The Supreme Court of India has ruled that leasing a residential dwelling to a company for use as a hostel qualifies for GST exemption under Entry 13 of Notification No. 9/2017-IGST (Rate). This decision came in the case between the State of Karnataka and Taghar Vasudeva Ambrish, where the respondent had leased a 42-room residential building in Bengaluru to DTwelve Spaces Pvt. Ltd., which used it for hosting students and working professionals.
The issue arose when the AAR and AAAR denied GST exemption, arguing that the property was used commercially as a hostel and the lessee was a company, not using it as a residence. However, the Karnataka High Court overturned this decision, stating that the property was indeed a residential dwelling and used as such by the sub-tenants. The State of Karnataka appealed this decision to the Supreme Court.
The Supreme Court upheld the High Court's ruling, emphasizing that the structural character and intended use of the property as a residential dwelling were clear. The Court clarified that the exemption depends on the ultimate residential use, not on whether the lessee is a company or an individual. It rejected the argument that the hostel use constituted a commercial activity, affirming that residential use does not change due to management by a company.
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Furthermore, the Court stated that amendments to the exemption entry made in 2022 and 2023 cannot be applied retrospectively to the period in question (2019–2022). Thus, the Supreme Court dismissed the State's appeal, confirming the GST exemption for the leasing of the residential building for hostel accommodation during the relevant period.
Parties: State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr.
Order Date: 04 December 2025
Facts –
- The respondent owned a residential building comprising 42 rooms in Bengaluru. He leased the entire property to DTwelve Spaces Pvt. Ltd., a company engaged in operating hostels and long-term accommodations for students and working professionals.
- DTwelve Spaces sub-leased the rooms to individual occupants for periods ranging from three months to one year, and the premises were used exclusively for residential stay.
- The AAR and AAAR rejected the respondent’s claim for GST exemption under Entry 13 of Notification No. 9/2017-IGST (Rate), holding that the property was being used as a commercial hostel, and that the lessee, being a company, was not using the premises as a residence.
- The Karnataka High Court set aside these rulings and held that the exemption was available since the property was a residential dwelling and ultimately used for residential purposes by the sub-tenants.
- Aggrieved, the State of Karnataka filed an appeal before the Supreme Court challenging the High Courts conclusions.
Issue –
- Whether the leasing of a residential dwelling to a company, which subsequently uses the premises as a hostel for students and working individuals, qualifies for GST exemption under Entry 13 - services by way of renting of residential dwelling for use as residence?
Order –
- The Supreme Court upheld the High Court’s decision and confirmed that the property in question was undeniably a residential dwelling, both in its structural character and intended use.
- The Court held that Entry 13 does not require the lessee personally to use the premises as a residence. What matters is whether the property is ultimately used for residential purposes, which, in this case, was satisfied since students and working professionals were living in the premises on a long-term basis.
- The Court rejected the Revenue’s argument that hostel use constitutes a commercial activity, observing that residential occupation does not lose its character merely because the accommodation is managed by a company.
- The Supreme Court further clarified that subsequent changes in the exemption entry—such as the amendments made in July 2022 and January 2023 restricting the benefit—cannot be applied retrospectively to the period involved in the dispute (2019–2022).
- Finding no grounds to interfere with the High Court's reasoning, the Supreme Court dismissed the States appeal and confirmed that the leasing of the residential building for hostel accommodation was eligible for GST exemption for the relevant period.
