# GOVERNMENT OF KERALA & ANR v. MOTHER SUPERIOR ADORATION CONVENT

- **Citation:** [2021] 3 S.C.R. 26
- **Court:** Supreme Court of India
- **Decided:** 2021-03-01
- **Case number:** Civil Appeal No. 202 of 2012
- **Bench:** R. F. Nariman, B. R. Gavai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/government-of-kerala-anr-v-mother-superior-adoration-convent-34983
- **Pages:** 24

## Headnote

Kerala Building Tax Act, 1975 - s.3(1)(b) - Exemption from
building tax - The State claims that no exemption from building tax
should be granted to residential accommodation for nuns, priests
or hostel accommodation for students, as these have no direct
connection with religious/educational activity - It was contended
that assuming there is ambiguity in s.3(1)(b), in that a purpose
connected with the religious/educational activity may be included,
yet the ambiguity has to be resolved in favour of the State - Held: A
reading of s.3(1)(b) 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 - Nuns 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 - 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 - One must first 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 - Therefore, the buildings in question exempted from
building tax.
Disposing the appeals, the Court
HELD: 1. A reading of the provision would show that the
object for exempting buildings which are used principally for
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religious, charitable or educational purposes would be for core
religious, charitable or educational activity as well as purposes
directly connected with religious activity. One example will suffice
to show the difference between a purpose that is directly
connected with religious or educational activity and a purpose
which is only indirectly connected with such activity. Take a case
where, unlike the facts in Civil Appeal No. 202 of 2012, nuns are
not 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 is let out on rent to any
member of the public, and the rent is then utilised only for core
religious activity. Can it be said that the letting out at market
rent would be connected with religious activity because the rental
that is received is ploughed back only into 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 are ploughed back
into religious activity would obviously not suffice to exempt such
a building. But if on the other hand, 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. [Para 12][40-E-H; 41-A-B]
2. A reading of the other provisions of the Act strengthens
the aforesaid conclusion. "Residential building" is defined
separately from "building" in Section 2(l). A "residential building"
means a building or any other structure or part thereof built
exclusively for residential purpose. It is important to note that
"residential building" is not the subject matter of exemption
under Section 3 of the Act. Quite the contrary is to be found in
Section 5A of the Act, which star

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[2021] 3 S.C.R.
 [2021] 3 S.C.R. 26
26
GOVERNMENT OF KERALA & ANR.
v.
MOTHER SUPERIOR ADORATION CONVENT
(Civil Appeal No. 202 of 2012)
MARCH 01, 2021
[R. F. NARIMAN AND B. R. GAVAI, JJ.]
Kerala Building Tax Act, 1975 - s.3(1)(b) - Exemption from
building tax - The State claims that no exemption from building tax
should be granted to residential accommodation for nuns, priests
or hostel accommodation for students, as these have no direct
connection with religious/educational activity - It was contended
that assuming there is ambiguity in s.3(1)(b), in that a purpose
connected with the religious/educational activity may be included,
yet the ambiguity has to be resolved in favour of the State - Held: A
reading of s.3(1)(b) 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 - Nuns 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 - 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 - One must first 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 - Therefore, the buildings in question exempted from
building tax.
Disposing the appeals, the Court
HELD: 1. A reading of the provision would show that the
object for exempting buildings which are used principally for
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religious, charitable or educational purposes would be for core
religious, charitable or educational activity as well as purposes
directly connected with religious activity. One example will suffice
to show the difference between a purpose that is directly
connected with religious or educational activity and a purpose
which is only indirectly connected with such activity. Take a case
where, unlike the facts in Civil Appeal No. 202 of 2012, nuns are
not 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 is let out on rent to any
member of the public, and the rent is then utilised only for core
religious activity. Can it be said that the letting out at market
rent would be connected with religious activity because the rental
that is received is ploughed back only into 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 are ploughed back
into religious activity would obviously not suffice to exempt such
a building. But if on the other hand, 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. [Para 12][40-E-H; 41-A-B]
2. A reading of the other provisions of the Act strengthens
the aforesaid conclusion. "Residential building" is defined
separately from "building" in Section 2(l). A "residential building"
means a building or any other structure or part thereof built
exclusively for residential purpose. It is important to note that
"residential building" is not the subject matter of exemption
under Section 3 of the Act. Quite the contrary is to be found in
Section 5A of the Act, which starts with a non-obstante clause,
and which states that a luxury tax is to be charged on all residential
buildings having a plinth area of 278.7 square meters and which
have been completed on or after 1.4.1999. If the contention of
the State is accepted, buildings in which nuns are housed and
students are accommodated in hostels which have been
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR
ADORATION CONVENT
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[2021] 3 S.C.R.
