The Karnataka Appellate Authority of Advance Ruling (AAAR) in its recent order has upheld the AAR’s ruling and held that there is no GST exemption on leasing of immovable property for hostel accommodation.
Facts of the Case:
- The Appellant, Taghar Vasudeva Ambrish is a proprietary concern registered under the provisions of the Goods and Services Act, 2017.
- The applicant along with four others have collectively leased out a multi-storied property to M/s DTwelve Spaces Pvt. Ltd (lessee).
- As per the lease deed the property is leased for a period of 9 years to lessee for a monthly consideration to be paid to the respective accopunts of the lessors in an agreed percentage.
- The lessee further sub-leases / sub-licenses such residential premises to individuals (including students) for the purpose of long-stay accommodation.
Questions on which ruling is seeked:
Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors need not charge GST while issuing the invoice for the lease service to M/s. Dtwelve Spaces Pvt. Ltd.
Whether the lease service falls under the Exemption prescribed and can be described as “Services by way of renting of residential dwelling for use as residence” as listed in the Notification.
Ruling of Karnataka AAR against which appeal was made before AAAR:
The Karnataka AAR had ruled that services by a hotel, inn, guest house, club site or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications and this shows that rooms though given on rent for residential purposes would not amount to residential dwelling and hence the entry is not applicable for the transaction of the lessor with the lessee.
The AAR further ruled that the lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 Integrated tax (Rate) dated 28th June 2017.
Arguments of the Appellant:
- The intended purpose for which the building was constructed, and the layout plan has been passed is residential in nature. Reference is made to Layout Plan (LP) approved by the Assistant Director of Town Planning (South). Bruhat Bangalore Mahanagara Palike wherein plot use as well as land use zone has been categorically mentioned as Residential’ multiple times in the plan. Even in the table containing ‘Total FAR Built Up Area Statement the entire FAR belongs to the residential area.
- The Khatha Extract shows the property as ‘residential’ in the books/records of Bruhat Bangalore Mahanagara Palike (BBMP).
- In the Lease Deed, the property which has been rented out to the Lessee is repeatedly referred to as a residential property.
Order of Karnataka AAAR – Deliberation and Ruling:
- We find that the applicant has constructed the building with the intention of providing hostel accommodation which is more akin to sociable accommodation rather than what is commonly understood as residential accommodation. Therefore we conclude that the impugned property is not a residential dwelling and exemption is not applicable.
- The service of renting of residential dwelling to a recipient who uses the same as residence, is exempted from GST. In instant case we find that the lessee M/s D Twelve Spaces Pvt Ltd who is the recipient of service of renting provided by the Appellant, is not using the leased property for use as residence but is using the same for operating his business of providing paying guest accommodation to students. On this ground too we find that the Appellant is not eligible for the benefit of exemption as per Sr. No. 13 of Notf. No. 9/2017 IT(R) dt. 28.06.2017.
In view of above deliberations the AAAR consisting of D.P. Nagendra Kumar and M.S. Srikar rejected the contention of the appellant by upholding the ruling of AAR and held that there is no GST exemption is available on leasing of immovable property in the nature of hostel accommodation.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
