Leasing of residential premises as hostel to students and working professional will not attract Goods & Services Tax (GST), Karnataka High Court has ruled.

The petitioner Taghar Vasudeva Ambrish along with co-owners leased a property with 42 rooms to a company called Twelve Spaces Private Limited. The property was leased out as hostel for providing long-term accommodation to students and working professionals with the duration of stay ranging from 3 months to 12 months.

AAR, AAAR rulings

The petitioner first moved to Authority for Advance Ruling (AAR) with a query that whether leasing will get exemption from GST or not. AAR ruled out exemption. Then the petitioner moved to Appellate Authority for Advance Ruling (AAAR) which held that property rented out by the petitioner is a hostel building which is more akin to sociable accommodation rather than what is commonly understood as residential accommodation.

Therefore, the property rented out by the petitioner cannot be termed as residential dwelling and hence no exemption.

Aggrieved over this, the petitioner moved to the High Court.

High court ruling

After going through all the facts and arguments, the Court said the residential dwelling is being rented, as the hostel to the students and working women fall within the purview of residential dwelling as the same is used by the students as well as the working women for the purposes of residence. Secondly, the residential dwelling is being used for the purposes of residence.

“It is also worth mentioning that the notification does not require the lessee itself use the premises as residence. Therefore, the benefit of exemption notification cannot be denied to the petitioner on the ground that the lessee is not using the premises,” the Court said.

Further it made it clear that service provided by the petitioner i.e., leasing out residential premises as hostel to students and working professionals is covered under Entry 13 of Notification No.9/2017 dated September 28, 2017 namely ‘Services by way of renting of residential dwelling for use as residence’ and hence eligible for exemption.

‘Little benefit to occupants’

Commenting on the ruling, Prateek Bansal, Associate Partner (Tax & Customs) at White and Brief, a law firm, said that the present order is chiefly premised on the duration of occupying a dwelling so as to test whether the said dwelling qualifies as a ‘residential dwelling’ or not. However, it deserves attention that the HC has not laid down the principles determining any stay/occupancy as ‘temporary’ or ‘permanent’ depending on the duration of such stay. Therefore, it will be critical to examine facts and circumstances of each case to claim GST exemption.

“While the exemption from GST levy qua such residential dwellings cum hostels is a welcome decision for students & professionals across country, the GST discharged by lessors/owners on availing various inputs and input services (for upkeep of the said dwellings) would now become tax-cost, thereby with no or minimal reduction of prices to the ultimate occupants,” he said.

Further, considering that the instant case is pertaining to advance ruling which is only binding on the applicant, it will be interesting to see whether this position is also adopted by other States’ GST authorities.

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