Madras HC rules hostels are residential, frees them from commercial property tax

CHENNAI: The Madras High Court on Tuesday ruled that hostels cannot be classified as commercial buildings and quashed the orders that directed hostel owners to pay property tax at commercial rates.

The judgment came in response to petitions filed by hostel owners in Chennai and Coimbatore challenging the decision of municipal authorities and the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) to reclassify their hostels from residential to commercial establishments, resulting in a sharp increase in taxes.

Justice Krishnan Ramasamy, who heard the petitions, observed that collecting property tax at commercial rates would be an inequitable strain on hostel residents, many of whom belong to economically weaker and lower-middle-class backgrounds.

Observing that the hostels provide accommodation for working men and women who cannot afford independent housing, he emphasised that the activities carried out in hostels are residential in nature.

The court accepted the petitioners’ argument that apartments rented for residential purposes are taxed at residential rates even if the rental income is treated as business income for income tax purposes. The same logic, the judge said, should apply to hostels, as they too serve as living spaces, not commercial establishments.

The petitioners further contended that the authorities had reclassified their buildings without issuing prior notice, violating the principles of natural justice. They argued that tax assessments should depend on the use of the property by occupants, not the business classification of the owner.

Allowing the petitions, the court quashed the reclassification and directed the authorities to treat the petitioners’ hostels as residential units while fixing property tax, water tax, and electricity charges.

However, it clarified that the ruling applies only to the petitioners in the present case. Other hostel owners may claim the same benefit only if they can prove that their premises are used exclusively for residential purposes.