The Delhi High Court has upheld the imposition of higher property tax rates on luxury hotel establishments, ruling that such taxation is neither arbitrary nor discriminatory given the premium clientele these establishments serve.
Justice Purushaindra Kumar Kaurav, delivering the verdict on September 12 (made public on September 16), said that luxury hotels voluntarily position themselves in the premium hospitality segment and cater to affluent customers, thereby justifying a proportionately higher tax burden.
“Luxury hotels voluntarily seek star accreditation, positioning themselves within a segment that targets affluent clientele and delivers luxurious experiences at a premium cost,” the court observed. It added that the legislative intent behind imposing elevated property tax is to equitably distribute fiscal responsibilities, ensuring that those with greater capacity to pay contribute more to public revenue.
The court emphasised that star-rating classifications — which reflect the scale of infrastructure, amenities and services such as banquet halls, spas, fine-dining restaurants, and concierge facilities — provide a rational and intelligible basis for differential tax treatment.
“In the contemporary digital age, leading travel and hospitality platforms like MakeMyTrip, GoIbibo, and Agoda prominently reflect these categories. The classification, therefore, operates as a critical factor in consumer choice and decision-making,” the judgment noted.
The ruling came while disposing of multiple petitions filed by erstwhile five-star hotels challenging the recommendations of the Municipal Valuation Committee (MVC) under the Delhi Municipal Corporation Act.
The dispute centred on the committee’s recommendation of a user factor (UF) of 8 for five-star and above hotels, compared to UF-4 for other categories, effectively doubling the tax rate from 10% to 20% for luxury hotels.
The petitioners had argued against both the reclassification of star ratings and the imposition of a higher multiplier, claiming the move was arbitrary and unconstitutional under Article 14 of the Constitution.
However, the court dismissed these concerns, holding that reliance on the star-rating system reduced subjectivity, ensured fairness, and avoided administrative complications in determining which establishments should bear higher taxes.
By upholding the Municipal Corporation of Delhi’s (MCD) authority to implement the MVC-V recommendations (effective April 1, 2023), the judgment reinforces the principle that premium commercial establishments must shoulder proportionately higher fiscal responsibilities.
“The imposition of a higher rate of property tax on luxury hotel establishments cannot be construed as arbitrary or capricious, particularly in light of the economic profile of the clientele such establishments are designed to attract,” the court concluded.
