Legal Review and Analysis of The State of Karnataka & Anr vs Taghar Vasudeva Ambrish & Anr 2025 INSC 1380
Case Synopsis
The State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish & Anr. (2025 INSC 1380)
Synopsis: Supreme Court Clarifies GST Exemption on Residential Rent; Holds Hostel Accommodation Qualifies as ‘Residential Dwelling’ and End-Use Trumps Immediate Lessee’s Identity. The judgment affirms that tax exemptions for residential renting are preserved even when facilitated through commercial aggregators, shielding end-users from additional tax burden.
1. CASE IDENTIFICATION
Judgment Title: The State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish & Anr
Citation: 2025 INSC 1380
Court: Supreme Court of India
Bench: Honourable Mr. Justice J.B. Pardiwala and Honourable Mr. Justice K.V. Viswanathan
Date of Pronouncement: December 4, 2025
2. APPLICABLE STATUTORY FRAMEWORK
Primary Legislation: Integrated Goods and Services Tax Act, 2017 (IGST Act).
Relevant Sections:
Section 7: Definition of ‘Supply’.
Section 9: Levy and collection of tax.
Section 97: Application for advance ruling.
Section 100: Appeal to Appellate Authority for Advance Ruling (AAAR).
Exemption Notification: Central Government Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.
Pivotal Entry: Entry 13 – “Services by way of renting of residential dwelling for use as residence.”
Interpretative Aid: Education Guide dated 20.06.2012 issued by the Central Board of Indirect Taxes and Customs (CBIC) under the erstwhile Service Tax regime.
3. COMPREHENSIVE CASE BREAKDOWN
A. Factual Matrix
The respondent, Taghar Vasudeva Ambrish, was a co-owner of a residential property in Bangalore comprising 42 rooms across four stories. On June 21, 2019, the co-owners leased this property to M/s DTwelve Spaces Private Limited. This lessee company operated as an aggregator, sub-leasing the rooms to students and working professionals for long-term accommodation, with stays ranging from 3 to 12 months. The respondent sought an advance ruling to determine if this rental income was exempt from GST under Entry 13 of the exemption notification. Both the Authority for Advance Ruling (AAR) and its Appellate Authority (AAAR) denied the exemption. They ruled that the property, used as a hostel, was not a “residential dwelling” and that the exemption required the lessee itself to use the property as a residence. The Karnataka High Court reversed these rulings, granting the exemption. The State (Revenue) appealed this decision to the Supreme Court.
B. Legal Issues Framed
Whether leasing a property to an aggregator company for the purpose of sub-leasing it as hostel accommodation constitutes “renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017?
Whether the condition “for use as residence” mandates the immediate lessee’s personal residential use, or whether the ultimate residential use by the sub-lessees suffices?
Whether a building with 42 rooms and attached washrooms, used as a hostel, qualifies as a “residential dwelling”?
C. Judicial Reasoning (Ratio Decidendi)
I. Determining ‘Residential Dwelling’:
The Court noted the term is not defined under GST law. It relied on the pre-GST CBIC Education Guide, which defines it as “any residential accommodation” but excludes establishments like hotels, motels, and guest houses meant for “temporary stay.” The Court, referencing dictionary meanings and the Bombay High Court’s ruling in Bandu Rayji Nikam, emphasized that a student hostel is quintessentially a house of residence. The long-term nature of the stays (averaging 8 months) and the municipal records classifying the property as ‘residential’ conclusively established its character as a “residential dwelling.”
II. Fulfilment of Exemption Conditions:
The Court distilled three cumulative conditions from Entry 13:
The service supplied must be of ‘renting’.
The subject of the rent must be a ‘residential dwelling’.
That residential dwelling must be “for use as residence.”
The Court found the first two conditions were met. On the critical third condition, it held that the phrase “for use as residence” describes the purpose of the renting and is not a stipulation that the recipient of the service (the lessee) must reside there. The ultimate residential use by the end-users (students/working professionals) satisfied this condition.
III. Adopting a Purposive Interpretation:
The Supreme Court explicitly applied the doctrine of purposive interpretation. It discerned the legislative intent behind Entry 13 was to avoid imposing GST on the rental of homes used for residence. A narrow, literal interpretation requiring the lessee’s personal use would defeat this intent and unjustly impose tax on residential housing merely because of a commercial intermediary in the chain. The exemption is activity-specific (renting for residence) and not person-specific.
IV. Rejection of Revenue’s Arguments:
The Court rejected the Revenue’s contention that the commercial nature of the lease to DTwelve Spaces disqualified the transaction. The profit motive of the aggregator is irrelevant; the determinative factor remains the end-use of the property. It distinguished the precedent in Government of Kerala v. Mother Superior Adoration Convent, as that case involved an exemption conditioned on “principal use” for charity, a context absent here.
V. Principle of Construing Exemption Notifications:
Reiterating the law from Union of India v. Wood Papers Ltd., the Court applied the dual principle: an exemption notification must be construed strictly at the threshold to determine if the assessee falls within its ambit. Once this applicability is established, the notification must be interpreted liberally to effectuate its beneficial purpose. The Court held the respondent successfully crossed the strict-construction threshold.
VI. Prospective Effect of the 2022 Amendment:
Entry 13 was amended w.e.f. July 18, 2022, to exclude renting “to a registered person.” The Court clarified this amendment had no retrospective application. The dispute pertained to the period 2019-2022, during which the unamended entry was in force.
4. CORE LEGAL PRINCIPLE ESTABLISHED
The Central Holding of the Supreme Court addressed the interplay between commercial leasing arrangements and a beneficial tax exemption for residential use.
In-Depth Analysis:
The core issue was whether the presence of a commercial entity (the aggregator) in the rental chain fundamentally altered the character of a transaction for GST exemption purposes. The Supreme Court held it did not. The judgment establishes that the eligibility for exemption under Entry 13 is determined solely by the intrinsic nature of the property (‘residential dwelling’) and its ultimate end-use (‘as residence’). The identity, nature, or motive of the immediate lessee is immaterial. This interpretation prevents the exemption’s purpose from being nullified by modern business models like aggregator services, ensuring that the cost of GST is not ultimately passed on to residents (students, professionals) through increased rents. The ruling affirms a substance-over-form approach, aligning the GST regime’s application with the practical realities of urban housing.
5. FINAL OUTCOME AND DIRECTIONS
The Supreme Court dismissed the civil appeals filed by the State of Karnataka (Revenue). It upheld the impugned judgment of the Karnataka High Court dated February 7, 2022. Consequently, the respondent was held entitled to the exemption from GST under Entry 13 of Notification No. 9/2017 for the rental income received from M/s DTwelve Spaces Private Limited for the period prior to the amendment on July 18, 2022.
6. (MCQs)
Question 1: In State of Karnataka vs. Taghar Vasudeva Ambrish (2025 INSC 1380), the Supreme Court primarily based its interpretation of the term “residential dwelling” on?
A. The definition provided in the IGST Act, 2017.
B. The common parlance meaning and the pre-GST CBIC Education Guide.
C. The commercial intent of the lessee company.
D. The architectural layout of the building.
Question 2: The Supreme Court held that the exemption under Entry 13 of Notification No. 9/2017 is?
A. Person-specific and applies only if the lessee is an individual.
B. Activity-specific and applies if the property is ultimately used as a residence, regardless of the lessee’s identity.
C. Conditional upon the lessee not being a registered business entity.
D. Available only for properties with fewer than ten rooms.
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