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Q. > Please Help: Service tax on revenue sharing with holding company
A Co ABCD Ltd. construct a Mall in UP. and incorporate a Subsidary co. named xyz ltd.
ABCD Ltd. give contract to XYZ Ltd. for maintainance of Mall's Shop. XYZ Ltd.c
XYZ Ltd. Charged bill to individual Shop including Service tax.XYZ Ltd share 40 % of turnover with ABCD Ltd. on Monthly basis
now my question is that
1.Is This revenue share is taxable in the hand of ABCD Ltd, as ABCD Ltd. give contract to ( Business Suppor Service ) XYZ Ltd and ABCD Ltd Charged 40% of Revenue share of XYZ Ltd
2.Or it is exempt (1. Royalty for using mall for business purpose )(2.XYZ Ltd has paid service tax on amount paid to ABCD Ltd) (3. Subsidiary and Holding Co. not principle to Princilple basis
answered Dec 15, 2011 by Ashish Karundia , New Delhi
Dear Harish,
Yes, the instant transaction will get taxable in the hands of ABCD Limited even if it is on a revenue sharing basis. In this regard, you can refer Circular No.148 / 17 / 2011 - ST dated 13.12.2011(link - http://casansaar.com/notification_details.php?id=298)
Further, it may also be noted that the said charges cannot be considered as royalty. Furthermore, even if XYZ limited has paid service tax as the same amounts to two transaction i.e. contract of service from ABCD to XYZ and from XYZ to shop owners. It may also be noted that holding and subsidiary company are two different legal entity and thus teh said transaction are on a principal basis.
Hope the above suffice.
answered Dec 15, 2011 by CA VIPIN GARG , New Delhi
Dear Harish Ji, your question is somehow not clear, i mean you r saying xyz ltd is a subsidiary of abcd ltd and xyz ltd is sharing 40% of their turnover with abcd ltd. on monthly basis and then at the starting you have also mentioned that the abcd ltd gives contract to xyz ltd., you are asking from service tax point of view or income tax point of view because you have also asked that "is this 40% revenue taxable in the hands of abcd ltd." please clarify so that you got the right answer, hope you understand and revert back quickly....
Have a nice day Harish Ji..........
Experts Panelist
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