Working Men/Women's Hostels Are Residential Properties, Cannot Be Taxed At Commercial Rates: Madras High Court

The Madras High Court has recently ruled that hostels providing accommodation to working men and women are residential properties and, therefore, property tax, water tax, and electricity charges cannot be levied at commercial rates.

The ruling came in response to petitions filed by hostel owners in Chennai and Coimbatore challenging Chennai municipal authorities and the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) for reclassifying their hostels from residential to commercial premises and demanding significantly higher taxes.

A single bench of Justice Krishnan Ramasamy, in an order passed on November 7, observed that tax should be levied not from the perspective of the service provider but the service recipient. The Court stated:

“While levying tax, the respondents are supposed to have look from the perspective of recipient of service and not from the perspective of service provider. Thus, in the present cases, sharing hostel rooms by working women/men, after their avocation, is a “residential activity” and accordingly, every hostel rooms has to be treated as “residential unit”, unless and otherwise if it is used for any commercial activities. While imposing taxes, such as property tax, water tax, water charges and electricity charges, every hostel room has to be verified as to whether the activities carried out therein are residential in nature.”

The court emphasized that hostel owners cannot be treated differently from apartment owners for tax purposes. Apartment flats rented out for residential use are levied property tax, water charges, and electricity charges at residential rates, even if the rental income is treated as business income for income tax purposes.

The same principle applies to hostels. Since hostel rooms are used as sleeping apartments by working men and women who cannot afford independent housing, the Court held that the nature of activities in both hostels and apartments is essentially the same.

The court further warned against discrimination, observing, “If the contention of the respondents is accepted and different yardsticks are applied, then it would be a clear discrimination against the poor people. In other words, applying different yardsticks would result in charging twice the amount towards property tax, water tax, water charges and electricity charges for the inmates of the hostel under the pretext of classifying the hostels as commercial units.”

The pleas highlighted that the hostels primarily accommodate economically weaker sections and lower middle-class working individuals. The rooms are used as 'sleeping apartments' with shared facilities including kitchens and bathrooms. The hostel owners argued that the notices violated principles of natural justice, as no prior intimation was given before changing the tax classification. They also contended that taxes should be determined based on the end-use of the premises by the occupants rather than the commercial perspective of the owners.

The authorities argued that the hostels were running as commercial businesses and that the owners should have filed appeals under Section 100 of the Tamil Nadu Urban Local Bodies Act, 1998, before approaching the High Court.

The court quashed all notices and directed authorities to treat the petitioners' property as 'residential unit' and levy the taxes, such as property tax, water tax and electricity charges, accordingly. It also observed that since there was no evidence that prior notice had been given, the hostel owners were not given a chance to explain their case.

The court noted that the activities in the hostels were purely residential, and therefore property tax, water charges, and electricity charges should be calculated at residential rates.

It clarified that while this ruling applies to the current cases, other hostels can benefit from it only if they can show that their rooms are used solely for residential purposes.

Case Title: M Divya vs The Senior Revenue Officer

Citation: 2025 LiveLaw (Mad) 411

Case Number: W.P.No.10194 of 2025

For Petitioners: Advocates Aparna Nandakumar,T Saikrishnan, S Senthil, .N K Ponraj and Kingston Jerold

For Respondents: Advocates P Prithvi Chopda, D Ferdinand, K N Umapathy,Najeeb Usman Khan, N Velmurugan, V Vijayalakshmi, D R Arunkumar and Additional Government Pleader C Selvaraj