Hostel Use by Working-Class Tenants Constitutes Residential Occupancy: Madras HC Sets Aside Commercial Tax Demands [Read Order]
The Madras High Court ruled that hostels accommodating working-class individuals must be treated as residential units for taxation purposes. The Court emphasised that tariff classification must reflect the actual usage by occupants, not the ownership model
In a significant ruling, the Madras High Court quashed multiple property tax demand notices issued by municipal authorities in Coimbatore and Chennai, which had reclassified hostel properties as commercial units without prior notice.
The petitions challenged the legality of such reclassification and the consequential imposition of higher property tax, water tax, and electricity charges under commercial tariff rates.
The petitioners contended that their hostels primarily served working men and women from economically weaker and lower-middle-class backgrounds. These individuals used the hostel rooms exclusively for residential purposes, sleeping, bathing, eating, and other daily activities, and did not engage in any commercial enterprise from the premises.
The hostels provided basic amenities such as shared rooms, bathrooms, kitchens, and dining areas, enabling affordable living for those unable to rent independent housing.
Counsel for the petitioners argued that the unilateral reclassification and enhanced tax demands were not only arbitrary but also financially burdensome for the residents, as the increased costs would inevitably be passed on to them.
They cited Section 2(36) of the Coimbatore City Municipal Corporation Act, 1981 and Section 2(23) of the Chennai City Municipal Corporation Act, 1919, which define “residence” in terms of usage. They also relied on a prior decision of the Court, which held that tariff classification must be viewed from the perspective of the service recipient.
In response, the municipal authorities argued that the petitioners were running hostels as a business and leasing rooms for profit, thereby justifying the commercial classification. They referred to Regulation 4(ii) of the CMWSSB Service Charges Regulations, 1998 and Section 2(e) of the Tamil Nadu Hostels and Homes for Women and Children (Regulation) Act, 2014, to support their stance.
Rejecting these arguments, the bench of Justice Krishnan Ramasamy, presiding over the batch of writ petitions, held that the essence of taxation lies in the functional use of the property.
Since the hostel rooms were used as residential dwellings by the occupants, the classification as commercial premises was unjustified. The Court also noted that the absence of prior notice or opportunity to be heard rendered the demand notices procedurally defective.
Accordingly, the Madras High Court quashed all impugned demand notices and directed the municipal authorities to reassess the properties under the residential category.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
