As per case facts, the Respondent co-owner leased a large residential property to a company which sub-let it as a long-term hostel for students and working professionals. The tax authorities ...
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The recent Supreme Court judgment in *The State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr.* (2025 INSC 1380), a pivotal case concerning **GST exemption on hostel accommodation** and the interpretation of a **residential dwelling for GST purposes**, has been extensively analyzed and is now available on CaseOn, making it readily accessible for legal professionals. This ruling clarifies crucial aspects of GST applicability on rental income from properties leased for residential use, particularly hostels for students and working professionals.
The core legal question before the Supreme Court was whether the service of leasing residential premises, specifically for use as a hostel by students and working professionals, is covered under the exemption provided by Entry 13 of Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017. This notification exempts “services by way of renting of residential dwelling for use as residence.”
The exemption under Entry 13 of Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017 specifies three conjunctive conditions for a service to qualify for GST exemption:
Crucially, the term “residential dwelling” is not explicitly defined in GST laws. The Court referred to:
The principle of statutory interpretation, as established in *Union of India v. Wood Papers Limited* and *Government of Kerala v. Mother Superior Adoration Convent*, states that while exemption notifications are to be construed strictly at the threshold, once an exemption is found applicable, it should be construed liberally to achieve its beneficial purpose.
The respondent (original petitioner) co-owned a 42-room residential property in Bangalore. This property was leased to M/s DTwelve Spaces Private Limited (the lessee), which, in turn, sub-leased it as a hostel to students and working professionals for long-term accommodation (3 to 12 months). The Advanced Ruling Authority (AAR) and the Appellate Authority for Advance Ruling (AAAR) initially denied the GST exemption, arguing that the lessee (a company) was not using the property as its own residence and that a hostel was more akin to commercial accommodation. The High Court, however, allowed the exemption.
The revenue contended that all three conditions of Entry 13 must be strictly met. They argued that the lessee, being a commercial entity, was not using the property as a residence, thus failing the third condition. They further asserted that the first transaction (lessor to lessee) should be judged independently, without considering the subsequent sub-leasing by the lessee to end-users (students/working professionals). The property's structure, with 42 rooms and attached washrooms, was also argued to be more like a hotel than a residential dwelling.
The respondent argued that denying the exemption based on the lessee not using the property as their personal residence would amount to rewriting Entry 13. They highlighted that the property itself was a residential dwelling, as per municipal records and common understanding, and its ultimate use by students and working professionals was for residence, thereby fulfilling all three conditions. The respondent emphasized that Entry 13 is an activity-specific exemption (renting for residence), not a person-specific one.
The Supreme Court, affirming the High Court’s view, concluded that the subject property qualified as a “residential dwelling.” It drew upon the interpretations from the Education Guide, judicial precedents, and dictionary definitions, which clearly distinguish long-term residential accommodation (like hostels) from temporary stays in hotels or guest houses. The Court noted that the property’s nature, as recorded, was residential.
Regarding the condition of “use as residence,” the Court held that this condition was satisfied because the property was taken on rent for the ultimate purpose of residence. There is no explicit requirement in Entry 13 that the *lessee itself* must use the property as a residence. The sub-leasing to students and working professionals for residential purposes meant the ultimate use remained residential. The Court underscored that M/s DTwelve Spaces Private Limited acted as an aggregator, facilitating residential dwelling use through sub-leases.
The Court stressed the importance of a 'purposive interpretation' of tax statutes. This approach looks at the legislative intent and the goal the provision is designed to achieve. In this case, the legislative intent behind Entry 13 was to provide an exemption for properties used as residences, ensuring that such accommodation remains affordable. A narrow interpretation, requiring the lessee to personally reside, would defeat this objective by passing on GST costs to the students and working professionals. *CaseOn.in offers 2-minute audio briefs for rulings like this, helping legal professionals quickly grasp the essence of complex judgments, including the nuances of purposive interpretation.*
The Court meticulously addressed the amendments to Entry 13. With effect from 18.07.2022, Entry 13 was modified to include an exception: “except where the residential dwelling is rented to a registered person.” A further explanation, effective 01.01.2023, clarified that this exemption would still apply if a registered person (proprietor) rents the dwelling in a personal capacity for their own residence. The Supreme Court pointed out that the revenue was effectively attempting to apply the post-2022 amendments retrospectively, which is impermissible. Before these amendments, no such restriction existed, and the intention was clearly to exempt rental agreements for residential purposes.
Based on the aforesaid analysis, the Supreme Court found no grounds to interfere with the High Court’s judgment. It concluded that for the period 2019-2022 (before the 2022 amendments), all three conditions of Entry 13 were satisfied. The appeals filed by the revenue were consequently dismissed, thereby affirming the exemption from GST on hostel accommodation for the specified period.
The Supreme Court affirmed that renting residential premises for use as a hostel by students and working professionals qualified for GST exemption under Entry 13 of Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017 for the period preceding 18.07.2022. The Court clarified that 'residential dwelling' includes accommodations like hostels for long-term stays, and the exemption is contingent on the ultimate residential use of the property, not necessarily direct occupancy by the immediate lessee. The judgment strongly endorsed the principle of purposive interpretation to align with the legislative intent of exempting residential accommodation from GST and rejected the retrospective application of subsequent amendments.
This Supreme Court judgment is a landmark ruling for several reasons, making it crucial reading for lawyers, tax practitioners, property owners, and legal students:
All information provided in this article is for informational purposes only and does not constitute legal advice. While efforts have been made to ensure accuracy, readers are advised to consult with a qualified legal professional for advice pertaining to their specific circumstances.
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