Tax Opinion on the issue of sponsorship as per ST

Before the introduction of negative list based service tax collection, “ sponsorship” was defined in Section 65 (99)(a) of Finance Act, 1994    as;

“Sponsorship” includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors.”

A point requiring special attention in the said definition is that financial or other support in the form of donations or gifts given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors is specifically excluded from the definition. This definition is in line with the underlying principle of Service Tax legislation that services without consideration are not liable to tax.

As you are aware under the present system of taxation based on negative list, item wise description of services has been done away with. The definition of sponsorship itself has been deleted from the statue. As such one has to go through the definition of “service” as given in section 65B (44)  to ascertain whether the activity  falls within it. Then one has to see whether the said service falls within the items listed in the negative list. In case it is not listed in negative list, then the service is a taxable service and tax is payable unless specifically exempted.

In the instant case sponsorship does not fall under the negative list and is not specifically exempted under any notification. As such it is beyond doubt that sponsorship is a taxable service. It is further seen that sponsorship is listed in notification  no30/2012 dated 20-06-2012  as a service attracting reverse charge mechanism under which tax is payable in full by the receiver of service.

Although as discussed above the sponsorship is a taxable service the preliminary question to be addressed in the present context is whether the activity performed by you falls within the purview of sponsorship at all. It is informed that the you propose to sponsor a building to a non government not for  profit  organization. From your letter it appears that you are simply sponsoring the building and you are not getting any consideration in return. The definition of service  given 65B (44) of the Finance act,1994 is

 “ “service” means any activity carried out by a person for another for consideration and includes a declared service ,but shall not include-

(a)    an activity which constitutes merely,-

(b)   (i) transfer of title in goods or immovable property, by way of sale gift or in any other manner….”

Two points worth noticing in the definition are that

 1)  An activity without consideration will not fall within the dentition of service and

 2)  Mere transfer in title in immovable property by sale or gift is excluded from the definition.

 It appears that both these conditions are applicable in the transaction proposed by you. As such it is evident that your proposed activity will not fall within the definition of service  in terms  the Finance Act, 1994. Hence you are not liable to pay any service tax on the activity.

 Since the very activity is not taxable it is unnecessary to go in to the issue of classifiability under sponsorship although we are of the firm opinion that same can not be considered as sponsorship, even going by   the plain meaning of the said word.