completed after 1.4.1999 and which have a plinth area of 278.7
square meters would be liable to pay luxury tax as these buildings
would now no longer be buildings used principally for religious
or educational purposes, but would be residential buildings used
exclusively for residential purposes. This would turn the object
sought to be achieved in exempting such buildings on its head.
For this reason also, this Court cannot countenance a plea by the
State 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
Act. [Para 13][41-C-F]
3. This being the case, 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. One must first 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. Consequently, this
Court agrees with the conclusions reached by the impugned
judgments of the Division Bench and the Full Bench that the
buildings in question should be exempted from building tax.
[Para 24][48-H; 49-A-C]
Union of India v. Wood Papers Ltd (1990) 4 SCC 256 : [1990]
2 SCR 659; CST v. Amara Raja Batteries Ltd (2009) 8 SCC
209 : [2009] 11 SCR 953; Commr. of Customs (Preventive) v.
M. Ambalal & Co. (2011) 2 SCC 74 : [2010] 15 SCR 937;
CST v. Industrial Coal Enterprises (1999) 2 SCC 607 : [1999]
1 SCR 871; State of Jharkhand v. Tata Cummins Ltd (2006)
4 SCC 57 : [2006] 3 SCR 443; Pondicherry State Coop.
Consumer Federation Ltd. v. Union Territory of Pondicherry
(2008) 1 SCC 206 : [2007] 11 SCR 1118 - relied on.
Star Industries v. Commr. of Customs (Imports) (2016) 2 SCC
362 : [2015] 11 SCR 570; CCE v. Favourite Industries (2012)
7 SCC 153; Commr. of Customs v. Dilip Kumar & Co. (2018)
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9 SCC 1 : [2018] 7 SCR 1191; Sun Export Corporation v.
Collector of Customs 1997 (6) SCC 564 : [1997] 1 Suppl.
SCR 434; Quinn v. Leathem (1901) AC 495; State of Orissa
v. Sudhansu Sekhar Misra [1968] 2 SCR 154; State of
Gujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 :
[1972] 2 SCR 686; Bishamber Dass Kohli v. Satya Bhalla
(1993) 1 SCC 566 : [1993] 1 SCR 171; Duroflex Coir
Industries Ltd. v. CST (1993) Supp 1 SCC 568; State of
Karnataka v. G. Seenappa (1993) Supp 1 SCC 648; Bonam
Satyavathi v. Addala Raghavulu (1994) Supp 2 SCC 556 -
referred to.
Case Law Reference
[1990] 2 SCR 659
relied on
para 14
[2015] 11 SCR 570
referred to
para 15
[1999] 1 SCR 871
relied on
para 16
[2006] 3 SCR 443
relied on
para 17
[2007] 11 SCR 1118
relied on
para 18
[2009] 11 SCR 953
relied on
para 19
[2010] 15 SCR 937
relied on
para 20
(2012) 7 SCC 153
referred to
para 21
[2018] 7 SCR 1191
referred to
para 22
[1997] 1 Suppl. SCR 434
referred to
para 22
(1901) AC 495
relied on
para 23
[1968] 2 SCR 154
referred to
para 23
[1972] 2 SCR 686
referred to
para 25
[1993] 1 SCR 171
referred to
para 25
(1993) Supp 1 SCC 568
referred to
para 25
(1993) Supp 1 SCC 648
referred to
para 25
(1994) Supp 2 SCC 556
referred to
para 25
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR
ADORATION CONVENT
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 202 of
2012.
From the Judgment and Order dated 22.11.2007 of the High Court
of Kerala at Ernakulam in WP(C) No. 27108 of 2006(B).
With
Civil Appeal Nos. 6589 of 2015, 10298 of 2016, 10297 of 2016,
10881 of 2016, 203 of 2012, 204 of 2012, 207 of 2012, 206 of 2012, 205
of 2012, 745 of 2021, 5036 of 2015, 8351 of 2014, 746 of 2021, 747 of
2021, 8352 of 2014, 4445 of 2015, 4446 of 2015, 4447 of 2015, 7368 of
2016.
