The Delhi High Court recently upheld the classification of hotels based on star ratings for property tax purposes, ruling that it satisfies the constitutional requirements under Article 14 of the Constitution. On similar terms, the Court justified the imposition of a higher rate of property tax on luxury hotels by the Municipal Corporation of Delhi (MCD). The Court, however, granted liberty to the parties to approach the Municipal Taxation Tribunal for individual assessment order challenges.
A Single Judge Bench of Justice Purushaindra Kumar Kaurav observed that the star classification system constitutes a form of self-identification by hotels, representing their voluntary participation in a system designed to benchmark hospitality standards and amenities. Applying the doctrine of approbation and reprobation, the Single Judge clarified that hotels cannot seek the benefits of star accreditation for commercial advantage while simultaneously challenging the consequential fiscal obligations.
The Bench noted that star hotels form a distinct commercial ecosystem with superior civic services infrastructure, including gyms, spas, shopping areas, conference facilities, and integrated business centres. These establishments cater to affluent clientele with higher paying capacity and command premium tariffs, creating an intelligible differentia from ordinary hotels. Hence, the classification based on star ratings bears a rational nexus with the legislative objective of imposing higher fiscal incidence on establishments catering to affluent clientele and availing premium amenities.
The Bench emphasises that the scope for classification in taxation matters is greater, and unless classification is palpably arbitrary, legislative wisdom in choosing the classification yardstick must be respected. The Bench therefore concluded that the classification of star-rated hotels under User Factor (UF) resulted from a thorough, lawful, and participatory process adhering to statutory provisions and constitutional mandate of fairness and reasonableness.
Briefly, in this case, the petitioners, consisting of various hotels, including Eros Resorts & Hotel Ltd and other hotel companies, challenged the recommendations made by the Municipal Valuation Committee (MVC) under Section 116 of the Delhi Municipal Corporation Act, 1957. These hotels were classified as 3-star and above establishments, subjecting them to a User Factor (UF) of 10 and a property tax rate of 20% under the Unit Area Method (UAM) introduced through the Delhi Municipal Corporation (Amendment) Act, 2003.
The dispute arose when MVC-I, MVC-III, and MVC-V were constituted to recommend property classifications and multiplicative factors for tax assessment. Initially, MVC-I recommended UF-5 for 5-star hotels in its interim report, but revised it to UF-10 in the final report for 3-star and above hotels. The MCD implemented these recommendations, leading to multiple writ petitions challenging the classification system, arguing it was arbitrary, lacked statutory backing, and violated Article 14 of the Constitution. This was opposed by the hotels, contending that star ratings were voluntary promotional tools by the Ministry of Tourism and should not form the basis for tax differentiation.
Appearances:
Senior Advocates Harish Malhotra, Rajiv Nayar, B.B. Gupta, Ravi Kant Chadha & Gaurav Sarin; along with Advocates Rajender Agarwal, Anoop Kumar, and Sidharth Aggarwal, Advocates; Ravi Kant Chadha, Sr. Advocate; Mansi Chadha, Atul Nigam, Tanvi Nigam, Lubhanshi Tanwar, Navneet Bhardwaj, Mukesh Kaushik, Anoop Kumar, Charul Sarin, Harish Kumar, Amitabh Marwah, Aman Ahluwalia, Ruby Singh Auja, Devang Kumar, Jappanpreet Hora, Tribhuvan Narain Singh, Nina Gupta, Ajay Pratap Singh, Vishali Sivagnanam, Achal Gupta, Snehil Srivastava, Karan, Akhil Pal Chhabra, Ritu Chhabra, Badal Dayal, Surender Wankhede, Nishi Chauhan, Rachna Dayal, Akhilesh Singh, Varun Jain, and Mansi Chadha, for the Petitioners
Senior Advocate Sanjay Poddar, along with Advocates Sunieta Ojha, Govind Kumar, Apurv Kumar, Anamika, Rosy, Vasudha Priyansha, Anirudh Bakhru, Archita Mahlawat, Ayush Puri, Kanv, Mohd. Umar, Sultan Jafri, Madhu Tewatia, Adhirath Singh, Saroj Bidawat, Arunima Dwivedi, Himanshi, Monalisa, Sainyam Bhardwaj, Nipun Saxena, Aadya Pandey, Deepali Dabas, Tarun Johri, Ankur Gupta, Vishwajeet Tyagi, Siddharth Panda, Anil Pandey, Tushar Sannnu, Shivam, Puja S. Kalra, Bharathi Raju, Divyangi, Anjana Gosain, Shreya Manjari, Avni Singh, Gourav Mundra, and Sushil Kumar Pandey, for the Respondents
