Full Judgment Text
REPORTABLE
2025 INSC 1380
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7846 OF 2023
THE STATE OF KARNATAKA & ANR. …APPELLANT(S)
VERSUS
TAGHAR VASUDEVA AMBRISH & ANR. …RESPONDENT(S)
WITH
CIVIL APPEAL NO. 7847 OF 2023
J U D G M E N T
J.B. PARDIWALA, J. :
1. Since the issues raised in both the captioned appeals are the
same and the challenge is also to the self-same judgment and order
passed by the High Court of Karnataka, those were taken up for hearing
analogously and are being disposed of by this common judgment and
order.
2. These appeals arise from the judgment and order passed by the
High Cout of Karnataka dated 07.02.2022 in Writ Petition No. 14891 of
2020 by which the writ petition filed by respondent No. 1 herein (original
Signature Not Verified
petitioner) was allowed thereby setting aside the order dated 31.08.2020
Digitally signed by
VISHAL ANAND
Date: 2025.12.04
15:58:34 IST
Reason:
passed by the Appellate Authority for Advance Ruling, Karnataka (for
short, “the AAAR”). The AAAR in its ruling had declared while affirming
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the ruling of the Authority for Advance Ruling, Karnataka (for short, “the
AAR”) that the services provided by the respondent No. 1 herein (original
petitioner) in the form of leasing of residential premises as hostel to
students and working professionals does not fall within the ambit of
Entry 13 of the Notification No. 9/2017- Integrated Tax (Rate) dated
28.06.2017. In other words, the respondent No. 1 herein would not be
entitled to the exemption on services viz. renting of residential dwelling
for use as a residence under Entry 13 of the Notification No. 9/2017
dated 28.06.2017.
FACTUAL MATRIX
3. The facts giving rise to these appeals may be summarised as
under.
4. The respondent No. 1 before us is the co-owner of a residential
property situated in Bangalore. The property consists of 42 rooms. It is
a four storied building with terrace and common area. On 21.06.2019
the respondent No. 1 along with other the co-owners executed a lease
deed in favour of M/s DTwelve Spaces Private Limited (fort short, “the
lessee”). The lessee in turn leased out the residential property as hostel
to provide long term accommodation to students and working
professionals with the duration of stay ranging from 3 months to 12
months.
5. The Central Government by way of Notification No.9/2017-
Integrated Tax (Rate) dated 28.06.2017 (hereinafter referred to as “the
Exemption Notification”) has granted exemption from payment of goods
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and services tax in respect of services which includes renting services
which are provided with respect to residential dwelling for use as
residence.
6. The respondent No. 1 herein (original petitioner) with a view to
seek clarification with regard to his eligibility to claim exemption on the
rent received by him from the lessee by letting the property preferred an
Advance Ruling application in the prescribed Form under Section 97 of
the Integrated Goods and Services Tax Act, 2017 (for short, “the Act”)
before the AAR. The AAR vide its ruling dated 23.03.2020 inter alia held
that the services viz. renting of residential dwelling for use as a residence
do not fall under Entry 13 of the Exemption Notification. It held that the
lessee being a company is not itself using the premises in question.
In such circumstances, it was held by the AAR that the respondent No.
1 herein has to charge goods and services tax (for short, ‘GST’) while
issuing invoices to the lessee provided it was registered under the Act.
Accordingly, it was held that the benefit of Exemption Notification is not
available to the respondent No.1 herein (original petitioner).
7. The respondent No. 1 herein (original petitioner) being
dissatisfied with the ruling of the AAR filed an appeal under Section 100
of the Act before the AAAR. The AAAR vide order dated 31.08.2020 inter
alia while affirming the AAR’s ruling held that the property rented out by
the respondent No. 1 herein (original petitioner) is a hostel building
which is more akin to a sociable accommodation rather than what is
commonly understood as residential accommodation. In other words, the
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AAAR held that the subject property rented out by the respondent No. 1
herein (original petitioner) cannot be termed as a rented accommodation.
It was further held that the benefit of Exemption Notification is available
only if the residential dwelling is used as a residence by the person who
has taken the same on rent/lease. Thus saying so, the appeal filed by
the respondent No. 1 herein (original petitioner) was ordered to be
dismissed.
8. In such circumstances referred to above, the respondent No. 1
herein (original petitioner) invoked the jurisdiction of the High Court by
filing Writ Petition No. 14891 of 2020 and questioned the legality and
validity of the order passed by the AAAR.
9. The High Court formulated the following question of law for its
consideration:-
“Whether the service of leasing of residential premises
provided by the petitioner as hostel to students and working
professionals is covered under Entry 13 of the Notification
9/2017 dated 28.06.2017 i.e. “services by way of renting
of residential dwelling for use as residence” issued under
the Act.”
10. The High Court vide its impugned judgment and order allowed
the writ petition holding that Entry 13 of the Notification No. 9/2017
which provides for exemption with respect to ‘services by way of renting
of residential dwelling by way of use as residence’ being clear and
unambiguous, the petitioner was entitled to avail the benefit under the
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exemption notification. The High Court held that the definition of
‘residential dwelling’ in erstwhile service tax law as provided by the
Education Guide dated 20.06.2012 issued by the Central Board of
Indirect Taxes and Customs (CBIC), i.e. ‘ residential dwelling means any
residential accommodation and is different from hotel, motel, inn, guest
is binding on the revenue.
house etc, which is meant for temporary stay’
It was held that leasing of residential premises as hostel to students and
working professionals would not attract GST.
11. Relying on the decision of this Court in Kishore Chandra Singh
Deo v. Babu Ganesh Prasad Bhagat, reported in AIR 1954 SC
316 and the Bombay High Court decision in the matter of Bandu Ravji
Nikam v. Acharyaratna Deshbushan Shikshan Prasark Mandal,
Kolhapur , reported in 2003 (3) Mah L.J. 472 , the High Court held that
the hostel is used by the students for the purpose of residence and the
duration of stay is more as compared to a hotel, guest house.
12. The High Court further observed that if a particular expression is
not defined in the Act, it is permissible to refer to the dictionary meaning
of such expression. The High Court, after referring to the dictionary
meanings of the words ‘residential dwelling’ and decisions of this Court
in Mohinder Singh v. State of Haryana, reported in AIR 1989 SC
1367 and Commissioner of Central excise, Delhi v. Allied Air-
Conditioning Corpn., reported in in 2006 (7) SCC 735, held that
hostels used for residential purpose by the students and working women
is covered under ‘residential dwelling’. The residential dwelling is being
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rented and used by the students and working women for the purpose of
residence and there is no such condition in the Exemption Notification
that the lessee itself has to use the premises as residence.
13. The High Court further held that the findings of the AAAR that
the hostel accommodation is more akin to a sociable accommodation and
that the petitioner is registered as a commercial establishment under the
Karnataka Shops and Commercial Establishment Act, 1961 are not
relevant in any manner for the purpose of determining the eligibility of
the respondent No. 1 herein (original petitioner) for exemption.
14. Being dissatisfied with the judgment and order passed by the
High Court, the revenue is before us.
SUBMISSIONS ON BEHALF OF THE REVENUE
15. Mr. V. Chandrashekara Bharathi, the learned counsel appearing
for the revenue vehemently submitted that the High Court committed an
egregious error in taking the view that the first transaction between the
lessor and the lessee i.e. the service of leasing of residential premises
provided by the respondent No. 1 herein (original petitioner) to M/s
DTwelve Spaces Private Limited (lessee) entitles the lessor to seek
exemption under Entry 13 of the Exemption Notification 9/2017 dated
28.06.2017.
16. He would submit that for the purpose of making the relevant
entry applicable, the following three conditions need to be fulfilled:-
a. There must be a supply of service of renting.
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b. The renting service must pertain to a residential dwelling,
and
c. Such residential dwelling must be used as a residence.
17. He would submit that all the above three conditions must be
conjunctively satisfied. According to him, even if one of the limbs is not
triggered, then the benefit of the exemption cannot be claimed.
18. The learned counsel invited our attention to the following relevant
clauses of lease deed dated 21.06.2019: -
1. “The lessee (M/s DTwelve) is engaged in the business
of running, managing, operating the day-to-day affairs
of residential premises and, sub leases/sub-licenses
such residential premises to individuals (including
student) for the purpose of long stay accommodation
(purpose).”
2. Clause 2.1 of the lease deed reads as follows:
“In consideration of the rent, maintenance, costs,
operations cost as agreed herein, to be paid by the
lessee as set out in the agreement and the lessor’s
representations, warranties, covenants and
obligations contained herein the lessor(s) hereby
grants permission and leases unto the lessee the
leased premises for the purpose during the
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subsistence of the lease term, subject to the terms
and conditions of this agreement”.
3. Clause 12 of the lease deed reads as follows:
“12.1 – The parties hereby acknowledge that the
lessee has taken the lease of the entire property from
the lessor(s) for all the activities that are in the
opinion of the lessee, necessary for the purpose.
12.2 – The lessee has a right to sub-lease or /and
license and/or sub-license the entire property during
the lease term to any third party for the purposes”.
