The Madras High Court held that since hostel inmates use the rooms as sleeping spaces, they qualify as “residents” under the statutory definitions, and the premises must therefore be treated as residential units, even if the occupants have another dwelling elsewhere. Consequently, the Court directed the municipal authorities to apply a residential tariff while assessing property tax, water tax, and related charges.
Observing that the activities taking place in the petitioners’ hostels are purely residential and not commercial in nature, the Court ruled that the hostel properties cannot be classified as commercial units, and the commercial tariff does not apply to them.
The Court pointed out that treating hostel premises as commercial units violates constitutional equality, as tariff classification must be based on the occupants’ residential use. Since hostel rooms are used solely for living purposes, they must be assessed as residential units unless actual commercial activity occurs. Referring to the identical definitions of “residence” under the Coimbatore Act, Chennai Act, and Tamil Nadu Urban Local Bodies Act, all of which state that any premises used even partly as a sleeping apartment is deemed a residence, the Court clarified that this status is not lost merely because the occupant is temporarily absent or has another dwelling, as long as they are free to return and have not abandoned that intention.
A Single Judge Bench of Justice Krishnan Ramasamy explained that a property can be classified as a commercial unit only when it is actually used for commercial activities. In the present case, the Bench clarified that even if the owner treats the rental income from the premises as business income for income tax purposes, this classification does not alter the residential nature of the units or justify applying a commercial tariff for property-related taxes.
Finding that the hostels are occupied by working individuals from economically weaker backgrounds who cannot afford independent housing and therefore share rooms indicates that the premises serve a residential purpose, the Bench observed that although the petitioners operate hostels as a business and the income they receive may be treated as business income for taxation purposes, this business character of the owner does not determine the nature of the property’s use for tariff classification.
The Bench emphasised that any increase in property tax, water tax, water charges, or electricity charges, whether under commercial or residential tariff, would ultimately be passed on to the hostel inmates, meaning the financial burden of the revised tariff would fall on the occupants rather than the petitioners.
Accordingly, the Bench observed that there is no justification for applying a different standard to hostel owners when apartment owners renting out flats for residential use are always assessed under the residential tariff, regardless of whether their rental income is treated as business income. Since hostel occupants similarly use the premises only as sleeping and living spaces, the nature of usage in both hostels and residential apartments is identical, and therefore, the same residential tariff must apply.
The Bench noted that the respondents failed to produce any proof showing that prior notice or communication was issued before converting the petitioners’ properties from residential to commercial tariff. In the absence of notice, the impugned demand issued in violation of the principles of natural justice deserves to be quashed.
Briefly, the petitioners are the owners of certain properties in Coimbatore, where they run hostels providing accommodation to working men and women, mainly from the economically weaker sections. For several years, these properties had been assessed under the residential tariff for property tax, water tax, and electricity charges. Subsequently, the Coimbatore City Municipal Corporation unilaterally reclassified the petitioners’ properties from residential to commercial usage on their official portals and enhanced property tax demand, applying commercial tariff rates.
Challenging the steep increase in tax liabilities, the petitioners claimed that no prior intimation was given to them before this reclassification, thereby violating the principles of natural justice. The petitioners further contend that their hostels are not commercial establishments but residential units, as the occupants use the rooms purely for living purposes.
Appearances:
Advocates Aparna Nandakumar, T. Saikrishnan, S. Senthil, N.K. Ponraj and Kingston Jerold, for the Petitioners
Advocates P. Prithvi Chopda, D. Ferdinand, K.N. Umapathy, Najeeb Usman Khan, N. Velmurugan, V. Vijayalakshmi, D.R. Arunkumar, and C. Selvaraj, for the Respondents
