Question

One of our client Mrs. A is having rental receipts from commercial/ housing properties. Besides she is running her export business as a partner in the export business. Her rental receipts are exceeding Rs. 20.00 lacs and is also regd under GST.
Rental receipts is not having any connection with her business. The rental properties were inheritated by her after the death of her husband through will or purchased by her out of her business income/savings with the intention to secure her future keeping in mind any downfall/ abnormal negative business/financial circumstances in future.can it still be covered by the definition of business section 2(17)(a)(b)
Now as a result of recent amendment made in section 7 under CGST Act vide addition of sub section (1A) and deletion of clause(d) of sub section(1): -
Can we say that the rental income generated by Mrs. A is not in the course or furtherance of business.( It has no connection with her business. The rental receipts are received in her saving bank accounts.)
If yes than since she is not satisfying one of conditions laid down under sub section7(1)(a)(BEING IN THE COURSE OR FURTHERANCE OF BUSINESS), therefore it is not a supply.

Answer

Facts of the Case:
Mrs. A is a partner in export business. She is registered in GST and having rental receipts exceeding Rs 20 lacs from inherited property given on rent.

Law Applicable:
SECTION 2 OF CGST ACT
(17) 'business' includes''
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and';
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

SECTION 7 OF CGST ACT

(1) For the purposes of this Act, the expression 'supply' includes''

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

Notification No. 12/2017- Central Tax (Rate)
 

Interpretation:
As Mrs. is registered under GST and is receiving rental receipts from property, the same is covered in the definition of business i.e any activity or transaction in the nature of trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not there is volume, frequency, continuity or regularity of such transaction;

Thus the condition as laid down in the definition of supply i.e. it is in course or furtherance of business is not violated, therefore it is supply as per section 7.

However renting of residential dwelling for use as residence is exempt vide Notification No. 12/2017 Central tax (Rate). but there is no exemption for renting of property for commercial purpose, hence it is taxable.

Conclusion: Renting receipts from residential property given for residence purpose only is exempt whereas rental receipts from property given on rent for commercial purpose are taxable irrespective of the fact that the same is received in saving bank account.  (Reply dt.08/06/2019)