19. According to the learned counsel, the plain reading of the clauses
referred to above has the following effect:-
a. The co-owners under the lease agreement recognised that M/s
DTwelve Spaces Private Limited were running and managing various
premises and leased it to individuals for long stay accommodations.
b. In addition to recognizing the above, the same was also agreed
and declared between the parties that it would be the purpose of the
lease deed.
c. The sole reason for the lease is for the above purpose as per
Clause 2 and that is why the right to sub-lease was granted to M/s.
DTwelve Spaces Private Limited for the same purpose under Clause
12.
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20. He would argue that considering the above, M/s. DTwelve Spaces
Private Limited being the party to the first transaction cannot be said to
be using the property as residence and thereby rendering the first
transaction ineligible for exemption under the said entry.
21. He submitted that the High Court ought to have rejected the
contention canvassed on behalf of the respondent No. 1 herein (original
petitioner) that Entry 13 does not prescribe any condition that the lessee
must himself use the property as residence for the following reasons:-
(i) When admittedly, what is being tested for exemption is the first
transaction, the respondent cannot be permitted to import the facts
and circumstances of the second transaction in an attempt to satisfy
the contours of the exemption notification. In other words, the
respondent is relying on the first transaction to satisfy the first two
conditions (services by way of renting of residential dwelling) and
relies on the second transaction to satisfy the third condition (for use
as residence). This is simply not permissible.
(ii) It is incorrect to state that the exemption entry does not prescribe
the lessee to use the property as residence. Though not explicitly
stated, it has been implicitly prescribed. What is eligible as exemption
under Entry 13 is the supply of “service by way of renting”. This
supply involves two parties. One is the supplier i.e., the co-owners
and the other is the recipient who is M/s DTwelve Spaces Private
Limited. When this supply of service is exempted under the
Notification, the respondent No. 1 cannot be permitted to rely on
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transactions with parties not privy to the supply, to satisfy the
contours of the exemption notification. The supplier of this service
i.e., the co-owners have no connection whatsoever with the persons
who utilize the property ultimately. The present case is not concerned
with such persons in any manner. Since what is exempt is the supply
of a service, it is implied that the recipient of the supply must satisfy
the condition precedent for the exemption notification to trigger and
the supplier cannot travel beyond the supply to claim exemption.
22. He would further submit that:-
a) The charge of GST is on the taxable event of supply defined under
Section 7, and the levy on such supply is prescribed under Section
9.
b) The Exemption Notification No. 9/2017 exempts ‘inter-state
supply of services’. In other words, the Exemption Notification is
supply specific and supply-centric, aligned with the levy of GST which
too is supply-specific.
c) Consequently, the conditions prescribed in Entry 13 of
Notification 9/2017 must be tested purely within the premise of a
particular supply. This approach is aligned with the principle that
exemption notifications are to be construed strictly.
d) Therefore, the submission of the revenue that the facts of the
second limb between the lessee and the end consumer must not be
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factored for testing the supply of service between the lessor and the
lessee, will not amount to rewriting the Notification.
e) Unless and until Entry13 itself prescribes the ultimate end use
of being used as residence, such conditions cannot be imported into
the Exemption Notification. In fact, it is this submission of the
assessee that amounts to rewriting the Notification.
f) The judgement in Government of Kerala v. Mother Superior
Adoration Convent reported in (2021) 5 SCC 602 , has no
applicability since the underlying circumstances of the exemption in
the present case has no similarity with the exemption considered in
the case of Mother Superior (supra).
g) Section 3(1)(b) of the Kerala Building Tax Act, 1975 exempted
buildings that are used “principally” for religious, charitable or
educational purposes. It is the expression “principally” that weighed
in favour of this Court while extending the exemption to residential
accommodations for Nuns and hostel accommodation attached to
various educational institutions. This Court applied the dominant
object test only because the exemption Section allowed such test to
be conducted.
h) Further, in Para 15 of Mother Superior (supra), a factual finding
had been rendered that the buildings seeking exemptions were all
attached to either convents or educational institutions. On facts it
was found that these attached buildings were not let out for the
purpose of earning profit but were let out as integrally connected with
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the religious or educational activity. It is on this factual basis that
the exemption was extended. In the same Para 15, it has been
categorically held that had the very same persons rented a building,
which was let out purely for earning market rent, would not have
entitled the building for exemption. In the present case, admittedly,
the Agreement between the Lessor and the Lessee is a commercial
transaction purely for the purpose of making profit.
i) Mother Superior (supra) undoubtedly held that in beneficial
exemptions, the ambiguity must be ruled in favour of the subject.
Assuming without admitting that Entry 13 of Notification 9/2017 is
indeed a beneficial notification, the subject which is the target of the
benefit would be service recipient in the context of GST Law. The
Service recipient in so far as the first supply is concerned between
the lessor and the lessee is the lessee, a profit-oriented commercial
entity. The Exemption Notification definitely was not conceived to
extend the benefit to such commercial entities, which intended to
carry out its commercial ventures by taking properties on lease.
23. In the last, the learned counsel submitted that the respondent
No. 1 herein (original petitioner) is not entitled to exemption as the
property in question does not qualify as a residential dwelling. The
classification as to whether the property in question would qualify as a
residential dwelling or not must solely depend on the nature of the
property and not on its ultimate use, as the Exemption Notification itself
treats these two aspects as independent of each other. Admittedly, the
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present property comprises of 42 rooms, each attached with its own
washroom. Such a property, by applying the common parlance test, can
never qualify as a residential dwelling. Further, the Notification under
question does not define what a residential dwelling is. Under the
erstwhile Service Tax Regime, Section 66(D)(m) exempted the same
services as covered by the present Entry 13 of Notification 9/2017. Since
the entries are pari materia , the education guide is of paramount
importance, more particularly paragraphs 4.13 and 4.13.1 respectively.
24. The learned counsel invited our attention to Para 4.13.1 which
defines ‘residential dwelling’ as follows:-
“The phrase residential dwelling has not been defined in the
Act. It has therefore to be interpreted in terms of the normal
trade parlance as per which it is any residential
accommodation, but does not include hotel, motel, inn, guest
house, camp site, lodge, houseboat, or like places meant for
temporary stay.”
25. He would submit that the above definition is in two parts. The
first part requires the property under question to be a residential
accommodation, and the second part carves out certain exceptions from
the ambit of the definitions, despite being for residential accommodation.
The property in question which has 42 rooms with 42 attached
washrooms each are akin to the kinds of properties that have been
excluded under the education guide from the definition of residential
dwelling. Therefore, according to the learned counsel, the property in
question does not qualify as a residential dwelling.
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26. In such circumstances referred to above, the learned counsel
prayed that there being merit in these appeals, the same may be allowed
and the judgment and order passed by the High Court may be set aside.
SUBMISSIONS ON BEHALF OF THE RESPONDENT NO. 1 (LESSEE)
27. On the other hand, Mr. Arvind P. Datar, the learned senior
counsel appearing for the respondent No. 1 while vehemently opposing
the appeals submitted the no error, not to speak of any error of law, could
be said to have been committed by the High Court in passing the
impugned judgment and order.
28. He submitted that the respondent No. 1 along with four other joint
owners had collectively let out the subject residential property to M/s
DTwelve Spaces Private Limited – lessee for sub-letting the said property
to working women and students for long term stay ranging from 3 months
to 11 months. He pointed out that the available data reveals that the
students or working women on an average stayed for eight months in the
said property.
29. The learned counsel submitted that M/s DTwelve Spaces Private
Limited (lessee) is an aggregator and has set up a unique business model
that has proved immensely beneficial to several students and working
professionals. Several landlords have entered into lease agreements with
M/s DTwelve Spaces Private Limited (lessee) for renting out hostel/PG
accommodation for students or working professionals. The website of
M/s DTwelve Spaces Private Limited shows the availability of such
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accommodation in different cities enabling parents/students/working
professionals to book residential accommodation/hostel accommodation.
30. Mr. Datar pointed out that the lease deed was entered into on
16.06.2019. The total rent paid from June 2019 to June 2022 was Rs.
1,12,38,200/-. The total IGST liability at the rate of 18% was Rs.
20,22,876/-. He further brought to our notice that from 2022, IGST is
being paid at 18% as an amendment to Entry 13 of the Exemption
Notification came into effect on 18.07.2022.
31. According to Mr. Datar, the contention canvassed on behalf of the
appellant that such exemption should be denied because the lessee being
a company is not using the subject residential property itself for the
residential purposes deserves to be outright rejected. He would argue
that, if such a submission is accepted, it would amount to rewriting the
Entry 13 as “services by way of renting of residential dwelling for use as
residence by the lessee”.
32. He submitted that all the three conditions cumulatively required
to be fulfilled to be eligible for exemption from payment of IGST, viz. (a)
services must be of renting; (b) the property so let out must be a
residential dwelling, and (c) such residential dwellings must be given for
use as a residence stand fulfilled in the present case.
33. He submitted that the High Court after due consideration of all
the relevant provisions rightly reached to a plausible conclusion which
requires no interference at the hands of this Court under Article 136 of
the Constitution.
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34. In such circumstances referred to above, Mr. Datar prayed that
there being no merit in the appeals, those may be dismissed.
