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A literal formalistic interpretation of statute is to be avoided in interpreting beneficial exemptions
The Hon’ble Supreme Court of India in Government of Kerala & Anr. v. Mother Superior Adoration Convent [Civil Appeal No. 202 of 2012 and others, decided on March 1, 2021] upheld the judgments passed by the Hon’ble Kerala High Court allowing the exemption of tax on buildings used as residential quarters for nuns, priests or hostel accommodation for students. Held that, a literal formalistic interpretation of the statute is to be avoided in interpreting the beneficial exemptions.
Facts:
Various appeals were filed by the State of Kerala (“the Appellant No. 1”) pertaining to an exemption provision contained under Section 3(1)(b) of the Kerala Building Tax Act, 1975 (“Kerala Building Tax Act”) with regard to building tax on buildings that are used principally for religious, charitable or educational purposes/activities or as factories or workshops and against the judgments of the Hon’ble Kerala High Court in Government of Kerala & Anr v. Mother Superior Adoration Convent (Civil Appeal No.202 of 2012, dated November 22, 2007) and State of Kerala & Ors v. Unity Hospital (P) Ltd. (Civil Appeal No. 207 of 2012 dated December 21, 2010) wherein it was decided to exempt such buildings from the tax that are used as residential quarters for nuns, priests or hostel accommodation for students.
Further, an appeal was filed by Jos Giri Hospital (“the Appellant No. 2”) against the judgment of the Hon’ble Kerala High Court in Administrator, Jos Giri Hospital v. Government of Kerala (WP(C). No. 25912 of 2006(I), dated July 23, 2008) which was decided in favour of the State of Kerala and disallowed the exemption of building tax.
The Appellant No. 1 has contended that an exemption provision contained in a fiscal statute must be construed strictly and in the case of doubt or ambiguity must be construed in favour of the State. Further, contented that the building being used principally for religious or educational purposes can only be a building that is used for religious/educational activity and not for activity which has no direct connection with religious/educational activity, such as residential quarters for nuns, priests or hostel accommodation for students.
Issue:
Whether hostel building and residential accommodation for nuns is entitled for exemption from building tax under Section 3(1)(b) of the Kerala Building Tax Act and can be treated as a building used for charitable purposes or religious activities?
Held:
The Hon’ble Supreme Court of India in Civil Appeal No. 202 of 2012, decided on March 1, 2021 held as under
Analyzed Section 3(1)(b) of the Kerala Building Tax Act to note as under:
The subject matter is “buildings” which as defined, would include a house or other structure.
The exemption is based upon user and not ownership.
It uses the word “principally” showing thereby that the legislature decided to grant this exemption qua buildings which are “principally” and not exclusively used for the purposes mentioned therein. Therefore, dominant object test is to be applied to see whether such building is or is not exempt.
Religious, charitable or educational purposes are earmarked by the legislature as qualifying for the exemption as they do not pertain to business or commercial activity.
What is important is that even factories or workshops which produce goods and provide services are also exempt, despite profit motive, as the legislature obviously wishes to boost production in factories and services in workshops. What is important to note is that the expression “used principally for” is wider than the expression “as” which precedes the words “factories or workshops”.
Noted that, the object for exempting buildings which are used principally for religious, charitable or educational purposes would be for core religious, charitable or educational activity as well as purposes directly connected with religious activity. If nuns are living in a neighboring building to a convent only so that they may receive religious instruction there, and if students are living in a hostel close to the school or college in which they are imparted instruction, it is obvious that the purpose of such residence is not to earn profit but residence that is integrally connected with religious or educational activity.
Further, analyzed Section 5A of the Kerala Building Tax Act and observed that, if buildings in which nuns are housed and students are accommodated in hostels would be liable to pay luxury tax then these buildings would no longer be buildings used principally for religious or educational purposes but would be residential buildings used exclusively for ‘residential purposes’. This would not fulfil the object sought to be achieved by exempting such buildings. Therefore, rejected the Appellant No. 1’s contention that buildings which are used for purposes integrally connected with religious or educational activity are yet outside the scope of the exemption contained in Section 3(1)(b) of the Kerala Building Tax Act.
Furthermore, there is another line of authority which states that even in tax statutes, an exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting economic growth or otherwise has some beneficial reason behind it.
Held that, a literal formalistic interpretation of the statute is to be eschewed. One must ask what is the object sought to be achieved by the provision and construe the statute in accord with such object and on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.
Set aside the judgment passed in Administrator, Jos Giri Hospital v. Government of Kerala (supra).
Relevant Provision:
Section 3(1) of the Kerala Building Tax Act:
“3. Exemptions. – (1) Nothing in this Act shall apply to –
(a) buildings owned by the Government of Kerala or the Government of India or any local authority; and
(b) buildings used principally for religious, charitable or educational purposes or as factories or workshops.
Explanation. – For the purposes of this sub-section, “charitable purpose” includes relief of the poor and free medical relief.”
Team Edu-Visor