Hostels for working men and women are residential, not commercial properties for tax purposes: Madras HC

The Madras High Court recently ruled that hostels for the working men and women cannot be categorized as commercial properties for levying the property tax, water tax and electricity charges [M Divya v The Senior Revenue Officer].

Justice Krishnan Ramasamy passed the ruling after noting that the burden of paying those taxes would ultimately fall on the inmates of those hostels.

While levying tax, the authorities are supposed to view the matter from the perspective of the recipient of the service and not from the perspective of the service provider. the Court opined.

“The nature of activities carried on by the petitioner (the owner of a hostel) is only residential in nature and accordingly, the residential tariff will apply for the purpose of levying the property tax, water tax and water charges for the petitioners' properties,” the Court concluded.

The Court passed the judgment on a batch of petitions challenging the conversion of a property tax imposed on hostels from a residential tariff to a commercial tariff.

The petitioners provide hostel rooms to the working men and women. It was argued that they provide hostel rooms as sleeping apartments and thus their hostels have to be treated as residential dwelling units.

On the contrary, the State authorities, including the municipal corporations and Chennai Metro Water Supply and Sewerage Board, argued that the petitioners, being hostel owners, carry out the business of leasing out their properties and thus the demand notices for commercial tariff were justified.

However, the Court said that since the hostel rooms are only used as residences or sleeping apartments by the inmates and not any commercial activity, the usage of the properties would fall within the purview of ‘residential’ premises.

“It is clear that activities carried on at the petitioners' hostels are only residential in nature and it is not commercial. Therefore, the 1st issue is hereby answered by holding that the petitioners' property cannot be considered as commercial property and thus, the commercial tariff will not apply for the petitioners' properties,” the Court ruled.

It also said that different yardsticks cannot be applied to tenants of apartments and inmates of hostels. 

“If the petitioners' hostels were treated as commercial unit, it will be a clear discrimination against the poor. The Legislation was not intended to charge more for poor and keep the rich in comfortable position by levying tax at lower rate of tariff. Even for example, if commercial tariff is applied, a person residing in hostel has to pay double the amount towards property tax and water tax, whereas, the person, living in bungalow/apartment, who is able to spend higher amount towards rent, will be eligible for payment of property tax, water tax, water charges, etc., at concessional rate, which is applicable for residential unit,” the Court explained.

Quashing the demand notices issued to the petitioners, the Court directed the respondent authorities to treat the petitioners' property as residential units and levy the taxes, such as property tax, water tax and electricity charges, accordingly.

However, the Court also clarified that the benefit of the present judgment will not apply across the board without the requisite verification.

“The decision arrived at by this Court vide this order is applicable only for the present cases. Even though this order would apply for the hostels, where the inmates are carrying on similar activities, the same has to be verified by the respondent. Therefore, this order cannot be followed in a blindfolded manner by all the hostels, unless and otherwise if they substantiate, before their case before the appropriate Authorities concerned or before any Court of Law, that the inmates are using the rooms only for the purpose of residential activities,” it said.

Advocates Aparna Nandakumar, T Saikrishnan, S Senthil, NK Ponraj and Kingston Jerold represented the petitioners.

Advocates P Prithvi Chopda, D Ferdinand, KN Umapathy, Najeeb Usman Khan, N Velmurugan, V Vijayalakshmi, DR Arunkumar and C Selvara represented the respondent-authorities.

[Read Judgment]