ANALYSIS
35. Having heard the learned counsel appearing for the parties and
having gone through the materials on records, the only question that falls
for our consideration is whether the amount at the rate of 18% is payable
on the rental amount paid by the lessee to the respondent No. 1 herein?
36. We would like to first address ourselves on the issue whether the
subject property could be termed as a “residential dwelling”. The term
“residential dwelling” is not defined under the GST laws. Under the
erstwhile Finance Act, 1994, an Education Guide dated 20.06.2012
issued by the CBIC explained it as follows:-
“ 4.13.1 What is a ‘residential dwelling’?
The phrase ‘residential dwelling’ has not been defined in the
Act. It has therefore to be interpreted in terms of the normal
trade parlance as per which it is any residential
accommodation, but does not include hotel, motel, inn, guest
house, camp-site, lodge, house boat, or like places meant for
temporary stay.”
37. Prior to the implementation of the GST, only commercial
properties let out were subjected to service tax even if a residential
property was used for commercial purposes. Service tax was charged at
a rate of 15% of the rent for commercial properties. However, rental
income from residential properties did not attract service tax. This meant
that landlords who owned commercial properties and rented them out
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were required to register for service tax and pay the tax on the rental
income received. On the other hand, landlords who owned residential
properties and rented them out were not required to register for service
tax or pay tax on the rental income they received.
38. On the introduction of GST, the tax regime for rental income has
undergone a significant change. Under the GST regime, renting both
commercial and residential properties is treated as a taxable supply of
service. GST is applicable on rental income received by landlords as well
as rent paid by tenants.
39. However, the Central Government, on being satisfied that it is
necessary in the public interest and on the recommendation of the GST
Council, has issued Notification No. 9/2017- Integrated Tax (Rate) dated
28.06.2017 giving exemption from levying GST on various services
described item wise in the Notification. For our purpose, it relates to
Entry No. 13 by which an unconditional exemption was provided to
renting of a residential dwelling to any person when the same is used for
residence. Meaning thereby, GST is payable in the case of renting of a
residential dwelling to any person when the same is used for the
commercial purpose.
40. In the above context, we may refer to few judgments wherein the
meaning of the expression “residential dwelling” has been explained.
41. The Delhi High Court in V.L. Kashyap v. R.P. Puri reported in
12 (1976) DLT 369 , wherein, in para 25, it has been held as under:-
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“25. The rule of law deducible from the aforesaid decisions is
that the work ‘dwelling house’ is synonymous with residential
accommodation as distinct from a house of business,
warehouse, office, shop, commercial or business premises.
The word ‘house’ means a building. It would include the out-
houses, courtyard, orchard, garden etc. which are part of the
same house, but it cannot include a distinct separate house.”
(Emphasis supplied)
42. The United Kingdom House of Lords in Uratemp Ventures
Limited v. Collins reported in (2001) 3 WLR 806 , wherein the term
‘dwelling house’ has been interpreted to mean even a single room as part
of a house.
43. The High Court of Bombay in Bandu Ravji Nikam (supra) has
explained “residential dwelling” in detail. In this case, a suit for eviction
of a tenant was contested by the tenant saying that the landlord was
attempting to evict him in order to lease out the premises to a hostel and
that hostel accommodation amounted to ‘non residential accommodation’
which was impermissible under Section 25 of Bombay Rent Control Act.
The High Court held that by the very nature of the use of students hostel,
it is only a residential user as hostel, is a house of residence or lodging
for students and that just because the hostel owners charge some
amount from the students, such accommodation cannot be treated as
commercial or non residential.
44. In Bandu Ravji Nikam (supra), the Bombay High Court further
held as under in para 10:-
“10. ... Undoubtedly, “hostel” is nothing but a house of
residence or lodging for students. Just because the respondent
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may charge some amount from the students for providing that
facility, may not necessarily mean that it is a commercial or
non residential user. Further, there is perceptible difference
between “hotel or lodging house” and ‘student hostel’, though
in both cases accommodation may be provided on monetary
consideration. In the latter, the occupant cannot claim to be a
“tenant” or a “licensee” nor can he claim protection of the
provisions of the Bombay Rent Act. Whereas, in the case of the
former, part III of the Act would apply. Besides, it will be useful
to notice the observations of this Court in para 20 of the
decision in the case of Kishinchand (supra). This court has
held that the word “residence” may receive a liberal meaning,
for a man’s residence is very often the place where he sleeps
at night. This court in the said case adverted to the decision of
the Privy Council (AIR 1937 PC 46), wherein it is observed that
“there is no reason for assuming that it contemplates only
permanent residence and excludes temporary residence”.
Reference is also made to Sri Sri Sri Kishore Chandra Singh
Deo vs Babu Ganesh Prasad Bhagat and others, AIR 1954 Sc
316, wherein it is observed that
“Residence only connotes that a person eats, drinks
and sleeps at that place and that it is not necessary
that he should own it”.
This Court then proceeded to hold that the legislature
is using words “non-residential purpose” in Section 25 did not
intend to prohibit use of a building containing a residential flat
for the purposes of construction of Marriage Halls, Charitable
Hospitals and “quarters” and garages for Doctors and Nurses.
As in the present case, “Students hostel” was also to be used
for sleeping, eating, studies etc. temporarily if not permanently
day to day, it cannot be described as “non-residential” use
within the meaning of Section 25 of the Act. Accordingly, if the
suit premises were to be used as students hostel, then surely
it would be for the residential purpose of the students of the
College run by the respondent trust. In that case also, the
respondent trust would be entitled to claim possession of the
suit premises for the requirement of the trust. If this be so,
there is no force in the argument pressed into service that no
decree could be passed as the nature of requirement would be
prohibited by Section 25 of the Act.”
(Emphasis supplied)
45. We must also look into the meaning of the expressions
“residence” and “dwelling” as provided in Concise Oxford English
19
th
Dictionary 2013 Edition as well as the Blacks Law Dictionary 6 Edition
to ascertain their meaning in common parlance and in popular sense
which read as under:-
“ The Concise Oxford Dictionary:
Domicile: 1. the country in which a person has permanent
residence.
2. the place at which a company or other body is registered.
Residence: 1. the fact of residing somewhere.
2. a person’s home.
3. the official house of a government minister or
other official figure.
Blacks Law Dictionary:
Residence: Place where one actually lives or has his home; a
person’s dwelling place or place of habitation; an abode; house
where one’ home is; a dwelling house.
Dwelling: The house or other structure in which a person or
persons live; a residence; abode; habitation; the apartment or
building, or a group of buildings, occupied by a family as a
place of residence. Structure used a place of habitation.”
46. Further in common parlance, ‘residential dwelling’ means any
building, structure, or part of the building or structure other than offices
or factories, that is used or intended to be used as a home, residence, or
sleeping place by one person or by two or more persons maintaining a
common household, to the exclusion of all others.
47. Thus, any residential accommodation meant for long term stay
can be referred to as “residential dwelling”. The materials on record
further indicate that as per the Khatha Extract and layout plans and
records available with the Bruhat Bangalore Mahanagara Palike, the plot
and property is shown as residential in nature. In view of the aforesaid,
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we have no hesitation in reaching the conclusion that the subject
property is a “residential dwelling”.
48. The only question now left to be addressed is whether the third
condition to be eligible for exemption from payment of the GST i.e. “such
residential dwelling must be given for use as a residence” is fulfilled in
the present case or not.
49. In the present case, the third condition could also be said to be
satisfied as the property was taken on rent only for use as a residence.
There is no further condition that the tenant or lessee must itself use it
as a residence. Indeed M/s DTwelve Spaces Private Limited (lessee) is an
aggregator who facilitates the use of residential dwelling for hostel
accommodation. The third condition stood satisfied as M/s DTwelve
Spaces Private Limited is the lessee and all the students/working women
are none else but sub-lessees. It is well-settled that what is a lease
between the owner of a property and a tenant becomes a sub-lease when
it is entered into between the tenant and his sub-tenant.
50. Taking the view aforesaid, for the period 2019-2022 all the three
conditions of Entry No.13 cited above stood complied with.
51. We are not impressed by the submission canvassed on behalf of
the revenue that since lessee did not use the hostel as a residence but
rather sub-leased the same to students/working women, such
transaction does not fall within Entry 13 of the Exemption Notification.
At the cost of repetition, it is observed that Entry 13 of the Exemption
Notification does not mandate that the lessee must use the residential
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dwelling as its own residence. Giving any other interpretation would
mean adding an additional condition to Entry 13.
52. Mr. Datar is right in his submission that giving Entry 13 a narrow
interpretation by holding that it is available only when the property so
rented is used by service recipient themselves would ultimately lead to
the legislative intent being defeated as the exemption is extended to
cases wherein residential dwelling is rented out and ultimately used as
residence even for the purpose of the person using it. In other words, the
legislative intent behind this exemption clause is that a rented property
that is used as residence should not suffer 18% GST or IGST.
53. In the case on hand, the ultimate use of the property as residence
remains unchanged. However, if 18% GST is levied on this transaction
between the respondent No. 1 and the lessee i.e. M/s DTwelve Spaces
Private Limited, 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.
