February 2026

In this landmark constitutional challenge, the Punjab & Haryana High Court upheld the validity of service-tax on renting of immovable property for business purposes under the Finance Act, 1994. The petitioner, a company leasing commercial property, argued that such taxation encroaches on the State’s exclusive domain over property taxes under Entry 49 of List II. The Court, applying the pith and substance doctrine, distinguished between a direct tax on property (State competence) and a tax on the service of renting (Union competence under Entry 92C). It affirmed that Parliament’s power to levy service-tax on renting is valid, as it targets the service element, not the property per se. The retrospective operation from 1st June 2007 was also validated as clarificatory. This judgment reinforces the constitutional scheme of distinct taxing powers between Union and States, emphasizing that overlapping in fact does not imply overlapping in law. For tax professionals, this clarifies that service-tax on renting remains within Parliament’s ambit, despite State authority over property taxes, ensuring compliance with central service-tax provisions.