Supreme Court settles the law on “Residential Dwelling”
Case: Supreme Court of India
Matter: State of Karnataka v. Taghar Vasudeva Ambrish
Date: 4 December 2025
Issue: GST on renting residential property used as student/working professional hostels
🔑 THE CORE QUESTION
Does GST exemption apply when:
- A residential property
- Is leased to a commercial aggregator, and
- Sub-leased as a hostel for long-term stay?
👉 Answer: YES — exemption applies
📜 LEGAL PROVISION INVOLVED
Entry 13 — Notification No. 9/2017-IGST (Rate)
| Particulars | Details |
|---|---|
| Covered service | Renting of residential dwelling |
| Condition | Used as residence |
| GST Rate | NIL |
| Key absence | ❌ No requirement that lessee must reside personally |
🧩 FACTS OF THE CASE (AT A GLANCE)
| Aspect | Details |
|---|---|
| Property | Residential building (42 rooms with attached washrooms) |
| Owner | Taghar Vasudeva Ambrish & co-owners |
| Lessee | Commercial hostel aggregator |
| End use | Long-term accommodation for students & working professionals |
| GST dispute | Whether leasing loses exemption due to commercial sub-leasing |
🏛️ LOWER AUTHORITIES VS COURTS
What Authorities Held ❌
| Authority | Reason for Denial |
|---|---|
| AAR / AAAR Karnataka | Lessee not using property personally |
| Hostel = “sociable accommodation” | |
| Commercial character defeats exemption |
What Courts Held ✅
| Court | Key Finding |
|---|---|
| Karnataka High Court | Hostel ≠ hotel; long-term residence qualifies |
| Supreme Court | Exemption upheld; Revenue appeals dismissed |
🧠 SUPREME COURT’S REASONING (SIMPLIFIED)
1️⃣ Meaning of “Residential Dwelling”
| Basis | Court’s View |
|---|---|
| Statute | Term not defined in GST law |
| Interpretation | Apply common parlance |
| Guidance relied upon | CBIC Education Guide (2012) |
| Conclusion | Hostels used for long-term stay are residential |
2️⃣ “Use as Residence” — Who Must Use It?
| Revenue Argument | Court’s Rejection |
|---|---|
| Lessee must itself reside | ❌ No such condition in notification |
| Sub-leasing breaks exemption | ❌ End-use matters, not intermediary |
| Commercial intent disqualifies | ❌ Irrelevant if residence test met |
📌 Adding such a condition would amount to rewriting the notification
⚖️ THREE CONDITIONS TEST — CLARIFIED
| Condition | Status |
|---|---|
| Renting of service | ✅ Satisfied |
| Property is residential dwelling | ✅ Satisfied |
| Used as residence | ✅ Satisfied (by occupants) |
➡️ All limbs satisfied → exemption applies
📊 HOSTEL vs HOTEL — DECISIVE DISTINCTION
| Parameter | Hostel (Exempt) | Hotel / Guest House (Taxable) |
|---|---|---|
| Nature of stay | Long-term | Temporary |
| Purpose | Residence | Transit |
| Use | Sleeping, studying, living | Short visits |
| GST position | Exempt | Taxable |
🧩 WHAT THIS JUDGMENT DOES NOT SAY
❌ Not all hostels are automatically exempt
❌ Hotels, PGs with daily tariffs still taxable
❌ Short-term / transient accommodation not covered
❌ GST on ancillary services (food, laundry) unaffected
📌 PRACTICAL IMPACT (Finin2min Take)
Who Benefits
- Property owners leasing to student housing / co-living operators
- Aggregator-run long-stay hostels
- Educational city residential landlords
Compliance Takeaways
- Focus on end-use, not lessee identity
- Lease documentation should clearly state residential use
- Avoid mixing hotel-like features (daily billing, short stays)
🧠 INTERPRETATION PRINCIPLE REAFFIRMED
Strict test at entry → Liberal application once covered
(Union of India v. Wood Papers Ltd.)
The Supreme Court reaffirmed the settled interpretation principle from Union of India v. Wood Papers Ltd. (1990):
- Stage 1: Exemption entries must be strictly construed to determine whether a taxpayer enters the exemption zone
- Stage 2: Once covered, the exemption must be liberally applied, without importing extra conditions
In the present case, the Court held that all three statutory conditions under Entry 13 were satisfied on strict construction itself. Therefore, a liberal interpretation followed — extending the exemption even where the residential dwelling was leased to an aggregator and sub-used by residents.
📌 Importantly, the Court rejected the Revenue’s attempt to add a non-existent condition (that the lessee must personally reside), holding that courts cannot rewrite exemption notifications under the guise of interpretation.
🧾 FINAL VERDICT
✔ Law Settled:
GST exemption applies to residential dwellings leased for use as hostels providing long-term residence — even when routed through commercial aggregators.
🕰️ Scope Nuance — Time Period Matters (Important)
- The ruling squarely applies to the exemption wording as it stood prior to 18 July 2022
- Subsequent amendments have narrowed the scope of exemption for renting of residential dwellings in certain cases
- Therefore:
- ✔ The judgment is authoritative for the pre-amendment period
- ⚠ Post-18 July 2022 transactions must be examined separately under amended notifications
📌 This does not dilute the ratio of the judgment — it clarifies where and when it applies.
🎯 Finin2min Takeaway (Polished)
Courts will not add conditions the law never imposed.
But taxpayers must always check which version of the law applies.
⚠️ Disclaimer
For information purposes only. Based on judicial precedents and notifications as on date. Tax positions may vary based on facts, amendments, or future clarifications. Not a substitute for professional advice.
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