Facts of the Case:

The petitioners, owners and developers of commercial information technology parks, had leased office premises to various corporate tenants under comprehensive lease agreements. Along with the demised premises, the lease deeds granted access to furniture, fixtures, parking areas, cafeteria facilities, lifts, central air-conditioning systems, power backup, sewage treatment systems, fire safety installations, building management systems and other common amenities.

The lease rentals were charged on a composite basis, calculated per square foot, without separately assigning any value to the movable assets or amenities. The Commercial Tax Department initiated proceedings under Section 5E of the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act), treating the portion of lease rentals attributable to furniture, fixtures, kitchen equipment and other movable assets as consideration for the transfer of the right to use goods, thereby constituting a deemed sale liable to sales tax.

The Assessing Officer, Appellate Deputy Commissioner, Deputy Commissioner and the Sales Tax Appellate Tribunal upheld the levy. Aggrieved by these findings, the petitioners approached the High Court contending that the lease agreements merely provided integrated facilities as part of the leasing arrangement, without transferring possession or effective control over any identified movable goods to the tenants.

Issue:

Whether the lease rentals received in respect of furniture, fixtures, equipment, kitchen appliances and common amenities provided along with commercial office premises constituted consideration for a “transfer of the right to use goods” amounting to a deemed sale under Article 366(29A)(d) of the Constitution and Section 5E of the APGST Act, or whether such arrangements merely represented an integrated lease of commercial premises coupled with incidental facilities and services not liable to sales tax.

Held That:

The High Court allowed the writ petitions and tax revision, holding that the impugned levy under Section 5E of the APGST Act was unsustainable. Relying extensively on the principles laid down by the Supreme Court in Bharat Sanchar Nigam Ltd. and other precedents including Aggarwal Brothers, Viceroy Hotels Ltd., HLS Asia Ltd. and G.S. Lamba & Sons, the Court reiterated that a transaction qualifies as a transfer of the right to use goods only when the transferee obtains an enforceable legal right coupled with effective possession and exclusive control over specifically identifiable goods.

Upon examining the lease deeds, the Court found that none of these essential conditions were satisfied. The furniture, fixtures and amenities were neither separately identified nor exclusively delivered to the tenants. Several facilities, including lifts, cafeterias, parking areas, air-conditioning systems and other infrastructure, were common facilities shared by multiple occupants and continued to remain under the management and control of the landlord.

The lease agreements also empowered the landlord to regulate, suspend, replace and maintain these facilities, clearly demonstrating that the tenants merely enjoyed permission to use them as part of an integrated leasing arrangement. The Court further held that the tax authorities had erroneously bifurcated composite lease rentals into movable and immovable components without any contractual basis.

Since the lease transactions did not satisfy the five essential tests laid down in BSNL for transfer of the right to use goods, the lease rentals attributable to furniture, fixtures, equipment and common amenities could not be treated as deemed sales. Accordingly, the orders of the tax authorities and the Tribunal were quashed.

Case Name:  SDE Engineers Ltd. v. Commercial Tax Officer dated 03.07.2026

To read the complete judgement 2026 Taxo.online 1856