Jaideep Gupta, Sr. Adv., C. K. Sasi, Atul Shankar Vinod, M. P.
Vinod, Krishnamohan K. Menon, Ms. Dania Nayyar, Pawanshree
Agrawal, Radha Shyam Jena, P.A. Noor Muhamed, Ms. Giffara S.,
Bilal Niamathulla, Ms. Ruxana PN, Rameshwar Prasad Goyal, A.
Venayagam Balan, Sajith. P, T. G. Narayanan Nair, Roy Abraham, Ms.
Reena Roy, Akhil Roy, Himinder Lal, Nishe Rajen Shonker, Ms. Liz
Mathew, A.M. Pattiyani, Ms. Manju Pattiyani, Ms. Akshara Pattiyani,
Jose Abraham, Mrs. Priyanka Prakash, Mrs. Beena Prakash, G. Prakash,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. All these appeals pertain to an exemption provision contained
in the Kerala Building Tax Act, 1975. Under Section 3(1)(b) buildings
that are used principally for religious, charitable or educational purposes
or as factories or workshops are exempted from building tax under the
Act. All of the appeals, except one, are by the State of Kerala against a
judgment dated 22.11.2007 passed by a Division Bench of the Kerala
High Court in Government of Kerala & Anr v. Mother Superior Adoration
Convent (Civil Appeal No.202 of 2012) and a Full Bench judgment in
State of Kerala & Ors v. Unity Hospital (P) Ltd. (Civil Appeal No. 207
of 2012), being a judgment dated 21.12.2010. Both judgments decided to
exempt the buildings in question. The other appeals by the State contain
judgments which follow either or both of these judgments. The only
appeal by an assessee namely, Administrator, Jos Giri Hospital v.
Government of Kerala (Civil Appeal No.204 of 2012), is from a judgment
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of the Division Bench of the Kerala High Court deciding the case in
favour of the State. However, this judgment was referred to the Full
Bench which decided the judgment in State of Kerala & Ors v. Unity
Hospital (P) Ltd. (Civil Appeal No. 207 of 2012) and has been stated to
have reached an incorrect conclusion.
3. On facts, there is a similarity in most of the cases before us.
Either there are residential accommodations for nuns as in the first appeal
before us or there are hostel accommodations which are attached to
various educational institutions. In both cases, the State claims 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.
4. We may take up the facts in Civil Appeal No.202 of 2012. In
this case, by an order of assessment dated 14.03.2002, building tax was
levied on residential accommodation for nuns who underwent religious
training to become nuns in a convent. Against the aforesaid assessment
to tax, the respondent filed O.P. No.11246 of 2002 and the High court
vide its judgment and order dated 29.5.2002 quashed the aforesaid
assessment order and directed the Tehsildar to refer the case to the
Government for its decision. A representation was made to the
Government by the respondent on 10.2.2004 in which it was stated:
"2. At present we the 8 sisters residing here are deputed to render
services in religious as well as charitable needs of the Vinjan Matha
Church, East Thodupuzha and the people around the Church,
irrespective of caste, creed and community.
xxx xxx xxx
In order to become sisters, we had undergone 8 years rigorous
religious education and training and then decided to lead a life of
a SANYASINI throughout our life.
xxx xxx xxx
8. The vow of obedience, is intended to make use of the individual
sisters by their elected superior sisters, where their services are
most needed. It means, we the present sisters attached to this
convent at present are not permanent members here. We have
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR
ADORATION CONVENT [R. F. NARIMAN, J.]
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come from different places, and each one of us will be individually
transferred to other places, as our Superior's Council decides.
9. So much so, the convent is a permanent set up here to render
the religious and charitable needs of the locality, whereas the
members are individually deputed to render the services for a
period found proper.
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11. The convent was established by the Council decision of the
St. Mary's Province of the Congregation of the Sisters of
Adoration of the Blessed Sacrament.
12. The building is also intended for accommodating the junior
sisters who are undergoing their college education in the nearby
Newman College - Thodupuzha. Thus, at present 8 students-sisters
also are residing here.
13. The Building is two storeyed and measures approximately
5000sq.ft. The ground floor contains a prayer hall, kitchen,
refectory, study hall and small rooms for sisters. The upper floor
contains 5 rooms for sisters, a dormitory and study hall.
