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I. Legislative and Jurisprudential Background The taxation of rental income from immovable property has undergone a marked evolution from the service tax regime to the Goods and Services Tax ("GST") framework. Under the erstwhile Finance Act, 1994, service tax was levied only on commercial renting,
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The main issue was whether renting residential properties to companies for use as hostels or paying guest accommodations qualified for the GST exemption intended for residential use, or if the involvement of a commercial intermediary made it taxable.
The Supreme Court ruled that leasing residential premises for use as hostels by students and working professionals is exempt from GST. They affirmed that such properties qualify as 'residential dwellings' and the exemption applies regardless of whether the direct lessee is a commercial entity.
The ruling specifically addresses the exemption for 'services by way of renting of residential dwelling for use as residence'. The key is that the property must be a residential dwelling and used for residence, even if facilitated by a commercial intermediary.
The Supreme Court interpreted 'residential dwelling' based on common parlance, meaning any place where a person eats, sleeps, and ordinarily lives. This includes hostels used for extended stays by students and professionals, distinguishing them from temporary lodging like hotels.
No, the Supreme Court clarified that the exemption does not require the direct lessee to reside in the premises. It is sufficient if the property is ultimately used for residential purposes by the occupants, such as students or working professionals.
The Court adopted a purposive interpretation because the legislative intent of the exemption was to keep basic shelter affordable. A narrow interpretation that taxed hostel rentals would have increased costs for students and professionals, defeating the purpose of the exemption.
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