The Hon’ble Supreme Court in the case of The State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr. [Civil Appeal No. 7846 & 7847 of 2023, order dated December 04, 2025] held that renting of residential dwelling to lessee for sub-leasing as hostel providing long-term accommodation to students/working professionals qualifies for exemption under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) as “services by way of renting of residential dwelling for use as residence”.
Facts:
Taghar Vasudeva Ambrish (“the Respondent”), co-owner of residential property, along with other co-owners executed lease deed dated June 21, 2019 in favour of M/s DTwelve Spaces Private Limited (“lessee”), who sub-leased it as hostel for long-term accommodation to students/working professionals.
State of Karnataka & Ors. (“the Appellant”), through Authority for Advance Ruling (AAR) vide order March 23, 2020 and Appellate Authority for Advance Ruling (AAAR) vide order August 31, 2020, denied exemption under Entry 13 of Notification No.9/2017-Integrated Tax (Rate) dated June 28, 2017 holding renting as hostel not “residential dwelling for use as residence” since lessee is not using it itself and is akin to “sociable accommodation”.
The Respondent contended that ‘residential dwelling’ as per CBIC Education Guide June 20, 2012 means any residential accommodation (unlike hotels for temporary stay) and hostel used for sleeping/eating/studying qualifies as per common parlance as residential dwelling. There is no condition that lessee must personally use as residence, and claimed to be eligible exemption under Entry 13 of the said notification.
The Appellants contended that for the purpose of making the relevant entry applicable the following three conditions need to be fulfilled namely, i)there must be a supply of service of renting and, ii) the renting service must pertain to a residential dwelling and, iii) such residential dwelling must be used as a residence. All the above three conditions must be conjunctively satisfied and even if one of the limbs is not triggered then the benefit of the exemption cannot be claimed. Further they contend that on the plain reading of the clauses of the lease deed dated June 21, 2019 shows that the co-owners recognized that the lessee is running and managing various premises and leasing it to individuals for long stay accommodations and the sole reason for the lease is for the said purpose and the lessee being the party to the first transaction cannot be said to be using the property as residence and that the property in question comprising forty-two rooms each with attached washroom by applying the common parlance test can never qualify as a residential dwelling and therefore the exemption notification has to be strictly construed and any ambiguity has to be construed in favour of revenue.
The Respondent’s grievance was the denial of exemption despite the residential nature and use of the property and therefore approached the Karnataka Hon’ble High Court by filing Writ Petition No. 14891 of 2020 wherein the Hon’ble High Court allowed the writ petition by quashing the order of the Appellate Authority for Advance Ruling dated August 31, 2020. The Revenue aggrieved by the same, had preferred the Civil Appeals Nos. 7846 and 7847 of 2023 before the Supreme Court.
Issue:
Whether leasing of residential dwelling to a commercial lessee aggregator for sub-leasing as hostel providing long-term accommodation to students and working professionals qualifies for exemption from Integrated Goods and Services Tax under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated June 28, 2017 as services by way of renting of residential dwelling for use as residence?
Held:
The Hon’ble Karnataka High Court in W.P. No.14891 of 2020 (T-RES) dated February 7, 2022 held as under:
- Observed that, Entry 13 contained in the exemption notification is unambiguous and clear and it provides for exemption from payment of Integrated Goods and Service Tax in respect of services by way of renting of residential dwelling by way of use as residence and the burden is on the assessee to show that his case comes within the parameters of the exemption notification.
- Noted that, the expression residential dwelling has not been defined and in normal trade parlance it means any residential accommodation and is different from hotel, motel, inn, guest house etc. which is meant for temporary stay and the clarification issued by the Central Board of Indirect Taxes and Customs in the Education Guide dated June 20, 2012 binds the respondents in the absence of anything to the contrary in the Act.
- Held that, when the word is not defined in the Act itself it is permissible to refer to the dictionaries to find out the general sense in which the word is understood in common parlance. It is evident that the expression ‘residence’ and ‘dwelling’ have more or less the same connotation in common parlance and therefore no different meaning can be assigned to the expression residential dwelling and, it cannot be held that the same does not include ‘hostel’ used for ‘residential purposes’ by students or working women.
- Held that, the notification does not require the lessee itself to use the premises as residence and therefore the benefit of exemption notification cannot be denied to the assessee on the ground that the lessee is not using the premises.
- Noted that, the finding recorded by the Appellate Authority for Advance Ruling that the hostel accommodation is more akin to ‘sociable accommodation’ is unintelligible and is not relevant for the purposes of determining the eligibility of the assessee to claim the benefit under the exemption notification and, the submission that the assessee is registered as commercial establishment under the Karnataka Shops and Commercial Establishment Act 1961 or that a trade licence has been issued by Bruhat Bengaluru Mahanagara Palike is wholly irrelevant for the purposes of determining the eligibility under the exemption notification.
- Quashed the order dated August 31, 2020 passed by the Appellate Authority for Advance Ruling Karnataka and held that the service provided by the assessee namely leasing out residential premises as hostel to students and working professionals is covered under Entry 13 of Notification No. 9/2017 dated June 28, 2017.
The Hon’ble Supreme Court in Civil Appeal No. 7846 & 7847 of 2023, order dated December 4, 2025 held as under:
- Dismissed the Revenue appeals and upheld the High Court judgment by observing that the subject property qualifies as residential dwelling AS per common parlance and the Education Guide dated June 20, 2012 issued by the Central Board of Indirect Taxes and Customs which defines it as any residential accommodation meant for long-term stay unlike temporary hotel guest house etc. Further the materials on record show that as per the Khatha Extract and layout plans the plot and property is residential in nature.
- Noted that, the third condition such residential dwelling must be given for use as a residence is satisfied as the property was taken on rent only for use as a residence and there is no further condition that the tenant or lessee must itself use it as a residence. The lessee namely is an aggregator who facilitates the use of residential dwelling for hostel accommodation and all the students and working women are sub-lessees.
- Held that, Entry 13 of the Exemption Notification does not mandate that the lessee must use the residential dwelling as its own residence and, giving any other interpretation would mean adding an additional condition to Entry 13 and giving Entry 13 a narrow interpretation by holding that it is available only when the property so rented is used by service recipient themselves would ultimately lead to the legislative intent being defeated.
Our Comments:
The Supreme Court applied the interpretation principle laid down in Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256] wherein it was pointed out that an exemption notification should be construed strictly at the threshold. But once the exception/exemption is applicable, then a liberal construction must be adopted. In the present case all three conditions of Entry 13 stand satisfied on strict construction and therefore liberal interpretation applies to extend benefit to sub-lessees.
The Karnataka High Court followed the common parlance doctrine by requiring words not statutorily defined to be interpreted in popular sense by persons conversant with the subject matter and adopted the binding CBIC Education Guide definition from the erstwhile service tax regime which continues relevant for identical exemption wording.
Relevant Provisions:
Entry 13, Notification No. 9/2017-Integrated Tax (Rate) dated June 28, 2017 (as stood from January 1, 2023)
“Services by way of renting of residential dwellings for use as residence except where the residential dwelling is rented to a registered person – Nil.
Explanation- for the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, – (i) The registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and (ii) Such renting is on his own account and not that of the proprietorship concern.”
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