54. In Mother Superior (supra), it was held as follows:
“26. It may be noticed that the five-Judge Bench judgment
[Commr. of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1] did
not refer to the line of authority which made a distinction
between exemption provisions generally and exemption
provisions which have a beneficial purpose. We cannot agree
with Shri Gupta’s contention that sub silentio the line of
judgments qua beneficial exemptions has been done
away with by this five-Judge Bench. It is well settled that a
decision is only an authority for what it decides and not what
may logically follow from it (see Quinn v. Leathem [Quinn v.
Leathem, 1901 AC 495 (HL)] as followed in State of Orissa v.
22
Sudhansu Sekhar Misra [State of Orissa v. Sudhansu Sekhar
Misra, (1968) 2 SCR 154 : AIR 1968 SC 647] , SCR at pp. 162-
63 : AIR at pp. 651-52, para 13).
27 . This being the case, it is obvious that the beneficial
purpose of the exemption contained in Section 3(1)(b) must be
given full effect to, the line of authority being applicable to the
facts of these cases being the line of authority which deals
with beneficial exemptions as opposed to exemptions
generally in tax statutes. This being the case, a
iteral formalistic interpretation of the statute at hand is to be
eschewed. We must first ask ourselves what is the object
sought to be achieved by the provision, and construe the
statute in accord with such object. And on the assumption that
if any ambiguity arises in such construction, such ambiguity
must be in favour of that which is exempted.”
(Emphasis supplied)
55. In Union of India v. Wood Papers Limited , reported in (1990)
4 SCC 256 , it was pointed out that an exemption notification should be
construed strictly at the threshold. But once the exception/exemption is
applicable, then a liberal construction must be adopted. The ration of
this judgment clearly applies to the present case. Entry 13 grants
exemption from GST for renting of residential dwellings for use as
residence . On a strict construction thereof, all the three requirements
referred to above are satisfied. Once the exemption notification
is applicable, it should be construed liberally. Thus, if the conditions
are satisfied, the benefit should be available to both lessees and the sub-
lessees as well.
56. In the above context, we may refer to the following observations
of this Court in Wood Papers Limited (supra):-
“4. Entitlement of exemption depends on construction of the
expression “any factory commencing production” used in the
Table extracted above. Literally exemption is freedom from
23
liability, tax or duty. Fiscally it may assume varying shapes,
specially, in a growing economy. For instance tax holiday to
new units, concessional rate of tax to goods or persons for
limited period or with the specific objective etc. That is why its
construction, unlike charging provision, has to be tested on
different touchstone. In fact an exemption provision is like an
exception and on normal principle of construction or
interpretation of statutes it is construed strictly either because
of legislative intention or on economic justification of
inequitable burden or progressive approach of fiscal provisions
intended to augment State revenue. But once exception or
exemption becomes applicable no rule or principle requires it
to be construed strictly. Truly speaking liberal and strict
construction of an exemption provision are to be invoked at
different stages of interpreting it. When the question is
whether a subject falls in the notification or in the exemption
clause then it being in nature of exception is to be construed
strictly and against the subject but once ambiguity or doubt
about applicability is lifted and the subject falls in the
notification then full play should be given to it and it calls for
a wider and liberal construction. Therefore, the first exercise
that has to be undertaken is if the production of packing and
wrapping material in the factory as it existed prior to 1964 is
covered in the notification.”
57. In Collector of Central Excise v. Parle Exports (P)
Ltd. reported in (1989) 1 SCC 345 , this Court while accepting that
exemption clause should be construed liberally applied rigorous test for
determining if expensive items like Gold Spot base or Limca base or
Thums Up base were covered in the expression food products and food
preparations used in Item No. 68 of First Schedule of Central Excises
and Salt Act and held ‘that it should not be in consonance with spirit
and the reason of law to give exemption for non-alcoholic beverage basis
under the notification in question’. Rationale or ratio is same. Do not
extend or widen the ambit at stage of applicability. But once that hurdle
is crossed construe it liberally. Since the respondent did not fall in the
24
first clause of the notification there was no question of giving the clause
a liberal construction and hold that production of goods by respondent
mentioned in the notification were entitled to benefit.
PURPOSIVE INTERPRETATION OF ENTRY 13
58. The principle of ‘purposive interpretation’ or ‘purposive
construction’ is based on the understanding that the Court is supposed
to attach that meaning to the provisions which serve the ‘purpose’ behind
such a provision. The basic approach is to ascertain what is it designed
to accomplish? To put it otherwise, by interpretative process the Court
is supposed to realise the goal that the legal text is designed to realise.
As Aharan Barak in Purposive Interpretation in Law puts it:-
“Purposive interpretation is based on three components:
language, purpose, and discretion. Language shapes the
range of semantic possibilities within which the interpreter
acts as a linguist. Once the interpreter defines the range, he or
she chooses the legal meaning of the text from among the
(express or implied) semantic possibilities. The semantic
component thus sets the limits of interpretation by restricting
the interpreter to a legal meaning that the text can bear in its
(public or private) language.”
59. Of the aforesaid three components, namely, language, purpose
and discretion ‘of the Court’, insofar as purposive component is
concerned, this is the ratio juris , the purpose at the core of the text. This
purpose is the values, goals, interests, policies and aims that the text is
designed to actualize. It is the function that the text is designed to fulfil.
60. We may also emphasize that the statutory interpretation of a
provision is never static but is always dynamic. Though literal rule of
25
interpretation, till some time ago, was treated as the ‘golden rule’, it is
now the doctrine of ‘purposive interpretation’ which is predominant,
particularly in those cases where literal interpretation may not serve the
purpose or may lead to absurdity. If it brings about an end which is at
variance with the purpose of statute, that cannot be countenanced. Not
only legal process thinkers such as Hart and Sacks rejected
intentionalism as a grand strategy for statutory interpretation, and in its
place they offered purposivism, this principle is now widely applied by
the Courts not only in this country but in many other legal systems as
well. (See : Shailesh Dhairyavan v. Mohan Balkrihna Lulla reported
in (2016) 3 SCC 619 )
61. Giving Entry 13 a narrow interpretation by holding that it is
available only when the property so rented is used by service
recipient themselves would ultimately lead to legislative intent being
defeated as the exemption is extended to cases wherein residential
dwelling is rented out and ultimately used as residence, irrespective of
the person using it. The legislative intent behind this exemption clause
is that a rented property, that is used as residence should not suffer 18%
GST or IGST. However, if Entry 13 is given such a narrow interpretation,
then, exemption will not be available in cases where a lessee has sub-
leased the property for use as residence.
62. In the present matter, the ultimate use of the property remained
unchanged. In other words, it remained as ‘use for residence’ by
students/working women. However, if 18% GST is levied on this
26
transaction between the respondent No. 1 and the lessee, the same will
be passed on to the students and working professionals which would
ultimately lead to a situation where legislative intent behind granting
exemption for residential use is defeated.
63. In addition to above, it is pertinent to note that exemption
envisaged under Entry 13 is an activity specific exemption and not person
specific exemption . There are many exemptions given under GST law
which are person specific exemptions and are applicable only when
service provider or recipient is among the notified category of persons.
On the other hand, there are many exemptions which are activity specific
exemptions whereby an activity is given an exemption, and such
exemptions are not dependent on the person using the service that is
exempt.
64. For instance, under Entry 1, exemption is provided to services by
an entity registered under section 12AA of the Income-tax Act, 1961 by
way of charitable activities. Here, exemption is provided only if
charitable activities are provided by an entity registered under Section
12AA of the Income Tax Act. Entry 26 is another example which provides
exemption to transmission or distribution of electricity by an electricity
transmission or distribution utility.
AMENDMENTS IN 2022
65. Entry 13 was amended w.e.f. 18.07.2022 and it now reads as
follows:-
27
“ Services by way of renting of residential dwellings for use
as residence except where the residential dwelling is
rented to a registered person.”
66. Thus, from 18.07.2022, there is no exemption available for
respondent 1, as he has rented to a registered person. Through these
appeals, the revenue is, in effect, trying to give retrospective application
to the amendment made in 2022, which is impermissible.
67. Apart from the above amendment in 18.07.2022, further
Explanation was added to Entry 13 w.e.f. 01.01.2023 which reads as
follows:-
“Explanation- for the purpose of exemption under this entry,
this entry shall cover services by way of renting of residential
dwelling to a registered person where, -
(i) The registered person is proprietor of a proprietorship
concern and rents the residential dwelling in his personal
capacity for use as his own residence; and
(ii) Such renting is on his own account and not that of the
proprietorship concern.”
68. The Explanation clearly shows that even if the rent is paid by a
registered person, the exemption will be available if it is used for the
purpose of own residence and is rented in the personal capacity.
Therefore, the intention from the beginning was to ensure that rental
agreements for use of the property for residential purposes are
granted exemption from GST.
69. In view of the aforesaid discussion, we have reached the conclusion
that we should not interfere with the impugned judgment and order
28
passed by the High Court. As a result, both the appeals fail and are
hereby dismissed.
