New Delhi, Sep 17 (PTI) Imposition of a higher rate of property tax by the Municipal Corporation of Delhi on luxury hotel establishments cannot be construed as "arbitrary or capricious", keeping in mind the economic profile of the clientele these establishments are designed to attract, the Delhi High Court has said.

The high court said luxury hotels voluntarily seek star accreditation, positioning themselves within a segment that targets affluent clientele and delivers luxurious experiences at a premium cost.

"In light of this, the legislative intent underlying the imposition of elevated property tax rates on such establishments is to equitably distribute the fiscal burden, ensuring that those possessing greater capacity to pay contribute proportionately to the public revenue," Justice Purushaindra Kumar Kaurav said in a judgment passed on September 12 and made available on the court's website on September 16.

The high court passed the verdict while disposing of a batch of petitions by several erstwhile 5-star hotels challenging the recommendations made by the Municipal Valuation Committee (MVC) under the Delhi Municipal Corporation Act, implemented by the MCD for levying property tax on them.

The rating of 5-star has been allegedly reclassified as 4-star with effect from February 7, 2022.

The petitioners sought quashing of the user multiplier factor of 10 and imposition of the rate of tax at 20 per cent as against 10 per cent before. In September 2022, MVC-V submitted its final report to the MCD that was officially accepted on November 04, 2022.

MVC-V recommended a user factor (UF) of 8 for 5-star and above hotels, while UF-4 was assigned to all other types of hotels.

Subsequently, on April 19, 2024, MCD implemented the MVC-V recommendations, which came into effect from April 1, 2023.

Disposing of the pleas, the court held that the classification of hotels on the basis of star ratings does not suffer from the vice of arbitrariness or discrimination under Article 14 of the Constitution.

The high court observed that these buildings operating as high-end luxury hotels, categorised under superior star ratings, encompass premium infrastructure and exclusive facilities, such as grand banquet halls, spas, fine-dining establishments, concierge services and other opulent amenities that distinctly separate them from ordinary lodging accommodations.

"The imposition of a higher rate of property tax on luxury hotel establishments cannot be construed as arbitrary or capricious, particularly in light of the economic profile of the clientele such establishments are designed to attract," it said.

The court said these enterprises voluntarily situate themselves within a premium segment of the hospitality industry, offering high-end amenities and exclusive services that cater to patrons of considerable means, individuals who, by virtue of their financial capacity, are already contributors to the higher tax brackets across various statutory schemes.

The court said the star-rating system, which is used to classify hotels based on the quality of their services, infrastructure and amenities, provides an intelligible and rational basis for this distinction.

"To mandate a fresh classification would unnecessarily complicate the legislative process and introduce greater subjectivity. The court, therefore, holds that the reliance on the star-rating system is not only rational but also serves the purpose of ensuring fairness and reducing the administrative burden associated with determining which hotels should be subject to higher taxes and which to lower," Justice Kaurav said.

The court noted that in the contemporary digital age, the relevance of such categorisation is accentuated as leading travel and hospitality platforms such as MakeMyTrip, GoIbibo, Agoda, and similar aggregators invariably reflect and segregate hotels under distinct classifications, wherein the category of '5-star Hotels' is separately denoted and highlighted.

The classification, therefore, operates as a critical factor in consumer choice and decision-making, it said while upholding the classification of hotels based on their star ratings as a valid exercise of legislative power. PTI SKV SKV RT RT