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The Supreme Court has ruled that leasing a residential property to a company that uses it as a hostel for students or working professionals does not attract GST. Upholding a Karnataka High Court decision, the Court said GST exemption depends on the property's actual use for long-term residential accommodation, not on whether the lessee personally lives there. The case involved a Bengaluru property leased to D Twelve Spaces Pvt Ltd, where earlier AAR and AAAR rulings had denied exemption. The Court noted that taxing such leases would burden students with higher costs and goes against the intent of the residential exemption. The judgment offers clarity and relief for property owners and hostel operators.
The Supreme Court has clarified that leasing residential properties to companies that operate them as hostels for students or working professionals does not attract GST. The ruling supports the Karnataka High Court's earlier decision, emphasizing that the exemption for residential use is intended to cover long-term accommodation regardless of whether the immediate lessee resides there personally. Advertisement
The case involved a Bengaluru property with 42 rooms, co-owned by individuals who leased it to M/s D?Twelve Spaces Private Limited. This company provided long-term stays ranging from three to 12 months for students and working professionals. Initially, the owners approached the Karnataka Authority for Advance Ruling (AAR) to confirm GST applicability. The AAR denied the exemption, reasoning that since the lessee company itself did not reside in the property, it could not be treated as residential. On appeal, the Appellate Authority for Advance Ruling (AAAR) upheld this decision.
The High Court disagreed, noting that GST law does not explicitly define a 'residential dwelling.' In common understanding, any property used for long-term accommodation qualifies as residential, even if it is sub-leased. The Supreme Court reinforced this view, stating that the ultimate use of the property determines exemption eligibility. It observed that applying GST in such cases would pass an 18 per cent tax burden to students and working professionals, which goes against the purpose of the residential exemption.
The Court also emphasized that exemption clauses should be interpreted in a way that upholds legislative intent. If the property continues to provide long-term accommodation, including hostel use, the GST exemption should apply. This interpretation ensures that owners leasing residential properties to hostel operators are not penalized with additional tax liability, while tenants benefit from cost savings.
The decision may have wider implications for residential property owners and the hostel industry, providing clarity on GST treatment. It also reinforces the principle that the law should support practical accommodation arrangements without imposing unnecessary financial burdens. The ruling offers relief to property owners leasing spaces for long-term student or professional housing, ensuring these properties remain financially viable and accessible.
Source PTI
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