Whether a residential accommodation for nuns/students would fall under “religious or educational purposes” and be qualified for tax exemption? Supreme Court explains

Supreme Court: The Division Bench comprising of R. F. Nariman* and B.R. Gavai, JJ., addressed the instant case regarding statutory interpretation.  The issue before the Bench was whether a residential accommodation for nuns and hostel for students would fall under “religious or educational purposes” for the purpose of tax exemption. The Bench expressed,

“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.”

Findings of the High Court

Under Section 3(1)(b) of Kerala Building Tax Act, 1975 buildings that are used principally for religious, charitable or educational purposes or as factories or workshops are exempted from building tax.

The State had claimed that no exemption should be granted as residential accommodation for nuns and hostels for students would be for residential as apart from religious or educational purposes and would not therefore be covered by the exemption contained in Section 3(1)(b) of the Act. The Division Bench of Kerala High Court had held that the buildings used for the residence of the nuns in a convent, was principally used for religious purposes and therefore, should also qualify for exemption. However, on the question of hotel accommodations for students the Bench had expressed a contrary view and held that the same would not qualify as being principally used for education purpose and would not be entitled for exemption.

However, the full Bench of Kerala High Court had reversed the findings of Division Bench regarding hostel accommodation. The full Bench opined that the Division Bench while deciding the matter did not consider the educational Regulations of the Medical Council of India and Nursing Council of India, which made it mandatory that in order to get approval, hospital for patients and hostel facilities for students are mandatory. Thus, the full Bench held that, “

“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.”

However, letting out of buildings by private agencies was held to be a commercial activity whether tenants were students or not.

Observation and Conclusion

Section 3(1)(b) of Kerala Building Tax Act, 1975 read as:

    1. Exemptions(1) Nothing in this Act shall apply to-

(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.

Noticing that even factories or workshops which produce goods and provide services were also exempted, despite profit motive, the Bench opined that the object for exempting buildings which were 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.

In Commr. of Customs (Preventive) v. M. Ambalal & Co., (2011) 2 SCC 74, the  Supreme Court made a clear distinction between exemptions which were to be strictly interpreted as opposed to beneficial exemptions and held that,

“The general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to two different sets of circumstances.”

The Bench cited an example, stating that take a case where nuns were residing in a building next to a convent so that they may walk over to the convent for religious instruction. Take a case where the neighbouring building to the convent was let out on rent to any member of the public, and the rent was then utilised only for core religious activity. Letting out a building for a commercial purpose would lose any rational connection with religious activity. The indirect connection with religious activity being the profits which were ploughed back into religious activity would obviously not suffice to exempt such a building. But it was obvious that the purpose of residence of nuns was not to earn profit but residence that was integrally connected with religious or educational activity.

Lastly, while differentiating with the judgment in Union of India v. Wood Papers Ltd., (1990) 4 SCC 256, the Bench held that,

“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.”

Thus, the Court refused to countenance the plea made by the State that buildings which were used for purposes integrally connected with religious or educational activity were outside the scope of the exemption contained in Section 3(1)(b) of the Act.

“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.”

In the light of above, the Bench opined that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to and a literal formalistic interpretation of the statute at hand was to be eschewed.

[State of Kerala v. Mother Superior Adoration Convent, 2021 SCC OnLine SC 151, decided on 01-03-2021]


Kamini Sharma, Editorial Assistant has put this report together 

*Judgment by: Justice R. F. Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearance before the Court by:

For the Appellants: Sr. Adv. Venkatraman and Sr. Adv. Jaideep Gupta

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