Facts of the Case: The respondent (co-owner of a residential property in Bengaluru) owned a four-storied building comprising 42 rooms with common areas, originally constructed and used as a residential property. The respondent and co-owners executed a lease deed in favour of M/s DTwelve Spaces Pvt. Ltd., an aggregator engaged in managing long-stay accommodations for students and working professionals. DTwelve sub-let the rooms as hostel/PG accommodation for stays ranging from 3 to 12 months. The respondent sought an Advance Ruling seeking exemption under Entry 13 of Notification No. 9/2017 – Integrated Tax (Rate) dated 28.06.2017, which exempts services by way of renting of residential dwelling for use as residence.

Ruling of AAR and AAAR – Both the AAR and AAAR denied exemption, holding that since the lessee was a company and not using the premises itself as residence, the exemption was inapplicable. The AAAR also reaffirmed the AAR, holding that the property was akin to hostel accommodation and not a “residential dwelling”, and that the exemption applied only if the recipient-lessee personally used the premises as residence. However, the Petitioner aggrieved, the respondent filed Writ Petition No. 14891/2020 before the Karnataka High Court, which allowed the petition, holding that hostels used for long-stay accommodation constitute “residential dwelling” and are eligible for exemption.

The Revenue appealed before the Supreme Court contending that the lessee did not use the premises as residence, the property with 42 rooms was not a residential dwelling, and exemption conditions must be strictly construed.

Issue:

Whether the leasing of a residential property to an intermediary (DTwelve Spaces Pvt. Ltd.), who in turn sub-lets it as hostel accommodation to students and working professionals qualifies as “services by way of renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017-IT (Rate) dated 28.06.2017, thereby entitling the lessor to GST exemption.

Held that:

The Court held that the phrase “residential dwelling” is not defined in the GST law, and therefore must be understood in its common parlance meaning as established in jurisprudence and service tax education guides. Long-term hostel accommodations used by students and working professionals constitute residential dwellings, distinct from temporary establishments like hotels or guest houses.

The Court rejected the Revenue’s argument that the lessee (DTwelve) must itself use the premises as residence. Entry 13 requires that the premises must be a residential dwelling, rented, used as a residence. The Court held that the law does NOT require the lessee to personally reside in the premises. The “use as residence” test pertains to the nature of the supply, not the legal personality of the lessee. Invoking the principles of beneficial exemption, purposive interpretation, and the rule that once conditions of exemption are met the clause must be construed liberally, the Court concluded that charging 18% GST would defeat the legislative intent of exempting residential use. The exemption is meant to prevent residential rentals from being burdened with GST, irrespective of indirect commercial facilitation.

The premises qualifies as a residential dwelling, all conditions of Entry 13 are fulfilled, and no GST/IGST is payable on the lease for the period 2019–2022. The exemption extends to cases where residential dwelling is leased to aggregators/sub-lessors who further provide it for residential use.

Case Name:  THE STATE OF KARNATAKA & ANR. VERSUS TAGHAR VASUDEVA AMBRISH & ANR. dated 04.12.2025

To read the complete judgement 2025 Taxo.online 3165