AI Drafter 
TaxTMI 
TaxTMI 
2025 (12) TMI 505
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....aka, those were taken up for hearing analogously and are being disposed of by this common judgment and order. 2. These appeals arise from the judgment and order passed by the High Cout of Karnataka dated 07.02.2022 in Writ Petition No. 14891 of 2020 by which the writ petition filed by respondent No. 1 herein (original petitioner) was allowed thereby setting aside the order dated 31.08.2020 passed by the Appellate Authority for Advance Ruling, Karnataka (for short, "the AAAR"). The AAAR in its ruling had declared while affirming the ruling of the Authority for Advance Ruling, Karnataka (for short, "the AAR") that the services provided by the respondent No. 1 herein (original petitioner) in the form of leasing of residential premises as hostel to students and working professionals does not fall within the ambit of Entry 13 of the Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017. In other words, the respondent No. 1 herein would not be entitled to the exemption on services viz. renting of residential dwelling for use as a residence under Entry 13 of the Notification No. 9/2017 dated 28.06.2017. FACTUAL MATRIX 3. The facts giving rise to these appeals may be summ....
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....mmodation. In other words, the AAAR held that the subject property rented out by the respondent No. 1 herein (original petitioner) cannot be termed as a rented accommodation. It was further held that the benefit of Exemption Notification is available only if the residential dwelling is used as a residence by the person who has taken the same on rent/lease. Thus saying so, the appeal filed by the respondent No. 1 herein (original petitioner) was ordered to be dismissed. 8. In such circumstances referred to above, the respondent No. 1 herein (original petitioner) invoked the jurisdiction of the High Court by filing Writ Petition No. 14891 of 2020 and questioned the legality and validity of the order passed by the AAAR. 9. The High Court formulated the following question of law for its consideration:- "Whether the service of leasing of residential premises provided by the petitioner as hostel to students and working professionals is covered under Entry 13 of the Notification 9/2017 dated 28.06.2017 i.e. "services by way of renting of residential dwelling for use as residence" issued under the Act." 10. The High Court vide its impugned judgment and order allowed the w....
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....anner for the purpose of determining the eligibility of the respondent No. 1 herein (original petitioner) for exemption. 14. Being dissatisfied with the judgment and order passed by the High Court, the revenue is before us. SUBMISSIONS ON BEHALF OF THE REVENUE 15. Mr. V. Chandrashekara Bharathi, the learned counsel appearing for the revenue vehemently submitted that the High Court committed an egregious error in taking the view that the first transaction between the lessor and the lessee i.e. the service of leasing of residential premises provided by the respondent No. 1 herein (original petitioner) to M/s DTwelve Spaces Private Limited (lessee) entitles the lessor to seek exemption under Entry 13 of the Exemption Notification 9/2017 dated 28.06.2017. 16. He would submit that for the purpose of making the relevant entry applicable, the following three conditions need to be fulfilled:- a. There must be a supply of service of renting. b. The renting service must pertain to a residential dwelling, and c. Such residential dwelling must be used as a residence. 17. He would submit that all the above three conditions must be conjunctively satisfie....
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....der the said entry. 21. He submitted that the High Court ought to have rejected the contention canvassed on behalf of the respondent No. 1 herein (original petitioner) that Entry 13 does not prescribe any condition that the lessee must himself use the property as residence for the following reasons:- (i) When admittedly, what is being tested for exemption is the first transaction, the respondent cannot be permitted to import the facts and circumstances of the second transaction in an attempt to satisfy the contours of the exemption notification. In other words, the respondent is relying on the first transaction to satisfy the first two conditions (services by way of renting of residential dwelling) and relies on the second transaction to satisfy the third condition (for use as residence). This is simply not permissible. (ii) It is incorrect to state that the exemption entry does not prescribe the lessee to use the property as residence. Though not explicitly stated, it has been implicitly prescribed. What is eligible as exemption under Entry 13 is the supply of "service by way of renting". This supply involves two parties. One is the supplier i.e., the co-owner....
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....es. It is the expression "principally" that weighed in favour of this Court while extending the exemption to residential accommodations for Nuns and hostel accommodation attached to various educational institutions. This Court applied the dominant object test only because the exemption Section allowed such test to be conducted. h) Further, in Para 15 of Mother Superior (supra), a factual finding had been rendered that the buildings seeking exemptions were all attached to either convents or educational institutions. On facts it was found that these attached buildings were not let out for the purpose of earning profit but were let out as integrally connected with the religious or educational activity. It is on this factual basis that the exemption was extended. In the same Para 15, it has been categorically held that had the very same persons rented a building, which was let out purely for earning market rent, would not have entitled the building for exemption. In the present case, admittedly, the Agreement between the Lessor and the Lessee is a commercial transaction purely for the purpose of making profit. i) Mother Superior (supra) undoubtedly held that in benefi....