70. Pending application, if any, stand disposed of accordingly.
…………………………………………J
(J.B. PARDIWALA)
…………………………………………J
(K.V. VISWANATHAN)
NEW DELHI;
DECEMBER 4, 2025
29
2025 INSC 1380
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7846 OF 2023
THE STATE OF KARNATAKA & ANR. …APPELLANT(S)
VERSUS
TAGHAR VASUDEVA AMBRISH & ANR. …RESPONDENT(S)
WITH
CIVIL APPEAL NO. 7847 OF 2023
J U D G M E N T
J.B. PARDIWALA, J. :
1. Since the issues raised in both the captioned appeals are the
same and the challenge is also to the self-same judgment and order
passed by the High Court of Karnataka, those were taken up for hearing
analogously and are being disposed of by this common judgment and
order.
2. These appeals arise from the judgment and order passed by the
High Cout of Karnataka dated 07.02.2022 in Writ Petition No. 14891 of
2020 by which the writ petition filed by respondent No. 1 herein (original
Signature Not Verified
petitioner) was allowed thereby setting aside the order dated 31.08.2020
Digitally signed by
VISHAL ANAND
Date: 2025.12.04
15:58:34 IST
Reason:
passed by the Appellate Authority for Advance Ruling, Karnataka (for
short, “the AAAR”). The AAAR in its ruling had declared while affirming
1
the ruling of the Authority for Advance Ruling, Karnataka (for short, “the
AAR”) that the services provided by the respondent No. 1 herein (original
petitioner) in the form of leasing of residential premises as hostel to
students and working professionals does not fall within the ambit of
Entry 13 of the Notification No. 9/2017- Integrated Tax (Rate) dated
28.06.2017. In other words, the respondent No. 1 herein would not be
entitled to the exemption on services viz. renting of residential dwelling
for use as a residence under Entry 13 of the Notification No. 9/2017
dated 28.06.2017.
FACTUAL MATRIX
3. The facts giving rise to these appeals may be summarised as
under.
4. The respondent No. 1 before us is the co-owner of a residential
property situated in Bangalore. The property consists of 42 rooms. It is
a four storied building with terrace and common area. On 21.06.2019
the respondent No. 1 along with other the co-owners executed a lease
deed in favour of M/s DTwelve Spaces Private Limited (fort short, “the
lessee”). The lessee in turn leased out the residential property as hostel
to provide long term accommodation to students and working
professionals with the duration of stay ranging from 3 months to 12
months.
5. The Central Government by way of Notification No.9/2017-
Integrated Tax (Rate) dated 28.06.2017 (hereinafter referred to as “the
Exemption Notification”) has granted exemption from payment of goods
2
and services tax in respect of services which includes renting services
which are provided with respect to residential dwelling for use as
residence.
6. The respondent No. 1 herein (original petitioner) with a view to
seek clarification with regard to his eligibility to claim exemption on the
rent received by him from the lessee by letting the property preferred an
Advance Ruling application in the prescribed Form under Section 97 of
the Integrated Goods and Services Tax Act, 2017 (for short, “the Act”)
before the AAR. The AAR vide its ruling dated 23.03.2020 inter alia held
that the services viz. renting of residential dwelling for use as a residence
do not fall under Entry 13 of the Exemption Notification. It held that the
lessee being a company is not itself using the premises in question.
In such circumstances, it was held by the AAR that the respondent No.
1 herein has to charge goods and services tax (for short, ‘GST’) while
issuing invoices to the lessee provided it was registered under the Act.
Accordingly, it was held that the benefit of Exemption Notification is not
available to the respondent No.1 herein (original petitioner).
7. The respondent No. 1 herein (original petitioner) being
dissatisfied with the ruling of the AAR filed an appeal under Section 100
of the Act before the AAAR. The AAAR vide order dated 31.08.2020 inter
alia while affirming the AAR’s ruling held that the property rented out by
the respondent No. 1 herein (original petitioner) is a hostel building
which is more akin to a sociable accommodation rather than what is
commonly understood as residential accommodation. In other words, the
3
AAAR held that the subject property rented out by the respondent No. 1
herein (original petitioner) cannot be termed as a rented accommodation.
It was further held that the benefit of Exemption Notification is available
only if the residential dwelling is used as a residence by the person who
has taken the same on rent/lease. Thus saying so, the appeal filed by
the respondent No. 1 herein (original petitioner) was ordered to be
dismissed.
8. In such circumstances referred to above, the respondent No. 1
herein (original petitioner) invoked the jurisdiction of the High Court by
filing Writ Petition No. 14891 of 2020 and questioned the legality and
validity of the order passed by the AAAR.
9. The High Court formulated the following question of law for its
consideration:-
“Whether the service of leasing of residential premises
provided by the petitioner as hostel to students and working
professionals is covered under Entry 13 of the Notification
9/2017 dated 28.06.2017 i.e. “services by way of renting
of residential dwelling for use as residence” issued under
the Act.”
10. The High Court vide its impugned judgment and order allowed
the writ petition holding that Entry 13 of the Notification No. 9/2017
which provides for exemption with respect to ‘services by way of renting
of residential dwelling by way of use as residence’ being clear and
unambiguous, the petitioner was entitled to avail the benefit under the
4
exemption notification. The High Court held that the definition of
‘residential dwelling’ in erstwhile service tax law as provided by the
Education Guide dated 20.06.2012 issued by the Central Board of
Indirect Taxes and Customs (CBIC), i.e. ‘ residential dwelling means any
residential accommodation and is different from hotel, motel, inn, guest
is binding on the revenue.
house etc, which is meant for temporary stay’
It was held that leasing of residential premises as hostel to students and
working professionals would not attract GST.
11. Relying on the decision of this Court in Kishore Chandra Singh
Deo v. Babu Ganesh Prasad Bhagat, reported in AIR 1954 SC
316 and the Bombay High Court decision in the matter of Bandu Ravji
Nikam v. Acharyaratna Deshbushan Shikshan Prasark Mandal,
Kolhapur , reported in 2003 (3) Mah L.J. 472 , the High Court held that
the hostel is used by the students for the purpose of residence and the
duration of stay is more as compared to a hotel, guest house.
12. The High Court further observed that if a particular expression is
not defined in the Act, it is permissible to refer to the dictionary meaning
of such expression. The High Court, after referring to the dictionary
meanings of the words ‘residential dwelling’ and decisions of this Court
in Mohinder Singh v. State of Haryana, reported in AIR 1989 SC
1367 and Commissioner of Central excise, Delhi v. Allied Air-
Conditioning Corpn., reported in in 2006 (7) SCC 735, held that
hostels used for residential purpose by the students and working women
is covered under ‘residential dwelling’. The residential dwelling is being
5
rented and used by the students and working women for the purpose of
residence and there is no such condition in the Exemption Notification
that the lessee itself has to use the premises as residence.
13. The High Court further held that the findings of the AAAR that
the hostel accommodation is more akin to a sociable accommodation and
that the petitioner is registered as a commercial establishment under the
Karnataka Shops and Commercial Establishment Act, 1961 are not
relevant in any manner for the purpose of determining the eligibility of
the respondent No. 1 herein (original petitioner) for exemption.
14. Being dissatisfied with the judgment and order passed by the
High Court, the revenue is before us.
SUBMISSIONS ON BEHALF OF THE REVENUE
15. Mr. V. Chandrashekara Bharathi, the learned counsel appearing
for the revenue vehemently submitted that the High Court committed an
egregious error in taking the view that the first transaction between the
lessor and the lessee i.e. the service of leasing of residential premises
provided by the respondent No. 1 herein (original petitioner) to M/s
DTwelve Spaces Private Limited (lessee) entitles the lessor to seek
exemption under Entry 13 of the Exemption Notification 9/2017 dated
28.06.2017.
16. He would submit that for the purpose of making the relevant
entry applicable, the following three conditions need to be fulfilled:-
a. There must be a supply of service of renting.
6
b. The renting service must pertain to a residential dwelling,
and
c. Such residential dwelling must be used as a residence.
17. He would submit that all the above three conditions must be
conjunctively satisfied. According to him, even if one of the limbs is not
triggered, then the benefit of the exemption cannot be claimed.
18. The learned counsel invited our attention to the following relevant
clauses of lease deed dated 21.06.2019: -
1. “The lessee (M/s DTwelve) is engaged in the business
of running, managing, operating the day-to-day affairs
of residential premises and, sub leases/sub-licenses
such residential premises to individuals (including
student) for the purpose of long stay accommodation
(purpose).”
2. Clause 2.1 of the lease deed reads as follows:
“In consideration of the rent, maintenance, costs,
operations cost as agreed herein, to be paid by the
lessee as set out in the agreement and the lessor’s
representations, warranties, covenants and
obligations contained herein the lessor(s) hereby
grants permission and leases unto the lessee the
leased premises for the purpose during the
7
subsistence of the lease term, subject to the terms
and conditions of this agreement”.
3. Clause 12 of the lease deed reads as follows:
“12.1 – The parties hereby acknowledge that the
lessee has taken the lease of the entire property from
the lessor(s) for all the activities that are in the
opinion of the lessee, necessary for the purpose.
12.2 – The lessee has a right to sub-lease or /and
license and/or sub-license the entire property during
the lease term to any third party for the purposes”.