14. The building is not at all given for amount at any time, and it
will not be given so in the future also. It will be used only as a
religious house."
5. This representation was turned down by the Government's order
dated 11.09.2006 as follows:
"The Government has examined the matter in detail. The petitioner
was heard on 16.9.2004 and he claimed that the building is
exclusively used for accommodating the nuns who are engaged
in religious and charitable activities. No part of the building is
rented out or used for any other purpose. On perusal of the records
the documents produced at the time of hearing it has become
evident that the convent is not principally used for any religious or
charitable purpose. The District Collector, Idukki as per letter read
as fourth paper above has also informed that no charitable activities
are undertaken in the convent and the building is used for the
residential purpose of nuns.
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It includes professing once used in public expressing it by private
and public worship, practicing rituals and ceremonies. It also
includes observances, ceremonies and functions which are being
customarily performed by members of a particular religion. If the
main use of the major portion of a building is for the above then
that building can be said to be used principally for religious
purposes.
xxx xxx xxx
In the above circumstances, Government Order that the building
in Survey No. 206 Thodupuzha village, Thodupuzha Taluk having
plinth area of 903.24 M2 owned by the Adoration Convent, Shanti
Bhavan, Thodupuzha is not eligible for exemption under Section 3
of the Kerala Building Tax Act, 1975."
6. A writ petition being Writ Petition No.27108 of 2006 was filed
against the said order before a learned Single Judge who then referred
the matter to a Division Bench as he did not agree with an earlier judgment
of a learned Single Judge of the Kerala High Court. By the impugned
judgment dated 22.11.2007, a Division Bench of the Kerala High Court
held as follows:
"8. If the activities that are going on in the convent are
predominantly religious, then, normally, buildings of the convent
used for the said purpose should also qualify for exemption. Of
course, if any particular building is used for any commercial
activity, such buildings could be segregated. It is not in dispute
that a chapel is used for religious purposes. Attached to that, there
may be a room for the Chaplain for taking rest etc. Can that room
be segregated and said that it is not used for religious purposes.
We feel that the answer should be in the negative. 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. So, we are of the view that the
buildings, used for the residence of the nuns in a convent, is
principally used for religious purposes and therefore, should also
qualify for exemption. We are in respectful agreement with the
views expressed by C.N. Ramachandran Nair, J., in Writ Petition
(C) No.27250/06. The judgment in W.A.2424/05 deals with the
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR
ADORATION CONVENT [R. F. NARIMAN, J.]
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case of a boarding and lodging house for students run by a convent
where rooms are let out collecting a fee. If the convent is running
a commercial or industrial unit, the building housing that
establishment will not qualify for exemption. That principle cannot
be applied in the case of the building used for accommodating
nuns in the convent. The decision of the Apex Court relied on by
the learned Government Pleader also does not have any application
to the facts of this case. The point considered therein was whether
the building used for accommodating a school can be treated as a
building used for charitable purposes or religious activities. The
principle stated therein does not have any application to the facts
of this case."
7. The Full Bench judgment of 2010 contained in Civil Appeal
No.207 of 2012 was as a result of a Division Bench doubting the
correctness of the Division Bench judgment in Administrator, Jos Giri
Hospital v. Government of Kerala that is contained in Civil Appeal No.204
of 2012. Paragraphs 2 and 3 of the Full Bench posed the question raised
thus:
"2. The question raised is whether hostel building of an educational
institution is entitled for exemption from building tax under Section
3(1)(b) of the Kerala Building Tax Act, 1975 (hereinafter referred
to as the Act for short), which provides for building tax exemption
for buildings used for "educational purposes".
3. While the building involved in Writ Appeal No.1648/2009 is a
hostel building owned by a nursing school, the building involved in
Writ Appeal No.2495/2009 is a hostel building attached to a
Residential Higher Secondary School owned by a private
management."
