Supreme Court Upholds GST Exemption on Leasing Residential Property for Hostel Use; Rejects Revenue’s Narrow Interpretation of ‘Residential Dwelling’
Case Name: State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr.
Citation: 2025 INSC 1380
Date of Judgment/Order: 04 December 2025
Bench: J.B. Pardiwala, J.; K.V. Viswanathan, J.
Held: The Supreme Court held that the respondent’s leased property—used as a hostel for students and working professionals—constitutes a “residential dwelling,” and that leasing it qualified for GST exemption under Entry 13 of Notification No. 9/2017 until the amendment of 18 July 2022. The Court rejected the revenue’s argument that exemption applies only when the lessee personally uses the dwelling as a residence. Applying purposive interpretation and established principles governing beneficial exemptions, the Court held that the statutory intent is to exempt any residential property ultimately used for residence, irrespective of whether the immediate lessee is an individual or a commercial aggregator. Imposing GST on the lessor simply because the lessee sub-leases the premises would defeat legislative intent and burden end-users, namely students and working women.
Summary: The respondent, co-owner of a 42-room residential building in Bengaluru, leased the property to DTwelve Spaces Pvt. Ltd., which provided long-term hostel accommodation to students and professionals. The AAR and AAAR denied GST exemption, reasoning that (i) the lessee, being a company, did not use the premises for its own residence, and (ii) hostels were not “residential dwellings.” The High Court reversed these findings, holding the exemption applicable. Before the Supreme Court, the revenue contended that exemption must be assessed solely with reference to the first transaction between lessor and lessee, and that residential character depends only on physical attributes, not end-use. Examining jurisprudence on “residential dwelling,” the Court found hostels used for long-term stay fell squarely within the expression, relying on precedents such as Bandu Ravji Nikam and Kishore Chandra Singh Deo. The Court further held that beneficial exemptions require liberal application once statutory conditions are satisfied. Because the property’s ultimate use remained residential, and because lessee–sub-lessee arrangements do not alter the nature of the activity, the exemption applied for 2019–2022. The 2022 amendment, excluding cases where residential premises are rented to registered persons, could not be applied retrospectively.
Decision: The Supreme Court dismissed the revenue’s appeals and upheld the High Court’s judgment, confirming that leasing of the residential property for hostel accommodation was exempt from GST prior to 18 July 2022. It held that all three statutory requirements of Entry 13—renting, residential dwelling, and use as residence—were satisfied. The Court declined to interfere with the High Court’s view and clarified that post-2022 transactions fall within the amended regime. All pending applications were disposed of.