A long-running tax dispute involving Rajinikanth has ended in his favour, with the Customs, Excise and Service Tax Appellate Tribunal striking down a service tax demand exceeding ₹56 lakh related to a leased property in Chennai.
The Chennai bench of the tribunal ruled that buildings used as hotels fall outside the scope of service tax under the Finance Act, 1994. As a result, renting such premises for hotel operations cannot be taxed under the category of “renting of immovable property service.”
The dispute stemmed from a property owned by Rajinikanth that had been leased to Vasantha Bhavan Hotels India for operating a hotel. Tax authorities argued that the actor had failed to pay service tax on the rental income earned from the arrangement.
Based on this, officials issued a notice demanding ₹46.81 lakh for the period between June 2007 and December 2011 and an additional ₹10.02 lakh for January to June 2012. Interest and penalties were also sought under the Finance Act. The appellate authority later upheld the demand and imposed penalties under Section 78 of the Act, though another penalty under Section 77 was dropped.
Challenging the decision, Rajinikanth moved the tribunal, arguing that the lease was clearly intended for hotel operations. The defence relied on a statutory exclusion under Section 65(105)(zzzz) of the Finance Act, which exempts buildings used for accommodation services such as hotels, hostels and boarding houses from service tax under the renting category.
The tax department, however, maintained that the premises were not used solely for hotel accommodation. It pointed to the presence of facilities including a restaurant, banquet hall, conference hall, bar and health club, claiming these elements reflected commercial usage beyond a hotel.
The tribunal was unconvinced by this argument.
In its reasoning, the bench observed that such facilities are standard components of modern hotels and are designed primarily to serve hotel guests. Amenities like restaurants, banquet halls and wellness facilities, it noted, are not independent commercial units but part of the broader hotel ecosystem.
These features, the tribunal clarified, do not change the fundamental character of the property as a hotel building.
With that interpretation, the bench concluded that the premises clearly fell within the statutory exclusion for hotel buildings. Consequently, the tax demand and related penalties imposed on Rajinikanth were deemed unsustainable and were set aside.
