Profit Sharing Agreement Between Mall And Parking Operator Not Lease, Not Subject To Tax: CESTAT Chennai

The Customs Excise and Service Tax Appellate Tribunal at Chennai on Friday held that a profit-sharing arrangement for managing a mall's parking facility does not amount to leasing of space and therefore is not liable to service tax.

The appeal was against an order of Commissioner of Service Tax that had upheld a service tax demand of over Rs 20 lakh, treating the parking arrangement between CCCHPL and SPIPL as leasing of space and therefore taxable.

A coram comprising Judicial Member Ajayan T V and Technical Member Ajit Kumar observed that the intention of the agreement between CCCHPL and SPIPL was profit sharing and not leasing of space for running a parking facility and therefore any revenue earned from the arrangement would be in the nature of profit and not rent.

“The ultimate purpose of the Agreement as seen from the joint intent of the parties is for the appellant to engage SPIPL in providing car parking facility to the public on a profit sharing basis. This cannot be considered as leasing of space to an entity for providing.”

The tax demand pertained to the period from July 2012 to March 2013, with authorities alleging that CCCHPL had leased out its parking area to SPIPL and failed to pay tax on its 78 percent share of parking revenue. However, under the Car Park Agreement dated March 15, 2010, CCCHPL had engaged SPIPL only to operate and maintain the parking facility at the mall and an adjacent vacant plot.

The agreement specified that all collections would be deposited into CCCHPL's bank account, after which SPIPL would receive 22 percent of the revenue or a minimum fixed amount, whichever was higher. Despite these terms, the adjudicating authority and Commissioner (Appeals) upheld the tax demand, leading to the present appeal.

The CCCHPL maintained that the parking space was not leased, arguing that SPIPL only operated and maintained the facility, while all collections were credited directly to its's bank account before SPIPL received its 22 percent operational share. They also relied on a previous appellate order on identical facts that had accepted this position and attained finality.

The department contended that the arrangement fell under the exclusion for leasing of space to an entity for providing parking facility under a 2012 Notification and was therefore taxable.

However, noting inconsistencies with an earlier unchallenged order, the court ruled that the current order should be set aside.

Case Title: Chennai Citi Centre Holdings (P) Ltd vs Commissioner of GST & Central Excise

Case Number: Service Tax Appeal No. 40364 of 2017

For Appellant: Advocate N Asmitha

For Respondent: Advocate G Kripa 

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