No exemption for ‘resident dwelling’ to collective leasing of property for student accommodation: AAR

AAR of Karnataka gave an important ruling dated March 23, 2020 regarding the taxability of services provided by the applicant in a case of Sri. Taghar Vasudeva Ambrish, held that No exemption for ‘resident dwelling’ to collective leasing of property for student accommodation

Facts of the Case

    • The applicant along with four others collectively has let out a Residential complex to M/s. D. Twelve Spaces Pvt. Ltd (herein referred to as “company”) which is engaged in the business of providing affordable residential accommodation to students on a long term basis.
    • The applicant further refers to the Notification No 9/2017-Integrated Tax (Rate dated June 28, 2017 in which certain exemptions have been prescribed for specified activities. Entry 13  of such notification provides that: Services by of renting of residential dwelling for use as residence” are exempt from GST.
    • Company has entered into sublease agreement with students for providing residential accommodation with living amenities, security, entertainment facilities for a long stay for a period varying from 3 months to 11 months. Company has concluded that the rental accommodation services provided by it to the students will not attract GST.
    • AAR observed that the copy of the lease deed entered between the lessors, of which the applicant is one of them and the Company shows that the lessors (totally five in number) have collectively leased out their premises to the Company by way of a single agreement. Each of the lessor owns a part of the property and they have pooled up their properties it to the Company. Further, the agreement is a single and the description of the leased premises also shows that the property consists of 42 rooms along with the 2400 sq.ft of terrace area on the execution date. The terms and conditions for the transaction are common and the agreement is for the entire property.
    • AAR observed that the lessors have pooled their individual properties into a single one and then given the same as a single piece, and even the sharing of the rent is only an apportionment of the common income.
    • In view of the above, it is clear that the applicant is not providing the service in an individual capacity to the lessee, but as a part of the group of lessors.
    • Since the applicant is not providing service to the Company, but as a part of the group, for the transaction between the Group and the Company, the invoice needs to be issued by the Group to the Company and the transaction between the individuals and the Group are different transactions, as the individuals are distinct from the Group of Individuals. The exact nature of the group cannot be ascertained and it is not a question and hence it is not answered.
    • Therefore AAR observed that it suffices here only to rule that the question of charging or not charging GST for the transaction between the applicant and the Company does not arise as the applicant himself is not effecting any supply of service to the Company directly.
    • The contract of applicant group with the Company is verified and found that what is given is an immovable property consisting of only rooms with attached toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms and the entire leased premises have 42 rooms, which can by no imagination be termed as a residential dwelling.
    • AAR stated that even if the same is given for residential purposes, the services provided are not for use as a residence by the lessee. Services by a hotel, inn, guest house, club site, or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications.
    • Therefore AAR held that the exemption prescribed under entry no.13 of Notification No.9/2017 – Integrated tax (Rate) dated 28th June 2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to the company, provided they are registered under the GST Act.

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