The Full Bench held:
"6. The short question that arises for consideration is whether
"educational purposes" referred to in the above Section has only
a restricted meaning covering buildings, where students are
imparted education; or whether it has a wider meaning covering
hostel buildings owned by educational institutions to provide
accommodation to students in the premises of the educational
institutions. The Division Bench of this Court in the above referred
judgment held that "educational purposes" cover only purposes
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which have integral, immediate and proximate connection to
education. In the reference order, another Division Bench of which
one of us is a member [CNR(J)], took the view that the above
test laid down by the other Division Bench in the earlier judgment
is satisfied at least in respect of hostels run by nursing schools
and medical educational institutions and probably mistake is there
only in the conclusion drawn in that judgment. What we notice is
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 make it mandatory that in order
to get approval for a medical college or a nursing college, hospital
for patients and hostel facilities for students are mandatory. The
State also does not controvert this position and in fact all the medical
colleges and nursing colleges run in the State including those run
by the Government have hospitals of their own or attached
hospitals, and have hostels providing accommodation to all students.
Except probably few students who hail from the areas very close
to the colleges, all the nursing and medical students reside in the
hostels attached to their colleges. The students of both medical
and nursing colleges require clinical training in hospitals, and
students in senior classes are deployed on a turn basis in hospitals.
Unless accommodation is provided to the students in the college
campus or nearby, it would not be possible for them, particularly
for girls, to reach the hospitals attached to the medical and nursing
colleges for duty at odd hours in the night. Therefore, the Medical
Council of India and Nursing Council of India have made it
mandatory for every medical college and nursing college to have
hostel facilities, and without such facility no medical or nursing
college will get approval from the Medical Council or Nursing
Council of India, and only on their approval, the medical educational
institution can get affiliation to the University. So much so, in our
view, the test laid down by the Division Bench i.e. integral,
immediate and proximate connection of the hostel building with
education, is squarely satisfied in the cases of hostels attached to
nursing schools and other medical educational institutions which
require compulsory hostel facility for students for their approval.
We, therefore, hold 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
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR
ADORATION CONVENT [R. F. NARIMAN, J.]
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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. In view of the above finding, we are
unable to agree with the conclusion drawn by the Division Bench
i.e. denial of exemption to hostel building attached to the nursing
school.
7. The next question to be considered is whether hostel facility to
students provided by other educational institutions, which are not
compulsorily required under the educational regulations to provide
accommodation to students, is an educational purpose qualifying
the hostel buildings for tax exemption. In this context, we have to
necessarily consider the object and scope of the exemption clause
provided in the statute. While learned counsel for the appellants
have relied on Section 235 of the Kerala Municipalities Act, which
provides for exemption to buildings used for educational purposes
including hostel buildings owned by the same educational
institutions, learned Government Pleader has relied on the decision
of the Supreme Court in Municipal Corporation of Delhi v. Children
Book Trust, reported in AIR 1992 SC 1456, where the Supreme
Court held that school buildings are not entitled to exemption from
municipal tax under the Delhi Municipal Corporation Act. On going
through the judgment of the Supreme Court, we notice that the
provision for exemption from property tax under the Delhi
Municipal Corporation Act is not similar to the provisions of the
Kerala Building Tax Act, and so much so, in our view, the decision
cannot be applied while deciding the claim of exemption made by
the appellants in these cases. Even though Section 235 of the
Kerala Municipalities Act specifically provides for property tax
exemption for hostel buildings owned by the very same educational
institutions, there is no specific exemption for hostel buildings in
Section 3 (1)(b) of the Kerala Building Tax Act. Therefore, we
have to examine whether "educational purposes" referred to in
Section 3(1)(b) has only restricted meaning or it has a wider
meaning covering all buildings directly or indirectly catering to the
needs of student community. In this context, we have to necessarily
consider the general pattern of hostel facility provided by education
institutions in the State. In the recent past, large number of
educational institutions, particularly engineering colleges are
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established all over Kerala including remote areas and hill stations,
where the students admitted are not from local area and they
have to necessarily depend on hostel facility to be provided by the
educational institution. In fact admissions to medical and
engineering colleges are given on central allotment basis and hardly
any student can get admission in a college near to his/her house.
Therefore, necessarily, the students have to depend on hostel
accommodation to pursue their studies. Colleges will not get
students if they do not provide hostel accommodation to students
near to the College. Therefore, hostel buildings are constructed
by educational institutions to attract students to their institutions.
Many educational institutions provide only basic facilities like
building, electricity and water connections for hostels and in fact,
students are running mess on sharing basis. So much so, the State's
contention that hostels attached to educational institutions are
commercial ventures intended to make profit, in our view, is
unacceptable. In order to consider whether hostel provided by an
educational institution is for educational purpose or not, we have
to consider the consequences if such educational institution does
not have hostel facility to provide accommodation to its students.
