New Delhi/ Bengaluru, 4 Dec

The Supreme Court on Thursday held that leasing out of residential premises to an entity which is using it as hostel for students and working professionals is exempted from GST.

A bench of justices JB Pardiwala and KV Viswanathan upheld the verdict of the Karnataka High Court which said that leasing out of residential premises to an entity which is using it as hostel to students and working professionals is exempt under GST.

"The ultimate use of the property as residence remains unchanged. However, if 18 per cent GST is levied on this transaction… the same would ultimately be passed on to the students and working professionals which would lead to a situation where the legislative intent behind granting exemption for residential use is defeated," the bench said.

The top court was hearing a plea filed by a co-owner of the residential property having 42 rooms in the City. The petitioner along with other co-owners executed a lease deed in favour of the lessee, namely M/s D Twelve Spaces Private Limited.

The petitioner sought clarification with regard to its eligibility to seek exemption for the renting services provided and filed an application before the Authority of Advance Ruling, Karnataka. The AAR, Karnataka held that the renting of residential dwelling for use as residence is not covered under entry 13 and the benefit of exemption according to notification is not available.

The Karnataka High Court had held that the leasing out of residential premises to an entity who is using it as 'hostel' to students and working professionals is exempt under GST.