Rent Free Accommodation Provided By Partner To Partnership Firm is taxable under GST: Tamil Nadu AAR

The Authority for Advance Ruling’s Tamil Nadu Bench, consisting of members T.G. Venkatesh and K. Latha, has ruled that GST must be paid in respect of a Partner’s property rented to a partnership firm, even if it is free of rent, to carry out the firm’s business, because the activity is in furtherance of business and amounts to supply under Section 7 read with Schedule 1 of the CGST Act, 2017.

Shanmuga Durai, the Applicant, filed an application with the Authority for Advance Ruling (AAR) seeking an advance ruling on whether GST liability arose in relation to the Applicant’s property that was used by the partnership firm in which he was a partner to carry out the firm’s business without charge.

Before the AAR, the Applicant contended that leased out his personal property to the partnership firm where he was a Managing Partner and held 2/3^rd of the shares was not in the course of business and hence did not incur GST.

According to the AAR, the term ‘business’ covers any transaction, whether or whether it is carried on for a monetary advantage, as defined by Section 2(17) of the CGST Act. According to the AAR, in order for a service to be classified as being performed in the course of business, it must be supplied with the goal of generating revenue. According to the AAR, if the economic benefit was received directly or indirectly, it would be viewed as a provision of service against consideration under the GST statute.

The AAR determined that the Applicant’s property, which was rented to the partnership firm for free, lowered the amount of rent that the firm had to pay and so reduced the amount of expenditure that the firm had to bear, thereby enhancing the firm’s profits. As a result, the AAR determined that the Applicant’s rent-free accommodation amounted to a profit for the firm, which was enjoyed by the Applicant as a partner. As a result, the AAR determined that the partner’s accommodation to the partnership firm, which is a separate person, constituted a supply in the course of and in furtherance of business under Section 7 of the CGST Act, and thus subject to GST.

According to Schedule 1 of the CGST Act, a supply of goods or services, or both, between related individuals in the conduct or furtherance of business is treated as a supply under the GST Act, even if it is made without consideration. According to the AAR, the Applicant and the partnership firm were related persons’ under the CGST Act, and hence any service provided between them was taxable, even if it was provided without payment.

The Applicant’s conduct of renting immovable property owned by him to the partnership firm in which he was a major shareholding partner is thus a taxable supply under the CGST Act, according to the AAR.

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