Commercial tax cannot be levied on a residential building rented out for residential purposes, the Kerala High Court has held.
The ruling was given by justice Shaji P Chaly after considering a petition (WP-C No. 30074/2016) filed by PK Shanmughan of Kodungallur through advocate AA Ziyad Rahman. The petitioner had challenged the demand for higher tax by the revenue authorities by stating that renting out a residential building amounts to commercial activity.
In the judgement, the court said, “Residential building is defined under Section 2(l) of the Act, 1975 to mean ‘a building or any other structure or part thereof built exclusively for residential purpose including outhouses or garages appurtenant to the building for the more beneficial enjoyment of the main building.
But what is excluded therefore is hotels, boarding places, lodges and the like. Suppose, a building is constructed as a residential building and the same is given on rent, that will not change the characteristics of the residential building as is provided under Section 2(l) of the Act, 1975.
Therefore, the re-assessment done by the Tahsildar levying an amount of Rs 18,000 towards building tax on the basis that since the residential building is given on rent for residential purposes, the activity is to be treated as a commercial activity and the building tax is to be levied as if the building is a commercial building, is not a correct legal approach to the issue on hand.”