Hostels Must Be Taxed as Residential Units: Madras HC

The Madras High Court has held that hostels providing accommodation to working men and women must be treated as residential premises for the purpose of levying property tax, water tax, and electricity charges. Classifying hostels as “commercial” violates the principles of natural justice and discriminates against economically weaker sections. The bench of Justice Krishnan Ramasamy quashed the demand notices issued by various municipal corporations and water authorities, including the Greater Chennai Corporation, Coimbatore City Municipal Corporation, and the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB). The petitioners — a group of hostel operators — had challenged the unilateral reclassification of their residential properties as commercial without prior notice, leading to a sharp increase in tax assessments and utility charges. The court found that none of the authorities had issued prior communication before converting the properties from residential to commercial tariff. “No opportunity was given to the petitioners to explain their case. The impugned demand notices were issued in clear violation of the principles of natural justice,” the court observed. The court held that while the Tamil Nadu Urban Local Bodies Act, 1998, provides for an appellate remedy, the High Court could intervene under Article 226 when a legal issue and procedural violation such as this arises. Rejecting the corporations’ argument that hostels function as profit-oriented establishments, the court emphasized that taxation should depend on how the premises are used by the recipient of service — the occupants — rather than the owner’s income source. “The activities carried on in the petitioners’ hostels are purely residential in nature. The inmates use the rooms as sleeping apartments, eat, bathe, and wash within the premises. Thus, these are residential dwelling units, not commercial spaces,” the court stated. The court added that the “different yardstick” applied to hostels compared to apartment owners was discriminatory, particularly since both provide accommodation for residential use. “Applying commercial tariff to hostels used by working men and women from weaker sections, while granting residential tariff to affluent apartment dwellers, is an unjustified discrimination violating Articles 14 and 19(1)(g) of the Constitution,” he said. The court drew extensively from definitions under the Coimbatore City Municipal Corporation Act, 1981, the Chennai City Municipal Corporation Act, 1919, and the Tamil Nadu Urban Local Bodies Act, 1998, which define “residence” as a place where a person “uses any portion thereof as a sleeping apartment.” It also referred to the CMWSSB Regulations, 1998, clarifying that while “private hostels” appear under the category of commercial premises, the rule applies only when the premises are actually used for commercial activities. “As long as hostels are used for residential purposes by inmates, they fall within ‘domestic residential premises’ under Regulation 7, not commercial premises under Regulation 4(ii),” the order said. The court recalled his earlier decision in W.P. No. 28486 of 2023, where the same petitioners had challenged GST levied on hostel rents. In that case, too, the court held that renting of hostel rooms used as residences qualifies as residential dwelling and is exempt from GST. “The same reasoning applies here. The perspective of the user — not the provider — determines whether the activity is residential or commercial,” the court reiterated. The court quashed all the demand notices for commercial property tax and water tax. The court directed the department to reassess the petitioners’ properties under the residential category. The court clarified that hostels shall be taxed at residential rates unless used for commercial activities unrelated to lodging. Case Details Case Title: Mrs.M.Divya versus Senior Revenue Officer Case No.: W.P.Nos.10194, 4552, 4481, 4472, 4477, 7619, 11033, 11035, 11038, 12221, 12224, 12235, 12230, 12238, 12243, 12251, 12253, 12245, 12249, 12255, 12604, 24189, 26937, 26939, 26941, 26942, 26944, 26951, 31337 & 31342 of 2025 Date: 07.11.2025 Click Here To Read Order Read More: Bengaluru Airport Customs Foil Smuggling of Exotic Wildlife and Ganja from Bangkok

Hostels Must Be Taxed as Residential Units: Madras HC

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