Obviously, such educational institutions have to source students
locally, which may be possible only in the case of Schools. In fact,
thousands of schools and colleges in the State do not have hostel
facility because they depend on students from the local area only.
However, wherever an educational institution has students from
different parts of the State, and Non Resident Indians sending
their children for studies in Kerala, necessarily the educational
institution has to provide hostel facility to the students. In fact,
without hostel facility, many educational institutions will not have
required number of students to run it. We, therefore, feel
accommodation is a necessary facility, which an educational
institution is required to provide to it's students; and so long as the
purpose of stay of students in the hostel is to study in the
educational institution, the purpose of such building, which is used
for accommodation of students, qualifies as educational purpose.
xxx
9. We are therefore of the view that buildings owned by
educational institutions for providing hostel accommodation to
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students qualify for building tax exemption under clause (b) of
Section 3(1) of the Act. However all buildings accommodating
students do not qualify for building tax exemption because there
are so many lodge buildings constructed by various people around
educational institutions which do not have hostel facility, to rent
out to students in such educational institutions. Letting out of
buildings by private agencies is a commercial activity whether
tenants are students or not. In other words, only hostel buildings
owned by educational institutions for accommodating it's own
students in such hostels will qualify for exemption under clause
(b) of Section 3(1) the Act."
8. Shri Jaideep Gupta, learned senior advocate appearing on behalf
of the State of Kerala, assailed the correctness of these judgments.
According to him, 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. For this proposition, he cited a number
of judgments. He then analysed Section 3(1)(b) of the Act and argued
that a building 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. He argued that even assuming that there
is ambiguity in Section 3(1)(b), in that a purpose connected with the
religious/educational activity may be included, yet the ambiguity has to
be resolved in favour of the State and this being so, on this short ground,
the judgment of the Division Bench and the judgment of the Full Bench
are incorrect. He further went on to argue that the term "building" has
been defined in Section 2(e) of the Act as meaning a separate house,
out-house, etc. and that in the present case as no religious/educational
activities are carried on at all in the buildings which house nuns and
hostel accommodation which houses students, such buildings, not being
principally used for religious purposes, cannot possibly be exempt under
the Act.
9. Learned counsel for the respondents supported the judgment
of the Division Bench and the Full Bench, arguing that on facts, a
beneficial legislation which is meant to further religious, charitable and
educational purposes should not be construed in a narrow fashion, and
should be construed in accordance with the object sought to be achieved,
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and this being the case, the aforesaid judgments do not require to be
disturbed.
10. Having heard learned counsel appearing for all parties, we
must first set out the relevant provisions of the Kerala Building Tax Act,
1975:
"2. Definitions - In this Act, unless the context otherwise requires,
(e) "building" means a house, out-house, garage, or any other
structure, or part thereof, whether of masonry, bricks, wood, metal
or other material, but does not include any portable shelter or any
shed constructed principally of mud, bamboos, leaves, grass or
thatch or a latrine which is not attached to the main structure.
(i) "owner" includes a person who for the time being is receiving,
or is entitled to receive, the rent of any building, whether on his
own account or on account of himself and others or as an agent,
trustee, guardian or receiver for any other person or who should
so received the rent or be entitled to receive it if the building or
part thereof were let to a tenant;
(l) "residential building" means a building or any other structure
or part thereof built exclusively for residential purpose including
outhouses or garages appurtenant to the building for the more
beneficial enjoyment of the main building but does not include
hotels, boarding places, lodges and the like.]
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.
5. Charge of building tax - (1) Subject to the other provisions
contained in this Act, there shall be charged a tax (hereinafter
referred to as "building tax") based on the plinth area at the rate
specified in the Schedule on every building the construction of
which is completed on or after the appointed day.
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5A. Charge of luxury tax - [1) Notwithstanding anything
contained in this Act, there shall be charged a luxury tax based on
the plinth area at the rate specified in Schedule II, annually on all
residential buildings having a plinth area of 278.7 square metres
completed on or after the 1st day of April, 1999."
