In the aforesaid example, assume the security deposit collected from the tenant is Rs.5 crore (instead of Rs.10 lakh) against a monthly rent of Rs.1.5 lakh. Usually, property owners may collect security deposit, equivalent to six- or 12-months’ rent. Hence, it is possible that when the quantum of such deposit is high, the rent charged could be less and vice versa. That is, price is not the sole consideration for the supply.
It should be noted that the term "consideration", in relation to the supply of goods or services, includes the monetary value of any act or forbearance, in respect of / in response to / for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person [Ref: Section 2(31)(b) of CGST Act]. Thus, the term “consideration” is defined quite widely. Moreover, consideration could flow either from the recipient (viz., monthly rent) or from any other person (viz., notional interest on deposit).
The Supreme Court, in April 2003[1], held that mere extension of interest free advance by a buyer to the manufacturer will not be enough to reload the assessable value with notional interest. It would be necessary for the Revenue to show that such advance has influenced in the lowering the price.
Hence, the Authority for Advance Rulings, Karnataka recently[2] ruled that notional interest on security (rent) deposit should be considered as part of value of supply (i.e., as part of the rental income) if the said notional interest influences the value of supply of ‘renting of immovable property’ service.
[1] Civil Appeal Nos. 2884-2892, 6600-6607 of 1999; 3635, 798, 410, 787-788/2000; 864 & 868 of2002
[2] Advance Ruling No. KAR/ADRG/48 of 2020