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The Top Court decided on March 1, 2021, that exemption provisions which have beneficial purpose cannot be construed narrowly. 

A Division Bench of Justice R.F. Nariman and Justice B.R. Gavai, while dismissing a batch of appeals filed by the State, held that exemption under Section 3(1)(b) Kerala Building Tax Act, 1975 shall encompass residential accommodation by Nuns and Hostel accommodation by students of various Educational Institutions.“…We must first ask ourselves 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,” added the Bench.

The present matter was heard as a batch of appeal from the High Court Judgment, wherein it was held that occupation of hostels by students will form a part of the exemption under Section 3(1)(b); “… wherever hostel is compulsory for approval of a course study or an educational institution by the regulatory body as in the case of medical and nursing colleges, hostel building is an integral part of the educational institution, and so much so, accommodation to students provided in the hostel building is for educational purpose and therefore the hostel building qualifies for exemption from building tax,” Full Bench of Kerala High Court had clarified. It was further noted that only hostel buildings owned by Educational Institutions for facilitating its own students will qualify for such exemption.

As for occupation of building by nuns/priests, the Division Bench of the High Court had held, “If the buildings of convents are generally used for religious purposes and one of the buildings is used for residence of an inmate there, it shall also be treated as one used for religious purposes. Any interpretation to the contrary will be irrational.”

Section 3(1)(b) provides exemptions under the Act, precisely for, “buildings used principally for religious, charitable or educational purposes or as factories or workshops” 

Counsel for the State of Kerala, Shri Jaideep Gupta, made a twofold submission; (1) 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 (2) As no religious/educational activities are carried on in the buildings which houses nuns or students herein, such buildings, not being principally used for religious purposes, cannot possibly be exempted under the Act. 

Counsel for the Respondents submitted that a beneficial legislation, meant to further religious, charitable and educational purposes should not be construed in a narrow fashion but in light of the object sought to be achieved by the Act.

Court made observations on several counts, particularly;

Interpretation of Section 3(1)(b): Expression ‘principally’ reflects intention of the legislature to grant exemption to buildings which are ‘principally’ and not exclusively used for the purposes mentioned therein. Significantly, even factories or workshops are exempted despite profit motive, as the legislature intends 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 ‘factories or workshops’.

“A reading of the provision would show 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.”

By example drawing difference between building lent out for a commercial purpose and a building closely associated with the grounds mentioned under the said provision, the Bench observed, “… if nuns are living in a neighbouring building to a convent only so that they may receive religious instruction there, or 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.”

‘Building’ and ‘Residential Building’ are separately defined under the Act and that the latter is not the subject matter of exemption under Section 3, noted the Bench.

Object of the Act and Exemption provided thereunder: “It is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed.”

Cases Relied: Union of India v. Wood Papers Ltd. (1990) 4 SCC 256, CST v. Industrial Coal Enterprises (1999) 2 SCC 607, State of Jharkhand v. Tata Cummins Ltd (2006) 4 SCC 57, Pondicherry Consumer Federation v. Union of Territory of Pondicherry (2008) 1 SCC 206, Commissioner of Customs v. M. Ambalal (2011) 2 SCC 74.

Case Title: Government of Kerala v. Mother Superior Adoration Convent | Civil Appeal 202 of 2012