Meaning of ‘Transactions only in money’ or ‘actionable claims’ under service tax
‘Transactions only in money’ or ‘actionable claims’ do not constitute service under service tax
‘Transaction in money’ does not include any activity in relation to money by way of its use or conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged.
The implications of this is that while mere transactions in money are outside the ambit of service,
Any activity related to a transaction in money by way of its use or conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination would not be treated as a transaction in money if a separate consideration is charged for such an activity.
For example a foreign exchange dealer while exchanging one currency for another also charges a commission (often inbuilt in the difference between the purchase price and selling price of forex). The activity of exchange of currency, per-se, would be a transaction only in money, the related activity of providing the services of conversion of forex, documentation and other services for which a commission is charged separately or built in the margins would be very much a ‘service’.
‘Transaction only in money’ includes,
- The principal amount of deposits in or withdrawals from a bank account.
- Advancing or repayment of principal sum on loan to someone.
- Conversion of Rs 1,000 currency note into one rupee coins to the extent amount is received in money form.
In business chit fund since certain commission received from members is retained by the promoters as consideration for providing services in relation to the chit fund it is not a transaction only in money. The consideration received for such services is therefore chargeable to service tax.
Bank charges a commission for preparation of a bank draft or a pay order it is not a transaction only in money. However, for a draft or a pay order made by bank the service provided would be only to the extent of commission charged for the bank draft or pay order. The money received for the face value of such instrument would not be consideration for a service since to the extent of face value of the instrument it is only a transaction in money.
- Investment of funds by a person with another for which the return on such investment is returned or repatriated to the investors without retaining any portion of the return on such investment of funds is a transaction only in money.
- Thus a partner being admitted in a partnership against his share will be a transaction in money.
- However, if a commission is charged or a portion of the return is retained as service charges, then such commission or portion of return is out of the purview of transaction only in money and hence taxable.
- Also, if a service is received in lieu of an investment it would cease to be a transaction only in money to the extent the investment represents the consideration for the service received.
Debt collection services or credit control services cannot be considered to be transaction only in money because they are provided for consideration so taxable.
What are actionable claims?
As per section 3 of the Transfer of Property Act, 1893 actionable claims means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
Illustrations of actionable claims are –
- Unsecured debts
- Right to participate in the draw to be held in a lottery.
Unsecured debt is an actionable claim, a transaction only in such actionable claims outside the ambit of service. However if a service fee or processing fee or any other charges collected in the course of transfer or assignment of a debt then the same would be chargeable to service tax.
If a service fee or processing fee or any other charge is collected in the course of transfer or assignment of a debt like a mortgage then the same would be chargeable to service tax.
Scope of ‘beneficial interest in moveable property’ in the definition of actionable claim
Black’s Law Dictionary defines ‘beneficial interest’ as follows-“A right or expectancy in something (such as a trust or an estate), as opposed to legal title to that thing. For example, a person with a beneficial interest in a trust receives income from the trust but does not hold legal title to the trust property”
Therefore ‘beneficial interest in moveable property’ is a right or expectancy in a moveable property like right to receive income accruing from a moveable property. It may be noted that accrual of income from a moveable property could be in the nature of a consideration for a taxable service, e.g. a hiring fees or a license fee accruing on hiring or licensing of a moveable property. In such a situation the service being provided in relation to such moveable property would not be covered in the exclusion clause. It is only if the beneficial interest in such property is transferred to another person for a consideration that the activity of transferring the beneficial interest would be covered.
Vouchers that entitle a person to enjoy a service, for example a health club, does not create a ‘beneficial interest’ in a moveable property but only entitles a person to enjoy a particular service for a single or specified number of times, so this would not be an actionable claims.
Recharge vouchers issued by service companies for enabling clients/consumers to avail services like mobile phone communication, satellite TV broadcasts, DTH broadcasts etc do not create a ‘beneficial interest’ in a moveable property but only enable a person to enjoy a particular service so they would not be ‘actionable claims