19. According to the learned counsel, the plain reading of the clauses
referred to above has the following effect:-
a. The co-owners under the lease agreement recognised that M/s
DTwelve Spaces Private Limited were running and managing various
premises and leased it to individuals for long stay accommodations.
b. In addition to recognizing the above, the same was also agreed
and declared between the parties that it would be the purpose of the
lease deed.
c. The sole reason for the lease is for the above purpose as per
Clause 2 and that is why the right to sub-lease was granted to M/s.
DTwelve Spaces Private Limited for the same purpose under Clause
12.
8
20. He would argue that considering the above, M/s. DTwelve Spaces
Private Limited being the party to the first transaction cannot be said to
be using the property as residence and thereby rendering the first
transaction ineligible for exemption under the said entry.
21. He submitted that the High Court ought to have rejected the
contention canvassed on behalf of the respondent No. 1 herein (original
petitioner) that Entry 13 does not prescribe any condition that the lessee
must himself use the property as residence for the following reasons:-
(i) When admittedly, what is being tested for exemption is the first
transaction, the respondent cannot be permitted to import the facts
and circumstances of the second transaction in an attempt to satisfy
the contours of the exemption notification. In other words, the
respondent is relying on the first transaction to satisfy the first two
conditions (services by way of renting of residential dwelling) and
relies on the second transaction to satisfy the third condition (for use
as residence). This is simply not permissible.
(ii) It is incorrect to state that the exemption entry does not prescribe
the lessee to use the property as residence. Though not explicitly
stated, it has been implicitly prescribed. What is eligible as exemption
under Entry 13 is the supply of “service by way of renting”. This
supply involves two parties. One is the supplier i.e., the co-owners
and the other is the recipient who is M/s DTwelve Spaces Private
Limited. When this supply of service is exempted under the
Notification, the respondent No. 1 cannot be permitted to rely on
9
transactions with parties not privy to the supply, to satisfy the
contours of the exemption notification. The supplier of this service
i.e., the co-owners have no connection whatsoever with the persons
who utilize the property ultimately. The present case is not concerned
with such persons in any manner. Since what is exempt is the supply
of a service, it is implied that the recipient of the supply must satisfy
the condition precedent for the exemption notification to trigger and
the supplier cannot travel beyond the supply to claim exemption.
22. He would further submit that:-
a) The charge of GST is on the taxable event of supply defined under
Section 7, and the levy on such supply is prescribed under Section
9.
b) The Exemption Notification No. 9/2017 exempts ‘inter-state
supply of services’. In other words, the Exemption Notification is
supply specific and supply-centric, aligned with the levy of GST which
too is supply-specific.
c) Consequently, the conditions prescribed in Entry 13 of
Notification 9/2017 must be tested purely within the premise of a
particular supply. This approach is aligned with the principle that
exemption notifications are to be construed strictly.
d) Therefore, the submission of the revenue that the facts of the
second limb between the lessee and the end consumer must not be
10
factored for testing the supply of service between the lessor and the
lessee, will not amount to rewriting the Notification.
e) Unless and until Entry13 itself prescribes the ultimate end use
of being used as residence, such conditions cannot be imported into
the Exemption Notification. In fact, it is this submission of the
assessee that amounts to rewriting the Notification.
f) The judgement in Government of Kerala v. Mother Superior
Adoration Convent reported in (2021) 5 SCC 602 , has no
applicability since the underlying circumstances of the exemption in
the present case has no similarity with the exemption considered in
the case of Mother Superior (supra).
g) Section 3(1)(b) of the Kerala Building Tax Act, 1975 exempted
buildings that are used “principally” for religious, charitable or
educational purposes. It is the expression “principally” that weighed
in favour of this Court while extending the exemption to residential
accommodations for Nuns and hostel accommodation attached to
various educational institutions. This Court applied the dominant
object test only because the exemption Section allowed such test to
be conducted.
h) Further, in Para 15 of Mother Superior (supra), a factual finding
had been rendered that the buildings seeking exemptions were all
attached to either convents or educational institutions. On facts it
was found that these attached buildings were not let out for the
purpose of earning profit but were let out as integrally connected with
11
the religious or educational activity. It is on this factual basis that
the exemption was extended. In the same Para 15, it has been
categorically held that had the very same persons rented a building,
which was let out purely for earning market rent, would not have
entitled the building for exemption. In the present case, admittedly,
the Agreement between the Lessor and the Lessee is a commercial
transaction purely for the purpose of making profit.
i) Mother Superior (supra) undoubtedly held that in beneficial
exemptions, the ambiguity must be ruled in favour of the subject.
Assuming without admitting that Entry 13 of Notification 9/2017 is
indeed a beneficial notification, the subject which is the target of the
benefit would be service recipient in the context of GST Law. The
Service recipient in so far as the first supply is concerned between
the lessor and the lessee is the lessee, a profit-oriented commercial
entity. The Exemption Notification definitely was not conceived to
extend the benefit to such commercial entities, which intended to
carry out its commercial ventures by taking properties on lease.
23. In the last, the learned counsel submitted that the respondent
No. 1 herein (original petitioner) is not entitled to exemption as the
property in question does not qualify as a residential dwelling. The
classification as to whether the property in question would qualify as a
residential dwelling or not must solely depend on the nature of the
property and not on its ultimate use, as the Exemption Notification itself
treats these two aspects as independent of each other. Admittedly, the
12
present property comprises of 42 rooms, each attached with its own
washroom. Such a property, by applying the common parlance test, can
never qualify as a residential dwelling. Further, the Notification under
question does not define what a residential dwelling is. Under the
erstwhile Service Tax Regime, Section 66(D)(m) exempted the same
services as covered by the present Entry 13 of Notification 9/2017. Since
the entries are pari materia , the education guide is of paramount
importance, more particularly paragraphs 4.13 and 4.13.1 respectively.
24. The learned counsel invited our attention to Para 4.13.1 which
defines ‘residential dwelling’ as follows:-
“The phrase residential dwelling has not been defined in the
Act. It has therefore to be interpreted in terms of the normal
trade parlance as per which it is any residential
accommodation, but does not include hotel, motel, inn, guest
house, camp site, lodge, houseboat, or like places meant for
temporary stay.”
25. He would submit that the above definition is in two parts. The
first part requires the property under question to be a residential
accommodation, and the second part carves out certain exceptions from
the ambit of the definitions, despite being for residential accommodation.
The property in question which has 42 rooms with 42 attached
washrooms each are akin to the kinds of properties that have been
excluded under the education guide from the definition of residential
dwelling. Therefore, according to the learned counsel, the property in
question does not qualify as a residential dwelling.
13
26. In such circumstances referred to above, the learned counsel
prayed that there being merit in these appeals, the same may be allowed
and the judgment and order passed by the High Court may be set aside.
SUBMISSIONS ON BEHALF OF THE RESPONDENT NO. 1 (LESSEE)
27. On the other hand, Mr. Arvind P. Datar, the learned senior
counsel appearing for the respondent No. 1 while vehemently opposing
the appeals submitted the no error, not to speak of any error of law, could
be said to have been committed by the High Court in passing the
impugned judgment and order.
28. He submitted that the respondent No. 1 along with four other joint
owners had collectively let out the subject residential property to M/s
DTwelve Spaces Private Limited – lessee for sub-letting the said property
to working women and students for long term stay ranging from 3 months
to 11 months. He pointed out that the available data reveals that the
students or working women on an average stayed for eight months in the
said property.
29. The learned counsel submitted that M/s DTwelve Spaces Private
Limited (lessee) is an aggregator and has set up a unique business model
that has proved immensely beneficial to several students and working
professionals. Several landlords have entered into lease agreements with
M/s DTwelve Spaces Private Limited (lessee) for renting out hostel/PG
accommodation for students or working professionals. The website of
M/s DTwelve Spaces Private Limited shows the availability of such
14
accommodation in different cities enabling parents/students/working
professionals to book residential accommodation/hostel accommodation.
30. Mr. Datar pointed out that the lease deed was entered into on
16.06.2019. The total rent paid from June 2019 to June 2022 was Rs.
1,12,38,200/-. The total IGST liability at the rate of 18% was Rs.
20,22,876/-. He further brought to our notice that from 2022, IGST is
being paid at 18% as an amendment to Entry 13 of the Exemption
Notification came into effect on 18.07.2022.
31. According to Mr. Datar, the contention canvassed on behalf of the
appellant that such exemption should be denied because the lessee being
a company is not using the subject residential property itself for the
residential purposes deserves to be outright rejected. He would argue
that, if such a submission is accepted, it would amount to rewriting the
Entry 13 as “services by way of renting of residential dwelling for use as
residence by the lessee”.
32. He submitted that all the three conditions cumulatively required
to be fulfilled to be eligible for exemption from payment of IGST, viz. (a)
services must be of renting; (b) the property so let out must be a
residential dwelling, and (c) such residential dwellings must be given for
use as a residence stand fulfilled in the present case.
33. He submitted that the High Court after due consideration of all
the relevant provisions rightly reached to a plausible conclusion which
requires no interference at the hands of this Court under Article 136 of
the Constitution.
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34. In such circumstances referred to above, Mr. Datar prayed that
there being no merit in the appeals, those may be dismissed.
