04.2017 passed by the Commissioner (Appeals) in Appeal NO. 186/2016 confirming the Order in Original No. 428/2016 dated 31.05:2016, passed by the Deputy Commissioner (Mr. Raheel Soomro), SRB, Karachi.
1. The facts of the case as mentioned in the Order-in-Original are that the Service of renting of immovable property is a taxable service under tariff heading 9806.3000 of the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (hereinafter referred to as the Act).
2. It was alleged in the order-in-original that on the basis of record available it was observed that the appellant is providing or rendering the taxable services renting of immovable property since July, 2015. It was further alleged that the appellant despite providing taxable services failed to get himself registered with SRB.
3. That a show-cause notice dated 20.05.2016 was issued to the appellant under section 24B of the Act to explain as to why the appellant should not be compulsorily registered and penalty should not be imposed.
4. That as per the order-in-original on the first date of hearing i.e. 30.05.2016 the appellant submitted adjournment letter without letter of authorization and any valid reason for adjournment. The Assessing Officer without providing proper opportunity to the appellant to file reply or to appear for hearing passed an ex-parte order on 31.05.2016 for compulsorily registration of appellant and imposing penalty of Rs.100,000/= if the appellant failed to get voluntarily registration before 15 June, 2016.
5. The appellant has challenged the order before the Commissioner (Appeals) who dismissed the appeal and upheld the order-in-original, hence this appeal.
6. Mr. Muhammad Tariq placed on record the copy of Judgment of High Court of Sindh in CP No.D- 2421/2016 and others in which it was held that mere renting of immovable property by a land lord to ath tenant for consideration (rent), does not involve any element of services, or taxable service of economic activity as defined under the SSToS Act, 2011. It was further held that the amount of rent received by the Land Lord from the tenant cannot be subject to tax.
7. On the subsequent date Mr. Muhammad Mudassir ITP, appeared for appellant and states that copy of order has been submitted on 31.08.2017 and he adopts the submissions made by Mr. Muhammad Tariq ITP in this regard and submits that in view of the judgment of the High Court the appeal may be allowed.
8. Mr. Kaleemullah Siddiqui AC-SRB for respondent submits that the department for the time being will comply the order of the High Court and in the meanwhile is also considering challenging the order before the approriate forum and in case the department succeeds the action I be re-initiated against the appellant.
I have heard the learned representative of the parties and perused the record made available before us.
9. The renting of immovable property (Tariff heading 9806.3000) was brought to the tax vide Sindh Finance Act, 2015 through insertion of sub-section (72B) and (72C) in section 2 of the Sindh Sales Tax and Services Act, 2011.The said amendments were challenged before the Honorable High Court of Sindh in a number of Constitution Petitions. The said Constitution Petitions bearing No. 2421/2016 and others (Youngs (Private Limited versus Province of Sindh and others) were came up for hearing before the Court 08.05.2017 and were decided vide judgment dated 18.08.2017. Mr. Justice Aqeel Ahmad Abbasi speaking for the Bench in para 14 of the Judgment held as under: 14.".....Mere renting of immovable property by a landlord to a tenant for consideration (rent), does not involve any element of service, or taxable service or economic activity as defined under the Sindh Sales Tax Services Act, 2011, therefore the intention of the respondents as expressed through impugned Show Cause Notices in the instant matters, to bring the renting of an immovable property under the charge of sales tax on services is misconceived in fact and law. Moreover, unless, the renting of immovable property is part of business, profession, calling, trade or undertaking of any kind, of a person, the same cannot otherwise, be treated as economic activity involving any# provision of service to another person, therefore, cannot be considered as taxable service, chargeable to tax under Sindh Sales Tax on Services Act, 2011.
15. the cumulative effect of hereinabove statutory provisions shows that unless an activity involves the provision of providing service by a registered person in the course of economic activity from his registered office or place of business in Sindh, then such economic activity cannot be considered as a taxable service for the purpose of charging sales tax on services under Section 3 read with Section 8 of the Sindh Sales Tax on Services Act, 2011.
Careful examination of the provisions of Section 2(72C) further reveals that the term renting of immoveable property services has been defined as "any service provided or rendered to any person by another person, or any other service in relation to such renting for use as offices or factories or in the course or furtherance of business and commerce". We are of the considered opinion that mere letting out an immoveable property by a landlord to a tenant on rent, does not involve any element of providing any taxable service in terms of Section 3, therefore, it is not taxable in terms of Section 8 of the Sindh Sales Tax on Services Act, 2011. Provincial Legislature cannot levy or impose any charge of tax on the amount received towards rent under the Sindh Sales Tax, provided by or rendered by a person to another person.
16. In view of hereinabove facts and circumstances of the case, we are of the considered opinion that the impugned notices issued by the respondents to the petitioners, while treating the renting of immoveable property as taxable services, chargeable to tax under Sindh Sales Tax on Services Act, 2011, have been issued without lawful authority. It is hereby declared that mere letting out of an immoveable property by the landlord to tenant on rent for consideration does not involve any element of providing any taxable services, therefore, the amount of rent received by the landlord from the tenant cannot be subjected to tax, while invoking the provisions of Section 2(72C) read with Tariff heading 9806.3000 of First Schedule and Part-8 of the Second Schedule to the Sindh Sales Tax on Services Act, 2011. Accordingly, above petitions are allowed in the aforesaid terms along with listed applications.
10. In view of the above and relying upon the above judgment of the Honorable High Court of Sindh this appeal is allowed. Both order -in-original and order-in-appeal are setaside. The copy of this be provided to the learned representative of the parties.
Karachi. (Justice Nadeem Azhar Siddiqi)
Dated: 03.10.2017 CHAIRMAN Copies supplied to:-
1. The Appellant through Authorized Representative.
2. The Assistant Commissioner , SRB, Karachi.
Copy for information to: 3) The Commissioner (Appeals), SRB, Karachi.
4) Of fice copy 5) Guard file.