11. Before coming to the case law that has been cited before us,
it is important to first analyse Section 3(1)(b) with which we are directly
concerned. First and foremost, the subject matter is "buildings" which
as defined, would include a house or other structure. Secondly, the
exemption is based upon user and not ownership. Third, what is important
is the expression "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. Dominant
object therefore is the test to be applied to see whether such building is
or is not exempt. Fourthly, 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. Fifthly, 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".
12. 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. One example will suffice to show the difference between a
purpose that is directly connected with religious or educational activity
and a purpose which is only indirectly connected with such activity. Take
a case where, unlike the facts in Civil Appeal No. 202 of 2012, nuns are
not 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 is let out on rent to any member of the public, and
the rent is then utilised only for core religious activity. Can it be said that
the letting out at market rent would be connected with religious activity
because the rental that is received is ploughed back only into religious
activity? Letting out a building for a commercial purpose would lose any
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rational connection with religious activity. The indirect connection with
religious activity being the profits which are ploughed back into religious
activity would obviously not suffice to exempt such a building. But if on
the other hand, 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.
13. A reading of the other provisions of the Act strengthens the
aforesaid conclusion. "Residential building" is defined separately from
"building" in Section 2(l). A "residential building" means a building or
any other structure or part thereof built exclusively for residential purpose.
It is important to note that "residential building" is not the subject matter
of exemption under Section 3 of the Act. Quite the contrary is to be
found in Section 5A of the Act, which starts with a non-obstante clause,
and which states that a luxury tax is to be charged on all residential
buildings having a plinth area of 278.7 square meters and which have
been completed on or after 1.4.1999. If we were to accept the contention
of the State, buildings in which nuns are housed and students are
accommodated in hostels which have been completed after 1.4.1999
and which have a plinth area of 278.7 square meters would be liable to
pay luxury tax as these buildings would now no longer be buildings used
principally for religious or educational purposes, but would be residential
buildings used exclusively for residential purposes. This would turn the
object sought to be achieved in exempting such buildings on its head. For
this reason also, we cannot countenance a plea by the State 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 Act. We may now examine the case law.
14. In Union of India v. Wood Papers Ltd (1990) 4 SCC 256
the rule as to exemption notifications in tax statutes was felicitously laid
down as follows:
"4. Entitlement of exemption depends on construction of the
expression "any factory commencing production" used in the Table
extracted above. Literally exemption is freedom from liability, tax
or duty. Fiscally it may assume varying shapes, specially, in a
growing economy. For instance tax holiday to new units,
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concessional rate of tax to goods or persons for limited period or
with the specific objective etc. That is why its construction, unlike
charging provision, has to be tested on different touchstone. In
fact an exemption provision is like an exception and on normal
principle of construction or interpretation of statutes it is construed
strictly either because of legislative intention or on economic
justification of inequitable burden or progressive approach of fiscal
provisions intended to augment State revenue. But once exception
or exemption becomes applicable no rule or principle requires it to
be construed strictly. Truly speaking liberal and strict construction
of an exemption provision are to be invoked at different stages of
interpreting it. When the question is whether a subject falls in the
notification or in the exemption clause then it being in nature of
exception is to be construed strictly and against the subject but
once ambiguity or doubt about applicability is lifted and the subject
falls in the notification then full play should be given to it and it
calls for a wider and liberal construction. Therefore, the first
exercise that has to be undertaken is if the production of packing
and wrapping material in the factory as it existed prior to 1964 is
covered in the notification."
15. This statement of the law was followed in a number of
judgments. Suffice it to say that in Star Industries v. Commr. of
Customs (Imports) (2016) 2 SCC 362, a large number of judgments
are referred to for the same proposition (see paragraphs 32 to 34).
16. However, 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. In such cases, the rationale of the judgments
following Wood Papers (supra) does not apply. In fact, the legislative
intent is not to burden the subject with tax so that some specific public
interest is furthered. Thus, in CST v. Industrial Coal Enterprises
(1999) 2 SCC 607, this Court held:
"11. In CIT v. Straw Board Mfg. Co. Ltd. 1989 Supp (2) SCC
523 this Court held that in taxing statutes, provision for concessional
rate of tax should be liberally construed. So also in Bajaj Tempo
Ltd. v. CIT(1992) 3 SCC 78 it was held that provision granting
incentive for promoting economic growth and development in taxing
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statutes should be liberally construed and restriction placed on it
by way of exception should be construed in a reasonable and
purposive manner so as to advance the objective of the provision.
12.