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....estion which has 42 rooms with 42 attached washrooms each are akin to the kinds of properties that have been excluded under the education guide from the definition of residential dwelling. Therefore, according to the learned counsel, the property in question does not qualify as a residential dwelling. 26. In such circumstances referred to above, the learned counsel prayed that there being merit in these appeals, the same may be allowed and the judgment and order passed by the High Court may be set aside. SUBMISSIONS ON BEHALF OF THE RESPONDENT NO. 1 (LESSEE) 27. On the other hand, Mr. Arvind P. Datar, the learned senior counsel appearing for the respondent No. 1 while vehemently opposing the appeals submitted the no error, not to speak of any error of law, could be said to have been committed by the High Court in passing the impugned judgment and order. 28. He submitted that the respondent No. 1 along with four other joint owners had collectively let out the subject residential property to M/s DTwelve Spaces Private Limited - lessee for sub-letting the said property to working women and students for long term stay ranging from 3 months to 11 months. He pointed out that ....
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....rties and having gone through the materials on records, the only question that falls for our consideration is whether the amount at the rate of 18% is payable on the rental amount paid by the lessee to the respondent No. 1 herein? 36. We would like to first address ourselves on the issue whether the subject property could be termed as a "residential dwelling". The term "residential dwelling" is not defined under the GST laws. Under the erstwhile Finance Act, 1994, an Education Guide dated 20.06.2012 issued by the CBIC explained it as follows:- "4.13.1 What is a 'residential dwelling'? The phrase 'residential dwelling' has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay." 37. Prior to the implementation of the GST, only commercial properties let out were subjected to service tax even if a residential property was used for commercial purposes. Service tax was charged at a rate of 15% of the rent for commercial properties. However, rental....
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....ing" in detail. In this case, a suit for eviction of a tenant was contested by the tenant saying that the landlord was attempting to evict him in order to lease out the premises to a hostel and that hostel accommodation amounted to 'non residential accommodation' which was impermissible under Section 25 of Bombay Rent Control Act. The High Court held that by the very nature of the use of students hostel, it is only a residential user as hostel, is a house of residence or lodging for students and that just because the hostel owners charge some amount from the students, such accommodation cannot be treated as commercial or non residential. 44. In Bandu Ravji Nikam (supra), the Bombay High Court further held as under in para 10:- "10. ... Undoubtedly, "hostel" is nothing but a house of residence or lodging for students. Just because the respondent may charge some amount from the students for providing that facility, may not necessarily mean that it is a commercial or non residential user. Further, there is perceptible difference between "hotel or lodging house" and 'student hostel', though in both cases accommodation may be provided on monetary consideration. In the latter....
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....ry: Domicile: 1. the country in which a person has permanent residence. 2. the place at which a company or other body is registered. Residence: 1. the fact of residing somewhere. 2. a person's home. 3. the official house of a government minister or other official figure. Blacks Law Dictionary: Residence: Place where one actually lives or has his home; a person's dwelling place or place of habitation; an abode; house where one' home is; a dwelling house. Dwelling: The house or other structure in which a person or persons live; a residence; abode; habitation; the apartment or building, or a group of buildings, occupied by a family as a place of residence. Structure used a place of habitation." 46. Further in common parlance, 'residential dwelling' means any building, structure, or part of the building or structure other than offices or factories, that is used or intended to be used as a home, residence, or sleeping place by one person or by two or more persons maintaining a common household, to the exclusion of all others. 47. Thus, any residential accommodation meant for long term stay can be referred to a....
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.... other words, the legislative intent behind this exemption clause is that a rented property that is used as residence should not suffer 18% GST or IGST. 53. In the case on hand, the ultimate use of the property as residence remains unchanged. However, if 18% GST is levied on this transaction between the respondent No. 1 and the lessee i.e. M/s DTwelve Spaces Private Limited, the same would ultimately be passed on to the students and working professionals which would lead to a situation where the legislative intent behind granting exemption for residential use is defeated. 54. In Mother Superior (supra), it was held as follows: "26. It may be noticed that the five-Judge Bench judgment [Commr. of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1] did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. We cannot agree with Shri Gupta's contention that sub silentio the line of judgments qua beneficial exemptions has been done away with by this five-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what may logically follow fro....
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....and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification." 57. In Collector of Central Excise v. Parle Exports (P) Ltd. reported in (1989) 1 SCC 345, this Court while accepting that exemption cl....
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....pretation, till some time ago, was treated as the 'golden rule', it is now the doctrine of 'purposive interpretation' which is predominant, particularly in those cases where literal interpretation may not serve the purpose or may lead to absurdity. If it brings about an end which is at variance with the purpose of statute, that cannot be countenanced. Not only legal process thinkers such as Hart and Sacks rejected intentionalism as a grand strategy for statutory interpretation, and in its place they offered purposivism, this principle is now widely applied by the Courts not only in this country but in many other legal systems as well. (See : Shailesh Dhairyavan v. Mohan Balkrihna Lulla reported in (2016) 3 SCC 619) 61. 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 legislative intent being defeated as the exemption is extended to cases wherein residential dwelling is rented out and ultimately used as residence, irrespective of the person using it. The legislative intent behind this exemption clause is that a rented property, that is used as residence should ....