ANALYSIS
35. Having heard the learned counsel appearing for the parties and
having gone through the materials on records, the only question that falls
for our consideration is whether the amount at the rate of 18% is payable
on the rental amount paid by the lessee to the respondent No. 1 herein?
36. We would like to first address ourselves on the issue whether the
subject property could be termed as a “residential dwelling”. The term
“residential dwelling” is not defined under the GST laws. Under the
erstwhile Finance Act, 1994, an Education Guide dated 20.06.2012
issued by the CBIC explained it as follows:-
“ 4.13.1 What is a ‘residential dwelling’?
The phrase ‘residential dwelling’ has not been defined in the
Act. It has therefore to be interpreted in terms of the normal
trade parlance as per which it is any residential
accommodation, but does not include hotel, motel, inn, guest
house, camp-site, lodge, house boat, or like places meant for
temporary stay.”
37. Prior to the implementation of the GST, only commercial
properties let out were subjected to service tax even if a residential
property was used for commercial purposes. Service tax was charged at
a rate of 15% of the rent for commercial properties. However, rental
income from residential properties did not attract service tax. This meant
that landlords who owned commercial properties and rented them out
16
were required to register for service tax and pay the tax on the rental
income received. On the other hand, landlords who owned residential
properties and rented them out were not required to register for service
tax or pay tax on the rental income they received.
38. On the introduction of GST, the tax regime for rental income has
undergone a significant change. Under the GST regime, renting both
commercial and residential properties is treated as a taxable supply of
service. GST is applicable on rental income received by landlords as well
as rent paid by tenants.
39. However, the Central Government, on being satisfied that it is
necessary in the public interest and on the recommendation of the GST
Council, has issued Notification No. 9/2017- Integrated Tax (Rate) dated
28.06.2017 giving exemption from levying GST on various services
described item wise in the Notification. For our purpose, it relates to
Entry No. 13 by which an unconditional exemption was provided to
renting of a residential dwelling to any person when the same is used for
residence. Meaning thereby, GST is payable in the case of renting of a
residential dwelling to any person when the same is used for the
commercial purpose.
40. In the above context, we may refer to few judgments wherein the
meaning of the expression “residential dwelling” has been explained.
41. The Delhi High Court in V.L. Kashyap v. R.P. Puri reported in
12 (1976) DLT 369 , wherein, in para 25, it has been held as under:-
17
“25. The rule of law deducible from the aforesaid decisions is
that the work ‘dwelling house’ is synonymous with residential
accommodation as distinct from a house of business,
warehouse, office, shop, commercial or business premises.
The word ‘house’ means a building. It would include the out-
houses, courtyard, orchard, garden etc. which are part of the
same house, but it cannot include a distinct separate house.”
(Emphasis supplied)
42. The United Kingdom House of Lords in Uratemp Ventures
Limited v. Collins reported in (2001) 3 WLR 806 , wherein the term
‘dwelling house’ has been interpreted to mean even a single room as part
of a house.
43. The High Court of Bombay in Bandu Ravji Nikam (supra) has
explained “residential dwelling” in detail. In this case, a suit for eviction
of a tenant was contested by the tenant saying that the landlord was
attempting to evict him in order to lease out the premises to a hostel and
that hostel accommodation amounted to ‘non residential accommodation’
which was impermissible under Section 25 of Bombay Rent Control Act.
The High Court held that by the very nature of the use of students hostel,
it is only a residential user as hostel, is a house of residence or lodging
for students and that just because the hostel owners charge some
amount from the students, such accommodation cannot be treated as
commercial or non residential.
44. In Bandu Ravji Nikam (supra), the Bombay High Court further
held as under in para 10:-
“10. ... Undoubtedly, “hostel” is nothing but a house of
residence or lodging for students. Just because the respondent
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may charge some amount from the students for providing that
facility, may not necessarily mean that it is a commercial or
non residential user. Further, there is perceptible difference
between “hotel or lodging house” and ‘student hostel’, though
in both cases accommodation may be provided on monetary
consideration. In the latter, the occupant cannot claim to be a
“tenant” or a “licensee” nor can he claim protection of the
provisions of the Bombay Rent Act. Whereas, in the case of the
former, part III of the Act would apply. Besides, it will be useful
to notice the observations of this Court in para 20 of the
decision in the case of Kishinchand (supra). This court has
held that the word “residence” may receive a liberal meaning,
for a man’s residence is very often the place where he sleeps
at night. This court in the said case adverted to the decision of
the Privy Council (AIR 1937 PC 46), wherein it is observed that
“there is no reason for assuming that it contemplates only
permanent residence and excludes temporary residence”.
Reference is also made to Sri Sri Sri Kishore Chandra Singh
Deo vs Babu Ganesh Prasad Bhagat and others, AIR 1954 Sc
316, wherein it is observed that
“Residence only connotes that a person eats, drinks
and sleeps at that place and that it is not necessary
that he should own it”.
This Court then proceeded to hold that the legislature
is using words “non-residential purpose” in Section 25 did not
intend to prohibit use of a building containing a residential flat
for the purposes of construction of Marriage Halls, Charitable
Hospitals and “quarters” and garages for Doctors and Nurses.
As in the present case, “Students hostel” was also to be used
for sleeping, eating, studies etc. temporarily if not permanently
day to day, it cannot be described as “non-residential” use
within the meaning of Section 25 of the Act. Accordingly, if the
suit premises were to be used as students hostel, then surely
it would be for the residential purpose of the students of the
College run by the respondent trust. In that case also, the
respondent trust would be entitled to claim possession of the
suit premises for the requirement of the trust. If this be so,
there is no force in the argument pressed into service that no
decree could be passed as the nature of requirement would be
prohibited by Section 25 of the Act.”
(Emphasis supplied)
45. We must also look into the meaning of the expressions
“residence” and “dwelling” as provided in Concise Oxford English
19
th
Dictionary 2013 Edition as well as the Blacks Law Dictionary 6 Edition
to ascertain their meaning in common parlance and in popular sense
which read as under:-
“ The Concise Oxford Dictionary:
Domicile: 1. the country in which a person has permanent
residence.
2. the place at which a company or other body is registered.
Residence: 1. the fact of residing somewhere.
2. a person’s home.
3. the official house of a government minister or
other official figure.
Blacks Law Dictionary:
Residence: Place where one actually lives or has his home; a
person’s dwelling place or place of habitation; an abode; house
where one’ home is; a dwelling house.
Dwelling: The house or other structure in which a person or
persons live; a residence; abode; habitation; the apartment or
building, or a group of buildings, occupied by a family as a
place of residence. Structure used a place of habitation.”
46. Further in common parlance, ‘residential dwelling’ means any
building, structure, or part of the building or structure other than offices
or factories, that is used or intended to be used as a home, residence, or
sleeping place by one person or by two or more persons maintaining a
common household, to the exclusion of all others.
47. Thus, any residential accommodation meant for long term stay
can be referred to as “residential dwelling”. The materials on record
further indicate that as per the Khatha Extract and layout plans and
records available with the Bruhat Bangalore Mahanagara Palike, the plot
and property is shown as residential in nature. In view of the aforesaid,
20
we have no hesitation in reaching the conclusion that the subject
property is a “residential dwelling”.
48. The only question now left to be addressed is whether the third
condition to be eligible for exemption from payment of the GST i.e. “such
residential dwelling must be given for use as a residence” is fulfilled in
the present case or not.
49. In the present case, the third condition could also be said to be
satisfied as the property was taken on rent only for use as a residence.
There is no further condition that the tenant or lessee must itself use it
as a residence. Indeed M/s DTwelve Spaces Private Limited (lessee) is an
aggregator who facilitates the use of residential dwelling for hostel
accommodation. The third condition stood satisfied as M/s DTwelve
Spaces Private Limited is the lessee and all the students/working women
are none else but sub-lessees. It is well-settled that what is a lease
between the owner of a property and a tenant becomes a sub-lease when
it is entered into between the tenant and his sub-tenant.
50. Taking the view aforesaid, for the period 2019-2022 all the three
conditions of Entry No.13 cited above stood complied with.
51. We are not impressed by the submission canvassed on behalf of
the revenue that since lessee did not use the hostel as a residence but
rather sub-leased the same to students/working women, such
transaction does not fall within Entry 13 of the Exemption Notification.
At the cost of repetition, it is observed that Entry 13 of the Exemption
Notification does not mandate that the lessee must use the residential
21
dwelling as its own residence. Giving any other interpretation would
mean adding an additional condition to Entry 13.
52. Mr. Datar is right in his submission that giving Entry 13 a narrow
interpretation by holding that it is available only when the property so
rented is used by service recipient themselves would ultimately lead to
the legislative intent being defeated as the exemption is extended to
cases wherein residential dwelling is rented out and ultimately used as
residence even for the purpose of the person using it. In other words, the
legislative intent behind this exemption clause is that a rented property
that is used as residence should not suffer 18% GST or IGST.
53. In the case on hand, the ultimate use of the property as residence
remains unchanged. However, if 18% GST is levied on this transaction
between the respondent No. 1 and the lessee i.e. M/s DTwelve Spaces
Private Limited, 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.
