Star-rating System
HC junks plea by Indian Hotels, others against Delhi's property tax system
This story was originally published at 19:29 IST on 16 September 2025
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NEW DELHI – Rejecting petitions filed by The Indian Hotels Co. Ltd., Eros Resorts & Hotels Ltd., and others, the Delhi High Court has upheld a uniform levy using a multiplication factor of 10 and property tax of 20% on hotels rated three-star and higher. The court said the classification of hotels based on star ratings is neither arbitrary nor discriminatory under Article 14 of the Constitution.
The star-rating system, being an objective and universally recognised yardstick prescribed by the tourism ministry, is a system of self-classification and provides an intelligible characteristic to distinguish luxury hotels from ordinary hospitality establishments, the court said. The classification bears a rational nexus with the legislative object of imposing higher fiscal incidence on establishments catering to an affluent clientele and availing premium amenities, it said.
Justice Purushaindra Kumar Kaurav said that having voluntarily sought and obtained the benefits of star accreditation, the petitioners cannot now assail the consequential fiscal obligations, the doctrine of approbation and reprobation operating squarely against them. The uniform levy of a use factor of 10 and property tax at the rate of 20% on hotels rated three-star and above is, therefore, a valid exercise of legislative discretion and withstands scrutiny under Article 14, he said.
Furthermore, the inclusion of non-floor area ratio, non-revenue generating areas such as basements, stilts, service areas, and garages within the definition of "covered space" is "intra vires (within the scope of) Section 116E of the DMC (Delhi Municipal Corporation) Act", the court said. "The inclusion of ancillary areas within the tax base is, thus, neither arbitrary nor ultra vires, but a legitimate reflection of their integral role in enhancing the commercial utility of hotel establishments," it added.
In 2004, the Delhi Municipal Corporation (Amendment) Act, 2003, came into force, changing the property tax regime by replacing the rateable value system with the unit area method. Following this, property tax for a premises came to be calculated on the basis of the annual value of the property, arrived at under Section 116E of the amended law by multiplying the unit area value of the covered space of the property and the multiple factors of occupancy, age, structure, and use. After the amendment, the DMC (Property Taxes) Bye-Laws, 2004, were issued, wherein annual value was equal to multiplication of the unit area value and covered area with multiplicative factors, 10 being the highest.
Tuesday, shares of Indian Hotels ended 1.5% lower at INR 778.65 on the National Stock Exchange. End
Reported by Surya Tripathi
Edited by Rajeev Pai
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