New Delhi: The Supreme Court on Thursday ruled that leasing residential premises to an entity that uses it as a hostel for students and working professionals is exempt from Goods and Services Tax (GST).
A bench comprising Justices JB Pardiwala and KV Viswanathan upheld the Karnataka High Court’s verdict, which stated that such leasing falls under GST exemption.
"In the case on hand, the ultimate use of the property as residence remains unchanged. However, if 18 per cent GST is levied on this transaction between the respondent No. 1 and the lessee i.e. M/s DTwelve Spaces Private Limited, the same would ultimately be passed on to the students and working professionals which would lead to a situation where the legislative intent behind granting exemption for residential use is defeated," the bench said.
The Supreme Court was hearing a plea filed by a co-owner of a residential property in Bengaluru, which consists of 42 rooms. The petitioner, along with other co-owners, had executed a lease deed in favour of the lessee, M/s D Twelve Spaces Private Limited.
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The lessee subsequently leased the property as a hostel for long-term accommodation to students and working professionals, with stays ranging from three to 12 months.
The petitioner sought clarification regarding eligibility for exemption on the renting services and approached the Authority for Advance Ruling (AAR), Karnataka. The AAR held that renting of residential dwellings for use as residences is not covered under entry 13, and thus the benefit of exemption was unavailable.
On appeal, the Appellate Authority for Advance Ruling ruled that the property, being leased out as a hostel, could not be classified as residential accommodation and denied the exemption.
The Karnataka High Court, however, overturned this decision, holding that leasing residential premises to an entity using it as a hostel for students and working professionals qualifies for GST exemption.