54. In Mother Superior (supra), it was held as follows:
“26. It may be noticed that the five-Judge Bench judgment
[Commr. of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1] did
not refer to the line of authority which made a distinction
between exemption provisions generally and exemption
provisions which have a beneficial purpose. We cannot agree
with Shri Gupta’s contention that sub silentio the line of
judgments qua beneficial exemptions has been done
away with by this five-Judge Bench. It is well settled that a
decision is only an authority for what it decides and not what
may logically follow from it (see Quinn v. Leathem [Quinn v.
Leathem, 1901 AC 495 (HL)] as followed in State of Orissa v.
22
Sudhansu Sekhar Misra [State of Orissa v. Sudhansu Sekhar
Misra, (1968) 2 SCR 154 : AIR 1968 SC 647] , SCR at pp. 162-
63 : AIR at pp. 651-52, para 13).
27 . This being the case, it is obvious that the beneficial
purpose of the exemption contained in Section 3(1)(b) must be
given full effect to, the line of authority being applicable to the
facts of these cases being the line of authority which deals
with beneficial exemptions as opposed to exemptions
generally in tax statutes. This being the case, a
iteral formalistic interpretation of the statute at hand is to be
eschewed. We must first ask ourselves what is the object
sought to be achieved by the provision, and construe the
statute in accord with such object. And on the assumption that
if any ambiguity arises in such construction, such ambiguity
must be in favour of that which is exempted.”
(Emphasis supplied)
55. In Union of India v. Wood Papers Limited , reported in (1990)
4 SCC 256 , it was pointed out that an exemption notification should be
construed strictly at the threshold. But once the exception/exemption is
applicable, then a liberal construction must be adopted. The ration of
this judgment clearly applies to the present case. Entry 13 grants
exemption from GST for renting of residential dwellings for use as
residence . On a strict construction thereof, all the three requirements
referred to above are satisfied. Once the exemption notification
is applicable, it should be construed liberally. Thus, if the conditions
are satisfied, the benefit should be available to both lessees and the sub-
lessees as well.
56. In the above context, we may refer to the following observations
of this Court in Wood Papers Limited (supra):-
“4. Entitlement of exemption depends on construction of the
expression “any factory commencing production” used in the
Table extracted above. Literally exemption is freedom from
23
liability, tax or duty. Fiscally it may assume varying shapes,
specially, in a growing economy. For instance tax holiday to
new units, concessional rate of tax to goods or persons for
limited period or with the specific objective etc. That is why its
construction, unlike charging provision, has to be tested on
different touchstone. In fact an exemption provision is like an
exception and on normal principle of construction or
interpretation of statutes it is construed strictly either because
of legislative intention or on economic justification of
inequitable burden or progressive approach of fiscal provisions
intended to augment State revenue. But once exception or
exemption becomes applicable no rule or principle requires it
to be construed strictly. Truly speaking liberal and strict
construction of an exemption provision are to be invoked at
different stages of interpreting it. When the question is
whether a subject falls in the notification or in the exemption
clause then it being in nature of exception is to be construed
strictly and against the subject but once ambiguity or doubt
about applicability is lifted and the subject falls in the
notification then full play should be given to it and it calls for
a wider and liberal construction. Therefore, the first exercise
that has to be undertaken is if the production of packing and
wrapping material in the factory as it existed prior to 1964 is
covered in the notification.”
57. In Collector of Central Excise v. Parle Exports (P)
Ltd. reported in (1989) 1 SCC 345 , this Court while accepting that
exemption clause should be construed liberally applied rigorous test for
determining if expensive items like Gold Spot base or Limca base or
Thums Up base were covered in the expression food products and food
preparations used in Item No. 68 of First Schedule of Central Excises
and Salt Act and held ‘that it should not be in consonance with spirit
and the reason of law to give exemption for non-alcoholic beverage basis
under the notification in question’. Rationale or ratio is same. Do not
extend or widen the ambit at stage of applicability. But once that hurdle
is crossed construe it liberally. Since the respondent did not fall in the
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first clause of the notification there was no question of giving the clause
a liberal construction and hold that production of goods by respondent
mentioned in the notification were entitled to benefit.
PURPOSIVE INTERPRETATION OF ENTRY 13
58. The principle of ‘purposive interpretation’ or ‘purposive
construction’ is based on the understanding that the Court is supposed
to attach that meaning to the provisions which serve the ‘purpose’ behind
such a provision. The basic approach is to ascertain what is it designed
to accomplish? To put it otherwise, by interpretative process the Court
is supposed to realise the goal that the legal text is designed to realise.
As Aharan Barak in Purposive Interpretation in Law puts it:-
“Purposive interpretation is based on three components:
language, purpose, and discretion. Language shapes the
range of semantic possibilities within which the interpreter
acts as a linguist. Once the interpreter defines the range, he or
she chooses the legal meaning of the text from among the
(express or implied) semantic possibilities. The semantic
component thus sets the limits of interpretation by restricting
the interpreter to a legal meaning that the text can bear in its
(public or private) language.”
59. Of the aforesaid three components, namely, language, purpose
and discretion ‘of the Court’, insofar as purposive component is
concerned, this is the ratio juris , the purpose at the core of the text. This
purpose is the values, goals, interests, policies and aims that the text is
designed to actualize. It is the function that the text is designed to fulfil.
60. We may also emphasize that the statutory interpretation of a
provision is never static but is always dynamic. Though literal rule of
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interpretation, till some time ago, was treated as the ‘golden rule’, it is
now the doctrine of ‘purposive interpretation’ which is predominant,
particularly in those cases where literal interpretation may not serve the
purpose or may lead to absurdity. If it brings about an end which is at
variance with the purpose of statute, that cannot be countenanced. Not
only legal process thinkers such as Hart and Sacks rejected
intentionalism as a grand strategy for statutory interpretation, and in its
place they offered purposivism, this principle is now widely applied by
the Courts not only in this country but in many other legal systems as
well. (See : Shailesh Dhairyavan v. Mohan Balkrihna Lulla reported
in (2016) 3 SCC 619 )
61. Giving Entry 13 a narrow interpretation by holding that it is
available only when the property so rented is used by service
recipient themselves would ultimately lead to legislative intent being
defeated as the exemption is extended to cases wherein residential
dwelling is rented out and ultimately used as residence, irrespective of
the person using it. The legislative intent behind this exemption clause
is that a rented property, that is used as residence should not suffer 18%
GST or IGST. However, if Entry 13 is given such a narrow interpretation,
then, exemption will not be available in cases where a lessee has sub-
leased the property for use as residence.
62. In the present matter, the ultimate use of the property remained
unchanged. In other words, it remained as ‘use for residence’ by
students/working women. However, if 18% GST is levied on this
26
transaction between the respondent No. 1 and the lessee, the same will
be passed on to the students and working professionals which would
ultimately lead to a situation where legislative intent behind granting
exemption for residential use is defeated.
63. In addition to above, it is pertinent to note that exemption
envisaged under Entry 13 is an activity specific exemption and not person
specific exemption . There are many exemptions given under GST law
which are person specific exemptions and are applicable only when
service provider or recipient is among the notified category of persons.
On the other hand, there are many exemptions which are activity specific
exemptions whereby an activity is given an exemption, and such
exemptions are not dependent on the person using the service that is
exempt.
64. For instance, under Entry 1, exemption is provided to services by
an entity registered under section 12AA of the Income-tax Act, 1961 by
way of charitable activities. Here, exemption is provided only if
charitable activities are provided by an entity registered under Section
12AA of the Income Tax Act. Entry 26 is another example which provides
exemption to transmission or distribution of electricity by an electricity
transmission or distribution utility.
AMENDMENTS IN 2022
65. Entry 13 was amended w.e.f. 18.07.2022 and it now reads as
follows:-
27
“ Services by way of renting of residential dwellings for use
as residence except where the residential dwelling is
rented to a registered person.”
66. Thus, from 18.07.2022, there is no exemption available for
respondent 1, as he has rented to a registered person. Through these
appeals, the revenue is, in effect, trying to give retrospective application
to the amendment made in 2022, which is impermissible.
67. Apart from the above amendment in 18.07.2022, further
Explanation was added to Entry 13 w.e.f. 01.01.2023 which reads as
follows:-
“Explanation- for the purpose of exemption under this entry,
this entry shall cover services by way of renting of residential
dwelling to a registered person where, -
(i) The registered person is proprietor of a proprietorship
concern and rents the residential dwelling in his personal
capacity for use as his own residence; and
(ii) Such renting is on his own account and not that of the
proprietorship concern.”
68. The Explanation clearly shows that even if the rent is paid by a
registered person, the exemption will be available if it is used for the
purpose of own residence and is rented in the personal capacity.
Therefore, the intention from the beginning was to ensure that rental
agreements for use of the property for residential purposes are
granted exemption from GST.
69. In view of the aforesaid discussion, we have reached the conclusion
that we should not interfere with the impugned judgment and order
28
passed by the High Court. As a result, both the appeals fail and are
hereby dismissed.
70. Pending application, if any, stand disposed of accordingly.
…………………………………………J
(J.B. PARDIWALA)
…………………………………………J
(K.V. VISWANATHAN)
NEW DELHI;
DECEMBER 4, 2025
29